Financial Management Module - General Ledger ( Part - 2 )

If you haven't gone through General Ledger ( Part - 1 ) go back to General Ledger (Part - 1) read it and come back to this blog.

As I said in previous blog,
To start with few scenario's of General Ledger, Let's register some equity into our newly owned company. So, firstly what is equity?

Put simply, equity is ownership.
In the trading world, equity refers to stock.
In the accounting and corporate lending world, equity (or more commonly, shareholders'equity) refers to the amount of capital contributed by the owners or the difference between a company's total assets and its total liabilities.
Equity can be also summarized as net worth.

I will be explaining more about General journals transaction with these 3 scenarios.
Once the transaction is posted the result can be verified in General Ledger (Chart of Accounts).

Scenario 1:

On opening a new company I, the owner thought to put on 10,000$ of equity to be registered into the bank account.

To record this transaction,

Go to general journal

Account type: G/L Account, 

Account No.: Equity

Since its a cash deposit entry of bank account, account needs to be bank account but we shouldn't directly book it through G/L instead we need to process through bank account otherwise it will be out of sink.

We need this particular debit (Equity) to be increased on bank account so that it registers the transaction both on bank a/c card and G/L Account.

A credit of $10,000 is going to be registered on our equity account.
Balancing account which will be $10,000 worth of debit will go into our bank account because our bank account posting group setup it will in turn be registered on our G/L bank account.

Fill the Document no., (can fill by clicking apply automatically in ribbon or filling some desired value in Document no. field).

Post the journal line. (journal lines will be successfully posted).

We can verify the change in transaction in Chart of Accounts as shown in above fig.

We can also verify the update value of balance in bank account card as shown in above fig.

We can also see the transaction represented in Bank account ledger entries.

Scenario 2:

One of the owner wants to give 2 cars to the company, he doesn't want to give any cash for shares, as a part of equity he wants to give 2 of his cars.

Go to chart of accounts

Lets create another account in chart of accounts relating to car transactions(because after this transaction company expects to own 2 cars).

New account Car adding as an asset in balance sheet

A new car account has been created on clicking OK

We need to register the further increase in equity because company has a increase in value it also means that increase in asset because the company now owns these 2 cars.

Enter the desired values in journal lines of General journal and post it.

We can see in the above fig. Equity is credited(-$1000) and Cars account is debited($1000) means, Cars account is now holding a balance of $1000.

Journal balances as a total to zero.

You can verify the transaction of Cars and Equity account balance in chart of accounts as shown in above fig.

Scenario 3:

Our accountant comes and says, we're not allowed to post 2 cars in same G/L Account because one is a small car and other one is a truck. We need to create 2 separate G/L Account and we need to move $1000 worth of asset which is there now in Cars account to 2 new accounts.

Lets create 2 new accounts,

1. Small car

2. Truck

We can rename the current account Cars to Small car and recreate another one. But lets create 2 different account separately for Small car and Truck, this will also give a way to learn 3 legged posting in general journal.

New account Small Cars created

New account Truck created

Now lets do the transaction back in General Journal,

1. We need to move $300 from Cars account to newly created Small Cars account.

2. We need to move $700 from Cars account to newly created Truck account.

To do this, 

Cars has to be credited -$1000 

Small car has to be debited $300 and 

Truck has to be debitted $700.

Enter the desired values in journal lines of General journal and post it.

Fig. below of general journal 3 legged posting transaction explains in details about making this posting.

As shown in the fig. now the value of $1000 from Cars account is split into 2 different account small cars and truck and you can verify the same back in chart of accounts..

Now we're done with General Ledger 1 legged, 2 legged and 3 legged transactions. Hope this blog helps you guys. 

Stay tuned in this blog, will be coming with few other topics of financial management like Receivables, Payables, Fixed assets, Cost Accounting and many other functional modules.

Any questions, drop into my mail id, mail2harikiranbm@gmail.com