Designing Your Company's Financial Statements

❑There are three Formatting features available when designing your Company's Financial Reports - all of which allows you to establish the positioning (and grouping with sub-totals) of your Company's General Ledger Accounts within the Balance Sheet, Income Statement and Profit & Loss Comparison reports; and all of them are created using this General Ledger System.

•Always keep in mind - as you are designing your Company's Financial Statements - that General Ledger Groups can (and should) be created to further sub-divide, and sub-total the Primary and/or Secondary Account Division Types of Financial Transactions which are reported on your Company's Financial Statements.

•Choosing the Account Numbering scheme - The Account Numbering scheme and the Numbering Range for each Primary Account Division (i.e., Assets, Liabilities, Equity, Sales and Expenses) that will be used for designing your Company's Chart of Accounts (i.e., General Ledger Accounts):

✓Although a Numbering Range of 1000 to 9999 is recommended, a much more complex numbering scheme may be utilized, if necessary.

▪Up to 9,999,999 main General Ledger Accounts, each with up to 9,999 subordinate Accounts may be created (e.g., 12345678.1234).

▪This power and capacity must be used wisely, as the longer and more complex the number scheme is that your Company adopts for defining General Ledger Accounts, the more complicated the management and reporting becomes for this (or any) General Ledger System.

▪Remember: With Power comes Responsibility

✓So, unless your Company has a compelling reason to be more complicated and complex when designing your Numbering Range, stick with our recommendation (i.e., a Numbering Range of 1000 to 9999).

❑Account Divisions - A Review:

1.Account Divisions: Primary - These define the General Types of Financial Transactions that will be posted to your Company's General Ledger Accounts (each of which will have an Account Division assigned to them), and so will properly characterize, and more importantly for this discussion, position the values (Balances) they hold within the Balance Sheet, Income Statement and Profit & Loss Comparison reports.

✓The five Primary Account Divisions (see the list below) for the Financial Transactions that will be posted to General Ledger Accounts are:

1.Assets - Each Asset Account ( Debit Account) identifies items that have an actual cash value or can reasonably be converted to cash.

2.Liability - Each Liability Account ( Credit Account) identifies a portion of what the Company owes, or in some other manner is obligated to pay to others.

3.Equity - Each Equity Account ( Credit Account) identifies the net value of the business (Company).

4.Sales - Each Sales Account ( Credit Account) identifies the Revenue (Income) from Sales, Interest earned from savings, and any other miscellaneous Income.

5.Expense - Each Expense Account ( Debit Account) identifies the Purchases made to sustain the business, produce product, complete an installation, and/or provide services.

✓The first three Primary Account Divisions (listed as 1., 2. and 3. above) represent the three divisions of the General Ledger Accounts that are normally listed on a Balance Sheet report.

▪If there was no capability for creating additional General Ledger Account Groupings (e.g., Sub-Headers, Sub-Accounts, and Sub-Totals), a Balance Sheet might look like this:

Balance Sheet

Assets

1000 Petty Cash Account

1100 Business Checking Account

1200 Money Market Fund Account

1300 Accounts Receivable Account

1400 Inventory On Hand Account

1500 Prepaid Expenses

1600 Furniture and Fixtures Account

1700 Depreciation Account

1800 Other Assets

Total Assets

Liability

2000 Accounts Payable Account

2100 Unearned Income Account

2200 Credit Card Account

2300 Loans Outstanding Account

2400 Mortgage Account

2500 Long Term Debt

Total Liabilities

Equity

3000 Current Earnings Account

3100 Retained Earning Account

3200 Stockholders Equity Account

Total Equity

Total Liability & Equity

▪This is the typical minimum required information - but it does not have nearly enough detailed information for a truly understandable Balance Sheet report.

✓The last two Primary Account Divisions (listed as 4. and 5. above) represent the two divisions of the General Ledger Accounts that are normally listed on an Income Statement report.

▪If there was no capability for creating additional General Ledger Account Groupings, an Income Statement might look like this:

Profit & Loss Statement

Sales

4100 Recurring Revenue Sales

4200 Installation Sales

4300 Other Income

Total Sales

Expenses

5100 General Business Expenses

5500 Cost of Goods Sold

5700 Other Business Expenses

Total Expenses

9999 Earnings Posting

Net Profit (Loss)

▪This represents the most minimalistic information that can "get the job done" - but also does not have enough detailed information for a comprehensive and understandable Income Statement and Profit & Loss Comparison.

2.Account Divisions: Secondary - These define the General Types of Financial Transactions that will most often be used as sub-classifications of General Ledger Accounts within the Balance Sheet and Income Statement.

•There are many more Secondary classifications - all of which listed below (following their associated Primary classification) which are used to more finely classify most of the Primary Financial Transactions:

1.Assets: Secondary classifications - Bank, Accounts Receivable, Other Current Assets, Fixed Assets, Other Assets

2.Liabilities: Secondary classifications - Accounts Payable, Other Current Liability, Credit Card, Loan, Long Term Liability

3.Equity: Secondary classifications - None

4.Sales: Secondary classifications - Income, Other Income

5.Expenses: Secondary classifications - Cost of Goods Sold, Other Expense

•The resulting Balance Sheet might look like this:

Balance Sheet

Assets

Bank

1000 Petty Cash Account

1100 Business Checking Account

1200 Money Market Fund Account

Accounts Receivable

1300 Accounts Receivable Account

Other Current Assets

1400 Inventory On Hand Account

1500 Prepaid Expenses

Fixed Assets

1600 Furniture and Fixtures Account

1700 Depreciation Account

Other Assets

1800 As Needed

1900 As Needed

Total Assets

Liability

Accounts Payable

2000 Accounts Payable Account

Other Current Liabilities

2100 Unearned Income Account

Credit Card

2200 Visa Credit Card Account

2250 MasterCard Credit Card Account

Loan

2300 Loans Outstanding Account

Long Term Liability

2400 Mortgage Account

Total Liabilities

Equity

3000 Current Earnings Account

3100 Retained Earning Account

3200 Stockholders Equity Account

Total Equity

Total Liability & Equity

•The resulting Income Statement and Profit & Loss Comparison might look like this:

Profit & Loss Statement

Sales

Income

4100 Recurring Revenue Sales

4150 Service Contracts

4175 Leased Equipment Income

4200 Installation Sales Account

Other Income

4300 Rent of Space Office

4350 Bank MM Interest

Total Sales

Expenses

5100 General Business Expenses

Cost of Goods Sold

5500 Cost of Goods Sold

5600 Contract Monitoring Fees

Other Expense

5700 Other Business Expense Accounts

Total Expenses

9999 Earnings Posting

Net Profit (Loss)

3.General Ledger Groups - Another Financial Report Formatting (i.e., in addition to Primary and Secondary Account Divisions) is the ability to define your own Sets of Accounting Group - referred to as General Ledger Groups:

a.These General Ledger Groups - one of which must be assigned to each General Ledger Account - are used to sub-divide the five Primary and the dozen or so additional Secondary sub-classifications of Account Divisions into user defined Groups of General Ledger Accounts, each Group of Accounts having its own Header and Footer with a Sub-Total; and possessing the ability to be listed in a summary style with only their Header and Sub-Total included - when a more condensed version of the associated report is all that is needed.

b.The result is that your Company's Financial Statements will have sufficient detail - whenever and whatever needed - because these General Ledger Groups may be displayed in a Totals Only condensed version when only a Summary format is required, but also in a full - all Accounts within each Group listed version - when a fully detailed report is required.

c.The end result is that General Ledger Groups offer:

i.No practical limitation to how many sub-categories of Account Types may be listed (i.e., Grouped) within a User-Defined Group.

ii.Each User-Defined Group is automatically positioned properly on the Balance Sheet and/or Income Statement and Profit & Loss Comparison within either a Primary and/or Secondary Account Division

iii.In summary: the Members (General Ledger Accounts) of each Group (General Ledger Group) of Accounts will be included, and listed in the appropriate position, sub-totaled, and properly described in the associated Balance Sheet and/or Income Statement and Profit & Loss Comparison reports, as designed by you.

❖See each of the Account Divisions, General Ledger Groups, General Ledger Accounts, Balance Sheet and Income Statement report chapters for additional information.

❖See the Use of, and Purpose for Mandatory Accounts chapter for information about Mandatory Accounts.