Page 42 - Finance for Non-Financial Managers

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The Structure and Interrelationship of Financial Statements
but all will follow some similar kind of arrangement to facilitate
the coding of transactions. Notice also that some accounts are
indented and numbered to indicate they are subordinate to oth- 23
ers. These sub-accounts provide a further breakdown of the
larger categories into smaller categories to save time later in
analyzing the data.
If you have spending authority in your company, you may
be asked to approve invoices from vendors that you do busi-
ness with. In some companies, that approval process could
include assigning an account number to the invoice, to inform
the accountants to whom the nature of the transaction might
not be evident. In other companies, the issuance of a purchase
order ensures that Accounting has all the information they need
to process vendor invoices. If you are blessed to be in the latter
group, you may never need to know anything more about the
chart of accounts, except to know that it exists.

The General Ledger—Balancing the Buckets

You’ve probably heard the term general ledger and might even
have joked that this must be the guy who secretly runs
Accounting and issues all those reports no one can read. (Well,
maybe not.) The original “general,” as mentioned in Chapter 1,
was a large post-bound book with large, ruled pages into which
all the transactions of the company were carefully recorded by
hand. It no longer looks like a book, except in rare cases. It’s
now likely to be a computer file, but it still carries the traditional
name and it is still the place where all accounting transactions
ultimately come to rest. It is also the data source for most of the
basic financial statements that companies produce.
You might think of the general ledger as a large, old-fash-
ioned scale that is always kept in balance because its keepers
always add or subtract an equal and offsetting amount of weight
to each side whenever they record something. All of the buckets
that appear in the chart of accounts are arranged in one or the
other of the trays, depending on the account number on the
bucket (Figure 2-6).