Continuing with the simplicity and popularity of “What is Oracle Apps?” article, this article will try to explain the GL basics in simple terms. It assumes you have basic accounting knowledge like debit, credits, expense, accounts etc
What is General Ledger
Most people are familiar with their own bank statement, which shows an opening balance, transactions that occurred throughout the period, and a closing balance. That statement is a snapshot of your account at a particular point in time. A company keeps an account, like the records the bank keeps of your bank account, for every organization or customer that the company does business with.
The balance sheet summarizes accounts and financial activities in three broad categories: assets, which represent all the things that the company owns; liabilities, which show how much money the company owes to others; and capital/retained earnings, which show the
total cash invested in the business by the owners or shareholders.
In addition, accounts are kept for all the revenues and expenses of the company. These accounts are summarized in an income statement, also called a profit and loss statement, which represents the performance of a company over time.
The first step in capturing your transactions is to set up your chart of accounts. Your chart of accounts determines how your accounting information is collected, categorized, and stored for reporting purposes. In Oracle Financials, all accounts are identified by a unique Accounting key Flexfield combination, which is your chart of accounts structure. You assign each account the qualifier of asset, liability, owner’s equity, revenue, or expense.
Periods are identified by names such as FEB-2000 or WEEK1 2-98 and represent non-overlapping consecutive date ranges. FEB-2000 would include the date ranges O1-FEB-2000 to 29-FEB-2000 and would be followed by MAR-2000 starting on 01 -MAR-2000. You choose the names, following whatever convention you devise, and you assign the date ranges. You can even set up a one-day period for year-end adjustments that begins and ends on the same day.
Double-entry accounting requires constant symmetry; total debits must equal total credits. Every accounting transaction results in one or more debits and credits that always remain in balance. For example, a $5000 purchase of office equipment would result in an increase to the asset account as well as an increase to a liability account.
In Oracle Financials, the account number is referred to as the Accounting Flexfield, which is used throughout all of Oracle Applications whenever a transaction is entered into the system. The Accounting Flexfield consists of multiple segments, such as those for company, cost center, and account. One full Accounting Flexfield is called a combination. Each journal entry line is tagged with an Accounting Flexfield combination. For expense
transactions, the AFF usually identifies who incurred the cost (for example, which company or department) and what the cost was for (for example, travel expense).
If you want more detailed information, such as which region, cost center, and product incurred the cost, you can design your AFF structure to include that information as well. Because total debits must always equal total credits in every transaction, Oracle General Ledger requires that all journals balance. If you try to enter an unbalanced journal, Oracle General Ledger will either reject the transaction or force the transaction to balance by posting the difference to a suspense account.
more to come… stay tuned 🙂