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Understanding General Ledger Beginning Balances

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 Financial Statements show how your business is doing financially. General Ledger reports ensure the accuracy of your books. To generate correct financial statements and General Ledger reports, all past financial history needs to be accounted for in Peachtree Accounting. By entering General Ledger beginning balances in your Chart of Accounts, a financial starting point is established for each account, upon which all future financials will be based.

Whether your company has just opened it’s doors or is converting from another accounting system, beginning balances can be entered at startup or at the point of conversion without having to recreate financial history in Peachtree Accounting.

If your company is already using Peachtree Accounting for daily activity, beginning balances may only be entered in the prior fiscal year. General Ledger beginning balances are entered through Maintain, Chart of Accounts.

Before General Ledger beginning balances are entered, do the following:

  • Verify that the Chart of Accounts contains the equity account “Equity–Retained Earnings.”
  • Determine the correct period(s) in which to enter beginning balances.
  • Determine the correct beginning balance amounts.
  • Verify that the beginning balance amounts have an equal number of debits and credits.

Verify That Your Chart of Accounts Contains the Equity Account “Equity – Retained Earnings”

Before Peachtree can save beginning balance amounts, an account with a type of Equity – Retained Earnings should have been set up in your Chart of Accounts. If you do not see this account listed, add that account now through Maintain, Chart of Accounts.

Determining the Correct Period in Which to Enter Beginning Balances

The correct period in which to enter beginning balances depends on what type of financial statement you want to generate:

If you want a comparative Balance Sheet for the current fiscal year and the last fiscal year, then enter beginning balances for the first period that you wish to have balances, then for each period thereafter enter the period debit/credit change up to the current period..

If you want a comparative Income Statement for the current fiscal year and the last fiscal year, then enter beginning balances for the first period that you wish to have balances, then for each period thereafter enter the period debit/credit change up to the current period.

If you want a Statement of Cash Flow for only the current fiscal year, then enter beginning balances for the last period of the prior fiscal year.

If you want a comparative Statement of Cash Flow for the current fiscal year and the last fiscal year, then enter beginning balances for the last period of the year prior to the last fiscal year. This is the accounting period that is identified as prior to the previous year (e.g., “Before 1/1/2003”) in the Beginning Balance Select Period window.

These reports will be titled differently for non-profit organizations.

Determining the Correct Beginning Balance Amounts

For your financial statements and reports to be accurate, beginning balance amounts must be correct. To help you verify beginning balance amounts, you can use the Trial Balance report or Balance Sheet from your previous accounting system. These reports are discussed in detail below. (Note: If you do not have either of these reports, please contact your accountant for procedures on how to calculate beginning balances.)

If you start entering beginning balances in Peachtree during the current fiscal year, AND you do NOT need monthly transaction history for comparative financial statements, then use the numbers from a Trial Balance report dated the last day of the month previous to the month transactions will be posted in Peachtree. For example, if a company begins using Peachtree Accounting July 1, 2005, then the beginning balances should be entered in July, using the Trial Balance of June 30, 2005.

(Note: The Trial Balance report does not include current earnings amount. This value is calculated by Peachtree Accounting and should not be entered as a beginning balance.)

If you start entering beginning balances in Peachtree during the current fiscal year, AND you DO need monthly transaction history for comparative financial statements, then you can use the numbers from the Balance Sheet and the Income Statement’s Year to Date field for each accounting period. For example, if a company plans to post transactions in Peachtree Accounting beginning July 1, 2005, then beginning balances should be entered January through December 2004, and in January through June 2005, using statements for each of those accounting periods.

Verify That the GL Beginning Balances Have an Equal Number of Debits and Credits

For your “books” to balance, the total dollar amount of debits must equal the total dollar amount of credits, therefore, it is important that the beginning balance debits equal the credits. If debits don’t equal credits, Peachtree Accounting will automatically create a balancing entry in the account Beginning Balance Equity – Equity doesn’t close. If this account does not exist, the system will create one for you at that time. See the section If You Are Out of Balance below.

Entering Beginning Balances

We recommend that beginning balances be entered before transactions have been posted. This is because beginning balances are easier to correct if there are no posted transactions. For more information, see the section Correcting Beginning Balances below.

(Note: If transactions have already been posted in Peachtree Accounting, you can still go back and enter beginning balances for the prior fiscal year in the Beginning Balance window. If you need to enter beginning balances as of the current fiscal year, it is best to enter them as a General Journal entry.)

The beginning balances entered for Accounts Receivable and Accounts Payable in the General Ledger, in the Chart of Accounts, should equal the beginning balances entered in Maintain Customers and Maintain Vendors.

To enter beginning balances, do the following:

  1. From the Peachtree main menu, select Maintain, Chart of Accounts. The Maintain Chart of Accounts window will appear.
  2. Click the Beginning Balances button to display the Select Period to Enter Beginning Balances window or the Select Period to Enter Prior Year Adjustments window will appear.
  3. Select the accounting Period in which you want to enter beginning balances.

    If transactions were NOT entered in Peachtree Accounting (including beginning balances for all other Maintain windows), the Select Period to Enter Beginning balances window will appear, listing the current two years, the previous year, and one accounting period prior to the previous year. Select an accounting period from the list. This will be the starting point for your beginning balances to be entered. If you do not see the period in which you want to enter beginning balances, your company may have been set up incorrectly. For instructions on how to rebuild your company in Peachtree, see your Peachtree Accounting User’s Guide.

    If transactions WERE entered in Peachtree Accounting, the Select Period to Enter Prior Year Adjustments window will appear, listing only the accounting periods of the prior year. Select a time period in the previous fiscal year. For instance, your fiscal year began in February 1, 2005 and you want to enter beginning balances as of July 1, 2005. If you have already entered transactions for February and March of 2005, the accounting periods that will be listed will be February 2004 – January 2005. Because transactions have already been entered prior to July 1, 2005, you will not be able to select the accounting period July 1, 2005.
  4. Click OK to display the Chart of Accounts Beginning Balance window or the Chart of Accounts Prior Year Adjustment window.
  5. Click the account you want to enter a beginning balance in, type a dollar amount in the appropriate column, then press Enter. Assets and Expenses are entered in the Debit column, and Liabilities, Equity and Income are entered in the Credit column. If the balance differs from the typical balance according to Generally Accepted Accounting Principles (GAAP), enter a minus sign (-) in front of the balance. For instance, if you have an Accounts Receivable account that has a credit balance of 100.00, instead of the usual debit balance, you would enter -100.00. Repeat this step for each beginning balance.
  6. After all beginning balances have been entered, click OK to create a journal entry that Peachtree will post to the General Ledger. Each entry will be dated the first day of the selected month. Entries can be viewed in the General Journal report.
  7. Click Close.
  8. If you receive a warning message saying you are out of balance, see the section If You Are Out of Balance below.

If You Are Out of Balance

If the Beginning Balance entry is out of balance, a warning message will appear indicating an equity account (e.g., Beginning Balance Equity) and its type (Equity Doesn’t Close) will be created or updated to contain the difference or out-of-balance amount. This account will appear in the list of accounts on financial statements and on General Ledger reports.

Try to find the reason why it is out of balance and correct it. If the beginning balances that were entered are from financial statements supplied by the previous accounting system or accountant, the error could have been made while entering data. Make sure all accounts and beginning balance amounts were entered correctly.

If the difference cannot be found or corrected, select OK when the warning message appears. This will create the Beginning Balance Equity account so that the books will be in balance. If the difference is found later, follow the steps below to correct the beginning balances.

Correcting Beginning Balances

If a beginning balance is incorrect, and you have not posted transactions in Peachtree, do the following:

  1. Select Maintain, Chart of Accounts.
  2. Click the Beginning Balance button to display the Select Period Window.
  3. From the Select Period window, select the period that contains the entry you want to correct.
  4. Click OK to display the Chart of Accounts Beginning Balance window.
  5. Correct entries, as necessary. Make sure the debits still equal the credits so that the Trial Balance will be “in balance.”(Note: Peachtree operates on a forced balanced Trial Balance. The Trial Balance must always balance or equal zero. This means the total of the Debit column must equal the total of the Credit column. If you are out of balance after making corrections, refer to the section If You Are Out of Balance above.)
  6. Click OK to create the journal entries.

If a beginning balance is incorrect, and transactions HAVE already been posted in Peachtree, enter a general journal entry in the current year to correct beginning balances. Once transactions have been posted, a prior year adjustment should usually be entered to correct the beginning balances. However, this process can be complicated, as you must take into consideration the affect of year-end equity changes and the roll forward effect of posted entries.

Verifying That the Beginning Balance Amounts Entered Are Correct

After beginning balances amounts have been entered in the Chart of Accounts, there are several reports that can be viewed to verify that the amounts are correct. We recommend you do this before transactions are entered into Peachtree Accounting.

Entering General Ledger beginning balances in your Chart of Accounts lets you create a financial starting point for all future transactions.

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