Understanding Locations
When setting up the chart of accounts, first determine how many General Ledger locations you need. Locations can be either inventory locations (pulling locations) or G/L (general ledger) locations (profit centers).
Note: If you have only one profit center and one inventory location, you do not need to set up locations. Your assets, liabilities, and sales are automatically tracked in location 1.
You use G/L locations to define profit centers. A profit center is its own entity or individual business. You have separate accounts receivable, bank accounts, and so forth for each profit center. A profit center may be, but is not necessarily, a physically separate location. You may have a main warehouse with a commercial or retail branch across town. Typically these two physically separate parts of your business would be treated as two G/L locations. However, you may have one main warehouse that houses four parts of your business. In this case, you could treat the facility as one G/L location or as four.
To determine how to define your G/L locations, consider what you need to know about your business. Do you need a separate balance sheet of accounts (assets and liabilities) for each profit center, or do you need to know the profitability (sales, cost of goods sold, and expenses) of the different parts of your business? If you need a separate balance sheet of accounts, define separate G/L locations. To track the profitability of different parts of your business, define departments.
Note: If you define departments to track profit and loss for different parts of your business, create a custom chart of accounts before going live on general ledger. Customizing your chart of accounts requires a thorough knowledge of the accounting functions. You can learn to do this yourself or hire us to do it for you.
Next, consider how your company is set up. Here are two examples:
One company, with four parts: office supplies, contract furniture, office machines, and printing. You need only one G/L location. To track the different parts, you create four departments. The number of inventory locations you have depends on the number of physical locations you have. If you have one warehouse that services all four parts, for example, you need only one inventory location.
Two office supply businesses in different cities—each business has its own building. In this case, you create a separate G/L location for each of these businesses. Because each business has a single building, each one has a single inventory location.
Note: When there is one inventory location for each G/L location, as in the second example, you do not need to customize your chart of accounts. However, if you do the bookkeeping for both businesses at a single location, it is more complex than for a single G/L location. Suppose you do accounts receivable, accounts payable, and payroll for both businesses at a single location. For example, the A/R Trial Balance Report, which you print daily, has separate postings for each G/L location. In addition, when you are preparing bank deposits or looking for cash-in-bank figures, you must find the figures for each G/L location and add them together.
See also: