6 The first login

6.4 Checking and adjusting the chart of accounts

First and foremost the chart of accounts serves to register income, expenses, assets and liabilities in categories which support financial decision making or regulatory requirements. When checking his chart of accounts, this is the first thing Jack checks for.

Many business events in LedgerSMB trigger the creation of financial transactions. If the configuration required for these transactions to be created isn’t in place, users won’t be able to complete their workflows.

6.4.1 Accounts list

Jack wants to make sure his chart of accounts fits his purposes. To perform these checks Jack goes into the System \rightarrow Chart of Accounts \rightarrow List Accounts page. For now, he finds the ledger to be in order. Although the single Sales account stands out a bit against the numerous expense accounts, it turns out that there is also a single Purchases account on which all the expenses for parts purchases are going to be booked.

He decides that if this isn’t enough, he can add accounts later. 66Note that Jack will discover in Section 7.4 on page 7.4 that he does indeed need to create additional accounts to support sales and purchase discounts.

6.4.2 Technical accounts identified by Links

For LedgerSMB to operate correctly, a number of accounts have to be configured for their specific purpose. He continues on the same screen as the previous section. His checks concern the values in the Link column of the screen. These values have to be present:

AR The summary account for accounts receivables; most example charts of accounts have one.
AR_overpayment Receivables overpayments; if a customer pays too much or gets a credit invoice for an invoice already paid, this is where his credit gets recorded if it’s not refunded immediately
AR_discount Sales discounts; if a customer pays within the specified terms, a discount is applied. In order to monitor effectiveness of the discount offered, one probably wants it posted on its own account.
AP Same as AR, except for payables.
AP_overpayment Same as AR_overpayment, except that this registers credits others owe you
AP_discount Same as AR_discount, except that it applies to payables
IC Summary account for inventory; this account doesn’t apply to companies which sell services only.

Jack’s chart (the US General.sql standard chart) misses the AR and AP_overpayment links as well as the overpayment accounts. He’ll need to create them by going to the Add Accounts under the same submenu as the List Accounts option. The table below shows the settings required for the account types listed in Table LABEL:tbl:special-purpose-account-types-links.

AR Asset
AR_overpayment Liability Receivables
AR_discount Income (Contra)
AP Liability
AP_overpayment Asset Payables
AP_discount Expense (Contra)
IC Asset

Jack creates two accounts, one for each line marked in italics in Table LABEL:tbl:special-purpose-account-config-summary:

  • 1202

    Advance payments

  • 2105

    Advance receipts

6.4.3 Technical accounts from System Defaults

Two special purpose accounts are currently not assigned their special purpose through the Links column in the Chart of Accounts menu. Instead, their special purpose is indicated in the defaults screen as discussed in Section 6.6 on page 6.6.

Each chart of accounts should have

  • •

    a foreign exchange gain account in the Income part

  • •

    a foreign exchange loss account in the Expense part

This restriction applies even for companies which don’t expect to be using foreign currencies since the accounts have to be selected in the defaults screen: there’s no option to leave them blank.