Let’s consider below example to understand chart of accounts
Company is selling laptops to customer. Takes services from vendors and pays rent to building owner.
Above picture shows the business activity and corresponding accounting entry to be recorded.
To be able to post above accounting entries, below general ledger accounts need to be set up in the company code.
General ledger for laptop inventory account
General ledger for cost of goods sold
General ledger for accounts receivable
General ledger for sales account
General ledger for bank account
General ledger for service account
General ledger for accounts payable
General ledger for rent expense account
Similarly in practical business scenario there will be various business transactions and in order to record corresponding accounting entry, appropriate general ledger account needs to be set up in company code.
Accounting entry is recorded in sap by posting a document. An accounting document will have few general ledger accounts debited and few general ledger accounts credited (net sum zero hence double entry book keeping).
General ledger account needs to be created prior to accounting document posting.
In sap, general ledger accounts are represented by a number. Each general ledger account will be represented by a unique number.
Below screenshot showing an accounting document which has two general ledgers account posted.
General ledge for accounts payable is represented by number 11
General ledge for home expenses is represented by number 3
What is account group and chart of account?
A company might have thousands of different accounts in their book of accounts. Hence thousands of general ledgers need to be created in sap. General ledger of similar nature is grouped together and is called as account group.
All account groups put together is called chart of accounts.
As the name suggests, chart of accounts is the list of all the accounts put together.
Company is assigned chart of accounts.
Account groups are created under chart of accounts.
General ledger accounts are created under account group.
Each account group is assigned a number range. General ledger account when created under an account group has to be within account group’s number range.
While creating general ledger account (master data) you will have to provide input into various fields. Each field has its own significance.
General ledger master data fields and its significance is covered under separate topic, you will find as you proceed.