Suppliers And General Ledger

All transactions that increase or decrease your supplier account balances will update this account code in your general ledger. Entering a supplier invoice, taking delivery of a purchase or writing a cheque, for example, will produce journals that affect this account.

CAPITAL Office operates differently in several important respects once the general ledger is activated. Firstly, the expense table found in CAPITAL Office is replaced with the chart of accounts codes found in the general ledger. You may still go into the install program in CAPITAL Office and add, edit or delete expense code entries, but this would be pointless as CAPITAL Office will refer only to the chart of accounts when verifying your code inputs.

In CAPITAL Office, the standard procedure for entering supplier entries was to:

1.      Enter the supplier invoice.

2.      Allocate any expenses related to the invoice in the expense allocations area.

The purchases of stock or other assets were not recorded in the expense allocations area.

Once integrated with the general ledger, the allocation of all "expenses" are mandatory. The purchases of stock would be assigned to your general ledger code for "purchases" and other assets to such accounts as "furniture and fittings", etc.

Prior to connecting the general ledger, the expense code table could be thought of as representing only a small portion of a full chart of accounts. The expenses in the profit and loss section of the chart, to be correct. Once the general ledger is connected (since all account codes in your chart are now accessible) there is no reason why you cannot fully allocate every supplier invoice. You will notice that in supplier entries you will be unable to input a supplier invoice unless you match the full value of the invoice against one or more general ledger account codes. This is an important point that deserves to be expanded with examples.

Example 1: purchase of stock. A creditor invoice is entered in supplier entries for the value of $100. Since no "expenses" (only assets) were purchased, CAPITAL Office did not require you to specify expense codes. You simply skipped placing entries in the expense allocations area.

Example 2: a bill for use of your telephone. A creditor invoice is entered in supplier entries for the value of $300. In the expense allocations area the full amount ($300) was assigned to your "telephone" expense category.

Example 3: purchase of stock plus repairs to customer equipment totalling $500. $400 of which is stock, $100 of which is the fee for the repair. A creditor invoice is entered in supplier entries for the value of $500. In the expense allocations area $100 is assigned to your "contractor fees" or "repair services" or some other appropriate expense code.

With the general ledger activated the above examples will have to be handled in the following ways:

Example 1: the full amount of the purchase must also be assigned to your general ledger account code for "purchases" (if you are using the opening stock/purchases/closing stock method of calculating cost of sales) or "inventory" (if you are using direct cost of sales calculations). Advice on which stock control method to use is found under Advice on Stock Control.

Example 2: there is no change in the way this particular transaction would be handled.

Example 3: as with example 1, the purchase of stock for $400 would have to be allocated either to your "purchases" account or "inventory" account.

The issue of how to go about assigning stock purchases to general ledger account codes is also discussed in the section stock and general ledger.

Old Creditor Transactions

A problem arises if you edit old supplier transactions prior to the implementation of the general ledger. Since the "expenses" part of the transaction may not have been fully allocated, the transaction will now be treated as invalid by CAPITAL Office.

Editing a transaction is handled in two steps by the general ledger. The first step creates a series of journals that reverse the original transaction. When the transaction is edited and re-totalled, the second step generates a new set of journals.

When editing supplier transactions prior to the implementation of the general ledger, the expenses (normally one or more debits amounts) may not fully add up to the supplier invoice (normally a credit amount). During the reversal process (step 1) any difference will be posted to the account code creditor suspense. The balance of this account may need to be manually reconciled. The best way to avoid this duty is simply to not edit old supplier transactions that have been placed in the system prior to the installation of the general ledger. Alternatively, you may wish to fully allocate supplier transactions you are likely to want to edit before activating the general ledger. This issue will be touched upon again later on in "A Set-Up Check List".

None of these issues apply, of course, to users who have set up CAPITAL Office and CAPITAL GL Controller at the same time. If CAPITAL detects that the general ledger is present and activated (even if not yet fully installed), it will enforce the extra rules required for a full double-entry accounting system, automatically.