A ledger code (GL code) is a unique number or alphanumeric code assigned to each financial entry in an organization's general ledger. Assigning a custom ledger code to each of your items will help you track and sort accounting data in your reports.
In this article we look at the Accounting and finance > Ledger codes subtab:
1. Pick your Accounting Type - Cash or Accrual?
How does your organization track revenue? (Don't forget to Save!)
💵 Cash basis means revenue is accounted for when payment is received. This method is a simple, more immediate recognition of revenue.
🧾 Accrual basis means revenue is accounted for when the service actually occurs - regardless of when payment is received. This method tracks anticipated (i.e., deferred) revenue in certain reports.
There's more info about cash vs accrual accounting in the FAQ.
2. Custom Ledger Codes
Everything you sell requires a custom ledger code, which is a GL code created by your organization. Custom ledger codes are known as 'revenue' type accounts, because they help track the revenue from each item sold. They appear in all of your financial reports.
👉 If a custom ledger code isn't assigned to an item, SmartRec automatically assigns it the 0000 - Default ledger code to track its revenue in your reports.
To create a GL code, click New ledger code. The code and title fields are mandatory.
You can modify these ledger code fields at any time:
When you edit a ledger's code, title and/or description, it replaces the old code with the updated one in the client's billing and all your finance reports.
If you swap an item's ledger code for another, reports will only show the item's new ledger code moving forward. In the client's billing, GL codes on invoices remain the same as they were at the time of purchase.
You can't delete a ledger code if it's assigned to an item in your store. You have to first remove the ledger code from the item(s) before you can delete it.
You can archive/unarchive a ledger code if it's assigned to a purchased item.
An archived ledger code moves to the Archive section at the bottom of the page. It can't be assigned to new items, but an archived ledger code can still remain attached to existing items and visible in your reports.
3. System Ledger Codes
System ledger codes are created by SmartRec and are used by default in journal entries only. You can't assign system ledger codes to your offers.
You can modify the code and title of a system ledger code, but you can't change the description.
You can't delete or archive a system ledger code.
There's more info about system ledger codes in the FAQ.
4. Frequently Asked Questions
What's the impact of choosing cash vs accrual accounting in SmartRec?
💵 Cash basis accounting type puts a focus on payments - in the sense that revenue can't be earned without payment being received. Say an item is invoiced on May 5th and the client pays on May 8th. Once the payment is reconciled to the invoice item, revenue from the sale is recognized on May 8th.
🧾 Accrual basis accounting puts a focus on invoices - in the sense that revenue is earned regardless of when payment is received. It's recognized when the service has been delivered to the client. If tickets to a show are invoiced and paid for on May 5th but the show occurs on May 7th, revenue from the sale is recognized on May 7th.
With accrual, you'll find an extra couple of goodies in the Reports tab:
The Deferred revenue report works on the premise that revenue recognition is postponed until the service has been delivered. This report follows your revenue from the moment a sale is invoiced until its revenue is recognized.
Journal entries become available. They track the increase and decrease of balances in key ledger accounts every time a transaction occurs in SmartRec.
Whatever your method of accounting, the best source of financial data in SmartRec is journal entries and their accompanying details.
What naming convention should I follow when creating custom ledger codes?
Organizations can establish their own naming convention. We recommend speaking with the person(s) responsible for your accounting.
What happens if I swap one ledger code for another on an item?
Here's what you can expect:
The item's updated GL code appears in your reports as of the date the change is made. Older reports remain unchanged (i.e., the item's old ledger code still appears). Trust the reports 📒.
The item's updated GL code appears on new invoices as of the date the change is made. In the client's billing, older invoices remain unchanged (i.e., the item's old ledger code still appears).
The item's updated GL code appears in journal entries as of the date the change is made. Older journal entries remain unchanged.
What happens if I modify a ledger code?
If you edit the ledger code itself (e.g., change the code, title and/or description), the changes are updated everywhere (in old and new reports).
Why does SmartRec use system ledger codes?
SmartRec maintains a double entry journal to track how transactions (events) affect the balance of accounts in your general ledger. These are called 'journal entries'.
Whereas your organization creates custom ledger codes to track revenue, SmartRec creates default system ledger codes to track funds from the moment of sale up until revenue is recognized. System ledger codes only appear in journal entries (and not in any of your other financial reports).
To find out more about journal entries in general, click here.
To find out how each system ledger code is used in journal entries, click here.
Is there a list that shows which items custom ledger codes are assigned to?
Click the Operations menu to export linked ledger codes. This report provides a list of each item in your store (including facilities) that a ledger code is associated to.
* Last updated in May 2022