What other control procedures regarding the general ledger should be employed
Separation of duties is the means by which no one person has sole control over the lifespan of a transaction. Ideally, no one person should: Show
There should be at least two sets of eyes on each transaction. Why is it Important?Separation of duties is critical to effective internal control because it reduces the risk of both erroneous and inappropriate actions. All units should attempt to separate functional responsibilities to ensure that errors, intentional or unintentional, cannot be made without being discovered by another person. In addition, separation of duties is a deterrent to fraud because it requires collusion – working with another person – to perpetrate a fraudulent act. What About Small Departments?When separation of duties is not possible due to a small department size, compensating controls must be put in place. Detailed Tier 2 and/or Tier 3 review of activities is required to compensate for the lack of separation of duties. ABCs of Separation of DutiesIn general, no one employee should have job functions in more than one of the following three categories of duties:
How Does it Look?Consider the following in assigning duties to people involved in handling a financial transaction process:
Note: An employee serving in a “back-up” role must be competent and have the same authority as the person normally performing the duty. Example – Cash HandlingResponsibilityDuty CategoryIdeal: 4 PersonGood: 3 PersonMinimal: 2 PersonCash receiving (cashiering) and counting cash as part of the cash drawer closing processAsset handlingEmployee 1Employee 1Joint – Employees 1 and 2*Deposit preparation and the recording of cash receipt on deposit records/logsBookingEmployee 2Employee 2Joint – Employees 1 and 2*Recording the deposit in myUFLBookingEmployee 3Employee 3Initiation: Employee 1Approval: Employee 2 Making the cash deposit at the University Cashier’s OfficeAsset HandlingEmployee 1Employee 1Employee 1Comparing cash deposits recorded in the general ledger to deposit amounts appearing on copies of departmental records/logsComparison/ReviewEmployee 4Employee 3Employee 2***Closing of cash drawer is performed jointly with both coworkers witnessing the count and certifying the deposit amount appearing on the department records/logs. Employee 2 retains and secures the copy of the record/log for ledger review purposes. The general ledger reflects a permanent summary of all your supporting journals, such as the sales and cash receipts journal and the cash disbursements journal. Closing your books and maintaining your general ledger should be one of your top priorities. It terms of your company's books, it all boils down to the general ledger. This accounting-must functions as a permanent summary of all your supporting journals, such as the sales and cash receipts journal and the cash disbursements journal. In addition, your financial statements are built from the general ledger. Tools for keeping an accurate general ledgerFor each account title shown on your sales and cash receipts journal columns and your cash disbursements journal columns, there is a general ledger account. There are also separate general ledger accounts for miscellaneous items that don't have their own column in the journals, but are entered in a "miscellaneous" column. For example, Cash, Accounts Receivable, Accounts Payable, Sales, Purchases, Telephone Expense and Owner's Equity are all examples of general ledger accounts. Your accounting software will reserve space in the general ledger for each general ledger account. The individual entries in the general ledger are always from the total columns of your supporting journals. When all journal entries are posted, you can arrive at the ending balance for each account. The sum of all general ledger debit balances should always equal the sum of all general ledger credit balances. Suggested general ledger accounts We've provided a list of common general ledger accounts many businesses find useful. Depending on your type of business, you will use many, but probably not all, of these account names. When you set up your accounting software, you'll want to include all applicable accounts. On your financial statements, they should generally be placed in the order shown. Balance sheet accounts Assets:
Liabilities:
Capital Accounts:
Income statement accountsIncome:
Expenses:
Tip Have you been running your business for a while and are just now trying to take over some of the basic bookkeeping? If you've had financial statements prepared by an accountant in the past, look at last year's balance sheet and income statement. You can get started by setting up general ledger accounts for each account title shown on those financial statements. Closing the books at the end of an accounting periodWhen you reach the end of an accounting period, hold off a second before pouring the bubbly: you still need to "close the books." At a minimum, you will close your books annually because you have to file an income tax return every year. If you are having financial statements prepared, you will want them done at least annually. However, annual financial statements may not be enough to help you keep tabs on your business. You may want financial statements monthly, bi-monthly or quarterly. Even if you are not having financial statements prepared, you may want to close your books monthly. Sending out customer statements, paying your suppliers, reconciling your bank statement, and submitting sales tax reports to the state are probably some of the tasks you need to do every month. You may find it easier to do these if you close your books. How to close your books After you finish entering the day-to-day transactions in your journals, you are ready to close the books for the period. A step-by-step description of how to close the books follows. How many of the steps you do yourself depends on how much of the accounting you want to do, and how much you want to pay your accountant to do. Of course, using the proper accounting software will consolidate many of these steps.
Preparing trial balance sheets The trial balance is a worksheet on which you list all your general ledger accounts and their debit or credit balance. The total debits must equal the total credits. If they don't equal, you know you have an error that must be tracked down. When closing out your books at the end of an accounting period, you will prepare three trial balances:
Example You're preparing to close the books for the year ended December 31, 2011. You post totals from the journals to the general ledger, and foot the general ledger accounts. Then you prepare the following preliminary trial balance, using the balances from your general ledger accounts. Beta Service Company DebitCreditCash in bank3,423 Accounts receivable11,400 Equipment42,900 Accumulated depr. equip. 29,500Buildings119,000 Accumulated depreciation building 17,950Land80,000 Accounts payable 2,213Payroll taxes payable 2,567Mortgage payable 135,812Capital 59,823Drawing account24,000 Sales 332,462Advertising18,900 Depreciation16,760 Insurance4,500 Interest expense12,421 Payroll taxes16,233 Property taxes4,989 Repairs and maintenance23,430 Utilities3,856 Wages198,515 580,327580,327 Tools to use A trial balance spreadsheet can be found in the Business Tools area. It is an Excel (4.0 or higher) spreadsheet template, so you can use the template as a starting point for your own trial balance. What if your trial balance does not balance? In other words, what if total debits don't equal total credits? This shouldn't surprise or discourage you. In fact, it might be more surprising if it does balance. Accounting errors happen. Even experienced bookkeepers normally have to find trial balance errors. Finding trial balance errors and keeping a general journalWhen preparing a trial balance, the total debits must equal the total credits. Don't be discouraged if they don't. Bookkeeping errors happen. Just think of the trial balance as a tool to find the errors. Use the following steps as a guide to track down the error or errors.
Updating the general journal The general journal is usually a two-column journal used for unusual and annual accounting entries that aren't recorded in the sales and cash receipts and cash disbursements journals. Adjusting entries and closing entries, made at the end of an accounting period, are the most common entries made in the general journal. The general journal is also used to record special transactions that don't get recorded in one of the regular journals. Example As an example of a "special transaction," on April 12, $7,500 was spent on new production equipment in your machine shop. At that time, the amount was incorrectly expensed to repairs and maintenance in the cash disbursements journal. It should have been recorded as a purchase of fixed assets. Upon discovery of the error, you make the following correcting entry in your general journal. What are general ledger controls?A control account is a general ledger account that only contains the balance of the associated subsidiary account or accounts. The details of a company's transactions are recorded in various subsidiary ledgers and then balanced and summarized into the corresponding control account.
What are the requirements regarding the maintenance of the general ledger?Closing the books at the end of an accounting period. Post entries to the general ledger. ... . Total the general ledger accounts. ... . Prepare a preliminary trial balance. ... . Prepare adjusting journal entries. ... . Foot the general ledger accounts again. ... . Prepare an adjusted trial balance. ... . Prepare financial statements.. What are the important information that should be in the general ledger table?The general ledger is more formalized and tracks five key accounting items: assets, liabilities, owner's capital, revenues, and expenses.
What are the 2 steps required for opening a general ledger account?How Do I Create a General Ledger?. Create the chart of accounts. Most accounting systems have five sections for the chart of accounts. ... . Create an entry for each account created in Step 1. Each account identified in the chart of accounts should have its own page for transactions. ... . Assign a value to each account.. |