General Ledger Opening Balances

Topic: General Ledger Opening Balances

The following notes describe various techniques on how to enter General Ledger Opening Balances and Brought Forward Amounts relating to Subsidiary Ledgers.

One approach when setting up the system at the commencement of a tax year is to enter the General Ledger (GL) Opening Balances for Balance Sheet accounts (as per Tax Accounts) through the “GL Chart of Accounts” facility using the “Opening Balance” column.  The GL “Edit System Dates and Periods” screen should be set up according to the Start Date of the Current Tax Year e.g. 01/07/2006 (refer to the notes on General Ledger Calendar).  The “Opening Balances” setting would be “Hold This Year” and the “Allow Posting From” date would be typically 30/06/06.

An alternative and recommended approach is to post the final Trial Balance (as per Tax Accounts) dated 30/06/06 as a Journal, which will result in Last Year actuals appearing on the Profit & Loss report in the Current Year.  If this is the approach taken then the “Opening Balances” setting must be on “Hold Last Year”.  Budgets relating to Income and Expense accounts can be manually entered via the Budget column on the right of the GL Chart of Accounts screen.

However, if the system is commenced part way through a year, e.g. as at 1st October 2006, then the suggested approach is to produce a Trial Balance from the previous system and post it as a Journal, and dated in this case 30/09/2006.  This date is the formal cut-off date in the old system and becomes the posting date applied to the entries described in points 2 to 7 below.

The following steps assume that the various Accounting Set-up exercises have been performed as described in the “Getting Started” Accounting “How Do I” document.  The most important aspects are the establishment of a General Ledger (GL) Chart of Accounts and Cost Centre Banks/Cost Centres.  These become the key codes and reporting basis for the system in regards to Financial and Job reporting.

1. General Ledger Opening Balances are entered as per the Tax Accounts, or if starting part way through a year, post the final Trial Balance from the prior system as a Journal and dated according to the start-off date that is decided upon, typically the 1st of the following month.  Refer also to the Alternative approach above.  It is recommended that a meaningful Job code e.g. based on the “company name” is used, and also the use of a generic Cost Centre code, e.g. BFWD or JNL for all entries, but of course the default General Ledger account will need to be manually changed for each entry.  The generic cost centre overcomes the necessity of having a Cost Centre code for every GL account given that many of these may not be used in day-to-day posting.

2. Creditors: outstanding Creditors, as at the closing balance date, are typically posted as one Invoice for each Creditor and coded to the “company” Job and Cost Centre centre which is linked to the GL account, e.g. 2.11 being the Creditors Control account.  GST is shown if CASH basis and not if ACCRUAL basis.  The amount of an invoice can be split in the Payment screen to facilitate partial payments.  If it is preferable to post each individual outstanding invoice then the approach is still the same as when posting one total amount.

3. Unpresented cheques are recorded by posting an invoice for each outstanding cheque using the same coding as in 2.  Do not record GST (regardless of GST reporting basis).  The Creditor/Supplier code is not important from the Bank reconciliation perspective, however it is preferable to use the individual Creditor codes.  Whilst in the Invoice posting screen click on the PAID icon to record the cheque number and of course the date should be the cut-off date or earlier as discussed earlier.  The Unpresented cheques can be listed using the “Unreconciled Withdrawals” report in the Bank Reconciliation screen.

4. The next step is to contra the effect of the Unpresented cheques on the Bank balance.  This is done by posting a Journal, being a Debit to GL account e.g. 1.101 (Bank) for the Unpresented total and a Credit to Creditors Control account 2.11.  The date must be the closing balance date.

5. Debtors: outstanding and current Debtors, as at the closing balance date, need to be posted as a CLAIM for each Debtor using the GL account code of e.g. 1.12 being Debtors Control and not the default Income GL account.  GST is shown for either CASH or ACCRUAL basis reporting.  Also post a RECEIPT for each Debtor for the total amount received as at the closing balance date with GST shown for CASH basis registered organisations.  This is not only necessary for current outstanding Debtors, but also recommended for any current Debtors with nil balances.  The result is a presentation of the Job from a Contractual perspective.  Once again the historic Claims and Receipts can be posted in detail if required.

6. The next step is to contra the effect of the Receipts on the Bank balance.  This is done by posting a Journal, being a Debit to GL account e.g. 1.12 (Debtors Control) for the total and a Credit to the Bank e.g. 1.101.  The date must be the closing balance date.

7. The GST needs to be reversed by posting a journal which will be a debit to the GST Collected account e.g. 2.21 and credit to Debtors Control account e.g. 1.12.  Process the GST Update for any opening or brought forward transactions, up to the closing balance date.  Then in the Audit Trail zero the amounts of the system generated ATO Invoices.

8. The last step (optional) is to bring Job costs forward for current or incomplete Jobs and contracts.  Debit each Job and Cost Centre as required (could be just a total cost Cost Centre) by a Journal entry (dated as above).  The contra entry (credit) to these journals would be to Cost of Sales to avoid a double-up of Cost of Sales in the GL.  Other methods could be adopted and should be discussed with your Tax Accountant.

Notes:

There are various approaches that can be adopted to achieve the desired outcomes and may differ from one organisation to another.

It is wise to use consistent references to easily identify brought forward entries and of course the date is critical.  GST would generally not be required on any of these transactions unless reporting GST on a CASH basis.

Refer to the notes on Period End Reporting for details of the reports typically used for the General Ledger and Subsidiary Ledgers.

End of Document