Session 2

Creating Chart of Accounts (Setting up General Ledger)

Lesson Outcomes

At the end of this session, you should be able to;

1. Explain how to restore a backup file or open a Company file

2. Explain meaning of general ledger and its interactions with other sections in the
system
3. Describe the principles relating to accounts numbering/ coding
4. Explain different accounts types available in Sage 50
5. Explain how to create, modify and delete chart of accounts
6. Explain how to set default information relating to general ledger

2.1 Restoring Backup Files

Before we discuss the general ledger, let’s see how to restore the latest backup file.

Steps:
Select File in the menu bar - Select Restore – Select Browse – Select Drive – Select Folder –
Select the Backup File – Click Open – Click Next – Tick New Company – Click Next – Click
Finish.
Or

Select System navigation bar – select Restore Now - Click Browse – Select Drive – Select
Folder – Select the Backup File – Click Open – Click Next – Tick New Company – Click
Next – Click Finish.

Once you have restored the backup file, you are ready to work. However, if you are working in
the same computer, you can also open the Company file using following steps

Steps:
Select Open Existing Company Button – Then select your Company name from the list –
Click OK.

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2.2.General Ledger:

The General Ledger stores information relating to all financial activities of your Company. All
business transactions are eventually posted to the set of accounts that make up the General
Ledger. This set of accounts is called the Chart of Accounts (COA). General Ledger helps us
to create the financial statements of the Company. It is important for us to set the chart of
accounts properly to cover all the accounts needed to create the financial statements of the
business.

Chart of accounts consist all the Assets, Liabilities, Equity, Income and Expenses accounts of the
organization. When transactions are posted in Accounts Receivable, Accounts Payable,
Inventory, and Payroll, the journals are updated. The journals in turn update the General Ledger.
Entries made to the General Journal also update the General Ledger.

As we are not using a sample chart of accounts, we need to create chart of accounts before any
other activities.

2.2.1Account Numbering/ Coding:

Sage 50 allows the use of both numbers and characters in an account numbering/ coding system.
However, an account numbering system should be established in an understandable manner.
When develop a numbering system, it requires to follow generally accepted rules. The Table 3.1
shows the starting number of different account types.

Table 2.1: Starting Number of Different Account Types

Account Code Account Types

1 XXX Assets (PPE, Cash, Accounts Receivable etc.)
2 XXX Liabilities (Accounts Payable, Borrowings etc.)
3 XXX Equity (Stated Capital, Retained Earnings etc.)
4 XXX Income (Sales, Rent Income Etc.)
5 XXX Cost of Sales
6 XXX – 9 XXX Expenses (Salaries, Electricity etc.)

Sage 50’s sample companies use numbering schemes similar to those in the table above. As we
choose, not to use a sample chart of accounts, there are a few other rules and guidelines that
should be followed when an account numbering system is established.
1. Up to 15 alphanumeric characters can be used in an account ID.
2. Asterisks (*), question marks (?), and plus signs (+) cannot be used in an account ID.
3. Leading or trailing spaces are not permitted in an account ID. However, spaces between
characters are allowed.
4. Account numbers are sorted alphabetically, with numbers in the account ID sorted before
letters. For example, account ID “2” lists after account ID “1000” and before an account
ID starting with “AR.” Account numbers are not case sensitive; therefore, CASH and
Cash are the same account ID.
5. There can only be one account assigned an account type of Equity--Retained Earnings.
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2.2.1 Account Types

Table 2.2: Available Accounts Types in Sage

Account Type Example/s
Accounts Payable Creditors control
Accounts Receivable Debtors control
Accumulated Depreciation Accumulated depreciation-Furniture
Cash Cash in hand, Cash at banks
Cost of Sales Cost of sales
Equity - Doesn’t Close Capital, Stated capital
Equity - Gets Closed Drawings, Dividends
Equity - Retained Earnings Retained Earnings
Expenses Salaries, Rent
Fixed Assets Buildings, Furniture
Income Sales, Other income
Inventory Inventory
Long Term Liabilities Bank loan, Debentures
Other Assets Goodwill, Brand name
Other Current Assets Prepayments, Other receivables
Other Current Liabilities Accruals, Other payables

2.2.1Set up the Chart of Accounts for the First Time

If you are currently using a manual system for your accounting, there are several things you need
to know when you set up a chart of accounts:

 Determine a conversion date, and gather balances as of that date. You use this information
for your beginning balances.

 If you are setting up a new chart of accounts (instead of copying from one of Sage 50's
sample businesses), you need to have all your account numbers and names written down.

 Have all of your transactions that have occurred after the conversion date ready to enter to
bring your accounts up to date.

Opening Chart of Accounts

Chart of Accounts window can be opened using one of the following ways. The Figure 3.3
shows the Chart of Accounts window.

Steps:
Select Maintain from the Menu - Select Chart of Account.

Or
Select List from the Menu - Select Chart of Account – Click New

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Figure 2.3: Maintain Chart of Accounts Window

The Maintain Chart of Accounts window is used to enter new accounts, edit existing accounts,
and enter account beginning balances. Fields of interest are described below:

• Account ID: Identifies the account in the chart of accounts, lookup lists, transactions, and
reports. The ID can be up to 15 characters.

• Description: Enter a description for the account. This description prints on reports and
financial statements.

• Inactive: Select this check box to make the ID inactive. Inactive records are deleted
when the purge utility is run, if they have not been used in any transactions in an open
fiscal year. Inactive records can be used in transactions, but a message appears,
reminding you of the inactive status.

• Account Type: Select a type from the drop-down list (Refer 3.2.2 section of the
Chapter). Accounts are grouped by account type on financial statements.

a) Create Ledger Accounts

To create new ledger accounts, the following steps can be used.

Steps:

Open Maintain Chart of Accounts Window - Enter the Account ID - Enter the Description -
Select the Account Type - Click Save.

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Activity 2.1
Create following ledger accounts.
Account ID Description Account Type
1000-FS Lands
1010-FS Buildings
1015-FS Provision for Depreciation-Buildings
1020-FS Motor vehicles
1025-FS Accumulated Depreciation–Motor vehicles
1026-FS Patent Right
1050-FS Inventory
1100-FS Trade Receivables
1150-FS Other Receivables
1160-DS Other Receivables
1200-FS Cash in Hand
1250-FS BOC
1260-FS HNB
1270-DS HNB
2000-FS Trade Payables
2050-FS Other Payables
2100-DS Other Payables
2200-FS Bank Loan – HNB
3000-FS Stated Capital
3100-FS Retained Earnings
3200-FS General Reserve
4000-FS Sales
4050-DS Training Income
4100-FS Interest Income
4150-FS Other Income
5000-FS Cost of Sales
6000-FS Salaries
6010-DS Salaries
6020-FS Electricity
6030-DS Water
6040-FS Training Materials
6050-DS Telephone & Internet
6060-FS Depreciation - Buildings
6070-FS Internet Expenses
7000-FS Distribution Costs
7010-FS Advertising
7020-DS Advertising
7030-FS Depreciation – Motor vehicles
8000-FS Interest Expenses
8010-FS Other Expenses
8020-DS Other Expenses
8030-FS Damage Inventory

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 b) Modifying Ledger Accounts:

In the Maintain Chart of Accounts window, you can edit existing accounts or delete accounts
that have no activity. You can also enter beginning balances for the accounts. However,
beginning balances section will be covered in the Chapter 4.

i. Changing Account Descriptions

Use one of the following ways to change the descriptions of accounts:

Select List from the menu bar – Select Chart of Accounts – Select the required account
– Click Open button – Change the Description - Click the Save button.
Or
Select Maintain from the menu bar – Select Chart of Accounts - Enter or select account
code/ number in the Account ID lookup list - Change the Description - Click the Save
button.

Activity 2.2
Change description of following ledger accounts.

Account ID New Description

1015-FS Accumulated Depreciation – Buildings
7020-DS Business Promotion
8020-DS Other Expenses – Training

ii. Changing Account ID

Use one of the following ways to change the descriptions of accounts:

Select List from the menu bar – Select Chart of Accounts – Select the required account
– Click Open button – Click Change ID tool button – Enter the New ID Number –Click
OK.
Or
Select Maintain from the menu bar – Select Chart of Accounts - Enter or select
account code/ number in the Account ID lookup list - Click Change ID tool button –
Enter the New ID Number –Click OK.

Activity 2.3
Change Account IDs of following ledger accounts.

Account ID New Account ID

1026-FS 1030-FS
6040-FS 6040-DS

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 iii. Deleting Accounts
Some accounts are not needed, so they can be deleted. Use one of the following ways to
change the descriptions of accounts:
Select List from the menu bar – Select Chart of Accounts – Select the required account
– Click Open button – Click Delete tool button –Click YES.
Or
Select Maintain from the menu bar – Select Chart of Accounts - Enter or select account
code/ number in the Account ID lookup list - Click Delete tool button –Click YES.

Activity 2.4
Delete following ledger accounts.
Account ID Description
6070-FS Internet Expenses
8030-DS Damage Inventory
How to see the Changes on the Chart of Account?

Use one of the following ways to see the Chart of Accounts.

Select List from the menu bar – Select Chart of Accounts

Or
Click the Reports icon in the toolbar of the Maintain Chart of Accounts window and-
from the drop-down list, select Chart of Accounts. This will open the report on your
screen.
2.2.2General Ledger Defaults:
Here we need to set the defaults related to the rounding any odd amounts on financial statements.
To set up the Rounding Account, the following steps can be used.

Steps: Select the Maintain menu, select Default Information; then select General Ledger.

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General ledger default information consist two tabs, namely, Rounding Account Tab and the
Account Segments Tab.
a) Rounding Account Tab:

The Rounding Account is an account in your General Ledger used by Sage 50 to store rounding
differences on Financial Statements. This account can be either a balance sheet account or an
income statement account. Typically, the Retained Earnings account is used as the rounding
account. The Table 3.4 shows the Rounding Account tab.

Figure 2.4: Rounding Account Tab

Activity 2.5
Set 3100-FS: Retained Earning as a
rounding account.

.
b) Account Segments Tab:

On the Account Segments tab, you can create or change segments for your chart of accounts ID.
This will allow you to take full advantage of the masking and filtering features of Sage 50 when
you print reports and financial statements.

You can use this feature for printing reports that are filtered by department, division, account ID,
or any other segment you create. When you initially create your Company in New Company
Setup, Sage 50 gives you the opportunity to divide your Account ID into segments, but you can
do it here as well.

If your chart of accounts is already set up and you change the segment structure, Sage 50 will
scan your chart of accounts and inform you if any accounts do not fit the new segment structure.
You can then print your Chart of Accounts report to identify those accounts. You can segment
your chart of accounts ID by creating descriptions, lengths, and separators for up to five
segments.

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4.1 Entering Beginning Balances

Sage 50 can record account beginning balances in any period in companies that have no posted
transactions. After one or more transactions have been posted, Sage 50 records account
beginning balances as prior-period adjustments. To enter the beginning balances to your general
ledger, the following steps can be used.

Steps:
Select Maintain in the menu bar – Select Chart of Accounts – Click Account Beginning
Balances button - Select Period (Last month of the last fiscal year) – Enter Balances.

The Chart of Accounts Beginning Balances window is shown in the Figure 4.1
Figure 4.1: Chart of Accounts Beginning Balances Window

It is noted that after you enter all the beginning balances, the balance of the trial balance should
be zero. In case if it has a balance, it will be posted to Beginning Balance of Equity Account
(Similar to a suspense account).

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Activity 2.5
Enter beginning balances to the following general ledger accounts as at 31/12/2021
Account ID Description Balance (Rs)
1000-FS Lands 6,000,000
1010-FS Buildings 4,000,000
1015-FS Provision for Depreciation-Buildings 1,000,000
1020-FS Motor vehicles 2,000,000
1025-FS Accumulated Depreciation–Motor vehicles 400,000
1026-FS Patent Right 1,000,000
1050-FS Inventory 900,000
1100-FS Trade Receivables 650,000
1150-FS Other Receivables 22,000
1160-DS Other Receivables -
1200-FS Cash in Hand 13,200
1250-FS BOC 176,000
1260-FS HNB (Overdraft) 86,000
1270-DS HNB 41,500
2000-FS Trade Payables 720,000
2050-FS Other Payables 74,000
2100-DS Other Payables -
2200-FS Bank Loan-HNB 1,500,000
3000-FS Stated Capital 5,000,000
3100-FS Retained Earnings 3,022,700
3200-FS General Reserve 3,000,000

2.2.2 Running a Trial Balance

To run a trial balance, the following steps can be used.

Steps:
Click Reports & Forms in the menu bar – Select General Ledger – Double Click
General Ledger Trail Balance.

Activity 2.7
Run the trial balance of Ceylon Fashion (Pvt) Ltd. as at 01/01/2022

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