I want to Quickly Explain a Basic Topic:
Chart of Accounts (G/L Account)
A Chart of Accounts (COA) serves as a structured framework of financial accounts, each assigned a unique identifier and description, to facilitate accurate financial tracking and reporting. It is typically organized into two primary categories:
1. Balance Sheet Accounts
These accounts represent the financial position of a company and are subdivided into:
Asset Accounts: Track resources owned by the company, such as cash, inventory, or equipment.
Liability Accounts: Record obligations or debts owed by the company, including loans and accounts payable.
Equity Accounts: Reflect the residual interest in the company after liabilities are subtracted from assets, encompassing owner’s capital or retained earnings.
2. Income Statement Accounts
These accounts monitor the company’s performance over a period and are divided into:
Revenue Accounts: Capture income generated from sales, services, or other sources.
Expense Accounts: Track costs incurred by the company, including operating and non-operating expenses.
The COA is used to log transactions systematically into the general ledger, ensuring financial data is categorized consistently. The design of the COA, including the numbering and naming of accounts, is tailored to the organization’s specific needs, industry standards, or regulatory requirements.
Industry-Specific Considerations
The composition of the COA reflects strategic decisions and can vary based on industry and business model. For example:
A retail business may prioritize inventory and accounts receivable.
A technology company may emphasize intangible assets, such as software or intellectual property.
A manufacturing firm would focus on fixed assets and raw materials inventory.
Microsoft Dynamics 365 Business Central provides a standardized COA template designed to support diverse business needs, which can be customized to align with an organization’s unique financial structure and compliance requirements.
In this Article we are going to look at the Fields that are Necessary to Understand while Creating a G/L Account Card.
1. Click the search button or Alt+Q on the application bar, enter Item Attributes, and then choose the related link.
2. Select the relevant link, a new list will open click New.
There are Different 5 Sections on G/L Card.
1- General
2- Posting
3- Consolidation
4- Reporting
5- Cost Accounting
In this we will Discuss General & Posting. Other sections will be discuss in the Relevant Articles like Consolidation in Consolidation Setup, Reporting in Currency, Cost Accounting in Cost Accounting Setups. If you have grip on General & Posting Section then you can start working on all Modules.
General
No. - Businesses often design a hierarchical structure for G/L account codes to clearly indicate their placement within the COA. For instance:
Codes starting with 1 may represent Asset accounts.
Codes starting with 3 may denote Equity accounts.
This structured approach ensures that the accounts are organized logically, making them easier to interpret and manage.
In some regions, regulatory bodies mandate the use of a standardized chart of accounts to ensure compliance and consistency across industries.
Name - The Name of the G/L Account and it will show in all the system.
Income/Balance Sheet - Specify that this Account is Income Statement Account or Balance Sheet Account.
Account Category - Asset, Liabilities, Equity, Income, COGS, Expense. These are the 6 Options and linked with the Above field.
Account Subcategory - A key distinction lies in the Account Sub-Category, which allows unlimited customization to create as many sub-categories as required, whereas the Account Category remains fixed and predefined.
Debit/Credit - Specify type of the entries Debit/Credit/Both. This field specifies the type of transactions typically recorded in the G/L account. It will not going to Restrict:
Debit for accounts like assets and expenses.
Credit for accounts like liabilities, equity, and revenue.
Is there any Logic Applied on the Back-end?
No, indeed there is no functionality behind this field. Even if this field is set to "Debit" you still can post "Credit" (and vice versa).
However, you can filter on this field, in case you want to take a look at G/L Accounts, which "usually" have a debit or credit balance.
For Example, when you are in the process of creating an account schedule.
Account Type - There are 5 Options are present in it.
1- Posting: Accounts where Transactions from Journals are Recorded Directly. (Only Type use for Transactions)
2- Heading: Serves as a label or overall Header to Group Accounts for Better Organization.
3- Total: Calculates a subtotal based on a formula applied to selected accounts.
4- Begin-Total: Marks the start of a group for subtotaling; all following lines are included until an End-Total is reached.
5- End-Total: Closes the subtotal group, applies the formula, and removes indentation for subsequent lines.
A basic COA can consist solely of Posting accounts. However, the other types add structure and readability, helping present the COA as a financial statement with clear headers and subtotals. Totaling accounts are particularly useful in financial reporting for summarizing data. All the Formula's in Begin & End-Total are controlled using the Indentation and Heading - Total are controlled Manually.
Totaling of Accounts - Provide a Range of Accounts for Totaling Purpose. Automatic Formula Generation and Manual Entry of Formula both are Possible, depending on the above Field.
No. of Blank Lines: Specifies the number of blank lines that you want inserted before this account in the Chart of Accounts.
New Page: Specifies whether you want a new page to start immediately after this general ledger account when you print the chart of accounts. Select this field to start a new page after this general ledger account.
Search Name: Specifies an alternate name that you can use to search for the record in question when you cannot remember the value in the Name field. If you change the Search Name then you can search that G/L Account with that Name.
Balance: Displays the current balance of the account. Select the balance amount to access the General Ledger Entries List.
Reconciliation Account - Check either it is Reconciliation Account or not. If yes, then G/L Account is included in the Reconciliation List in the General Journals. Use the Reconciliation list before posting to review the effect of posting the accounts in the journal.
Automatic Ext. Texts - If this field is selected, extended text that is set up on the accounts is automatically added to the sales and purchase documentation in the Description field. If this field isn't selected, extended text can still be set up on the account and added to documents manually. To create the extended text, select Extended Text on the Navigate Tab.
Direct Posting - Indicates whether posting can move directly into this account from a journal line. This field is automatically selected when new accounts are created. G/L accounts, such as the receivables (trade debtors) account, that are posted based on posting groups are usually only set up for indirect posting.
Select Direct Posting allowed or not.
Direct: From General ledger
Indirect: From Modules
Blocked - If you select this field, it prevents entries from posting to this account. Accounts can be blocked and reopened as needed.
Last Date Modified - System-generated field that displays the date that the G/L account was last changed.
Omit Default Descr. in Jnl - Specifies if the default description is automatically inserted in the Description Field on journal lines that are created for this General Ledger Account.
Review Policy - Specifies how to allow reviews of G/L entries in the Review Policy field. The following options are available:
None: You can't mark entries for the account as reviewed. For example, use this option for accounts such as payables, receivables, and bank accounts where there are other ways to review their amounts.
Review allowed: You don't have to include entries in a review, and the amounts of the debit and credit entries don't have to balance. You remove a review, for example, if you've made a mistake.
Review Allowed & Match Balance: The total amounts of the Debit/Credit Entries in the Review must match. The Debit & Credit fields show those amounts, and the Balance field shows the total. This setting also lets you remove a review. When you remove a review from one or more entries, the debit and credit entries must still balance.
Posting
There are Total 8 Fields that are directly linked with the Posting Setups, we are going to discuss that one by one. Also going to see why on some accounts it is required and on some accounts it is not Required.
Simplified Explanation with Examples
Gen. Posting Type
Purpose: Determines if the account is used for Sales, Purchases, or both.
How it works: Works with VAT Posting Groups to decide where VAT is posted.
Options:
Blank: No specific use.
Purchase: Used only for purchase transactions.
Sale: Used only for sales transactions.
Example: A sales revenue account will have Sale, while an expense account for office supplies may have Purchase.
Gen. Bus. Posting Group
Purpose: Links the account to a Business Type (e.g., customers or vendors).
How it works: Combines with Gen. Prod. Posting Group to decide G/L accounts for sales, purchases, discounts, etc.
Priority: Customer/vendor posting group overrides the G/L account’s group.
Example: A Domestic Customer posting group is used for customers within the country, while Export Vendor applies to vendors outside.
Gen. Prod. Posting Group
Purpose: Links the account to a Product Type (e.g., items or services).
How it works: Combines with Gen. Bus. Posting Group to determine G/L accounts.
Priority: The item’s product posting group takes precedence over the G/L account’s group.
Example: A Finished Goods product group is used for inventory sales, while Raw Materials applies to purchases.
VAT Bus. Posting Group
Purpose: Identifies the type of business (customer/vendor) for VAT purposes.
How it works: Combines with VAT Prod. Posting Group to determine VAT rates and postings.
Priority: Customer/vendor VAT Group overrides the G/L Account’s Group.
Example: A Domestic VAT group applies for local customers, while Export VAT is for overseas sales with no VAT.
VAT Prod. Posting Group
Purpose: Identifies the type of product/service for VAT purposes.
How it works: Combines with VAT Bus. Posting Group to determine VAT rates.
Priority: The item’s VAT group overrides the G/L account’s group.
Example: A Standard VAT group is for taxable items, while Zero VAT is for exempt products.
Default IC Partner G/L Account
Purpose: Links a default Intercompany G/L Account for intercompany transactions.
How it works: When posting an intercompany journal, this account is automatically used as the balancing entry.
Example: If an intercompany expense is booked to Rent Expense, the corresponding IC account might be Rent Payable IC.
Default Deferral Template
Purpose: Specifies how to spread revenue or expenses over the periods they apply to.
How it works: Automatically applies a template to defer amounts.
Example: A subscription payment for 12 months is posted, and the Monthly Deferral Template spreads the revenue equally over 12 months.
These setups ensure accurate postings, proper VAT calculations, and streamlined processes for different transactions.
Consolidation - On the Consolidation FastTab, you can enter the debit and credit account of the consolidation company to map with. When running the consolidation from the consolidation company, the program creates general journal lines for each business unit, based on the mapping entered here. When the company has a different local currency than the consolidation company, you can select a consolidation translation method for the G/L account. This specifies the currency translation rate to be applied to the account.
Reporting - On the Reporting FastTab, you can specify if you want to process exchange rate adjustments between the local currency and the additional reporting currency for this account.
Cost Accounting - The Cost Accounting FastTab shows the cost type the G/L account is mapped to. For this example, you don't need to enter the Consolidation, Reporting, and Cost Accounting FastTabs.
If you completed the steps in the scenario, when you close the G/L account card, you should see the new G/L account you set up for Expense Appearing in the Chart of Accounts.
I hope you find this article helpful.
Best Regards,
Ahmad Subhani
D365 Business Central Functional Consultant
Email - ahmadsubhani424@gmail.com
WhatsApp - +923357687164
If you want to see all this in a Video, Then Click on the Link below.
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