How a Check is transformed into GL Account Entries
We will use an example to explain how TeemWork transforms a check into its corresponding GL Account Entries.
Let us suppose that you have received a bill of $85 from 'Southern California Edison' for electricity that you have consumed.
Issuing a check to pay for this expense involves two business transactions.
at some point in time you incurred an expense of $85, and
at some other point in time, you paid this $85 expense.
You see one check. TeemWork sees two business transactions.
Each of these two business transactions are transformed separately into their corresponding GL Account Entries.
How an EXPENSE is transformed into GL Account Entries
The first business transaction records that an expense was incurred.
Because an expense was incurred, it follows that your expenses have increased and that money is owed to someone.
In our example, the expense that was incurred is for 'Electricity supply' and the someone that is owed money is 'Southern California Edison'.
Every GL account can be represented as a 'T' account. Below are the two GL accounts involved in the first business transaction.
| 1st GL account entry | 2nd GL account entry |
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The GL account, 'Electricity supply' is debited 85 dollars and the GL account, 'Accounts Payable' is credited 85 dollars.
The debits and credits for this transaction are equal as they must be.
In TeemWork, entering a check that has a status of 'ToBeIssued' records that an expense has been incurred and that payment of the expense has not been made.
Once the check is issued, the check status becomes 'UnCashed' and eventually 'Cashed'. In both cases, it means that payment has been made.
The second business transaction occurs when the payment is made.
How a PAYMENT is transformed into GL Account Entries
As we have seen in the previous section, when you incur an expense, it follows that you owe money to someone.
You may decide to pay that someone immediately, later, or much later. You may even decide to never pay for the expense that you have incurred.
If and when you do decide to pay, you issue a check. TeemWork then records that one of your bank accounts is reduced by the amount of your check. It also records that you owe less money that you did before the payment was made.
In the 'Electricity supply' example, two GL account entries are made to record that payment was made. Below are the two GL accounts in the form of 'T' accounts.
| 1st GL account entry | 2nd GL account entry |
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Again, the GL account debits and credits equal one another as they must.
Summary
As of the date when the $85 expense was incurred, our expenses were increased by $85 and our liabilities were also increased by $85
This was recorded as follows:
| 1st GL account entry | 2nd GL account entry |
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When the check was issued, one of our bank accounts was decreased by $85 and our liabilities were also decreased by $85.
As you can see, once the check is issued, the two entries for GL Account '2100 Account Payable' cancel each other. The remaining relevant GL Account entries are:
| 1st GL account entry | 2nd GL account entry |
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How does TeemWork know which 'Accounts Payable' GL account to use?
In the 'Manage GL Accounts' window, GL Accounts that used to record 'accounts payables' are given a code of 'AP'.
Below is a slide illustrating the 'Manage GL Accounts' window. The selected account is 'Accounts Payable.' The value of the 'Code' field for this account is set to 'AP'.
In TeemWork, each GL Account of Type 'Asset' and 'Expense' is associated with another GL Account that has a Code of 'AP'.
When an expense is incurred, the GL Account that is used to record this type of expense is increased. At the same time, another GL account is used to record that the amounts that are payable have increased by the same amount.
In TeemWork, multiple GL accounts can be used to record amounts that are payable.
When an expense is posted to a GL Account, TeemWork automatically posts the amount that is to be paid to an 'accounts payable' account.
The 'accounts payable' account that is used to record the amount that is to be paid is the account that is in the 'AP Account' column of the selected GL expense Account.
How does TeemWork know which GL accounts are Bank Accounts?
TeemWork supports the use of multiple Bank Accounts. Each bank account is given a separate GL Account and each of these GL Accounts is given a code of 'Bank'.
Below is the 'Manage GL Accounts' window. The GL account Name, 'Bank No. 210' is selected. The code, 'Bank' is selected from the 'Code' field.
Multiple Expenses incurred in one Check
It is possible to enter a single check to pay for more that one expense. Take for instance, a phone company who bills for local services and long distance calls. One check is issued for two separate categories of expense.
Issuing a check to pay for these expenses involves 4 business transactions.
at some point in time you incurred a Local Phone expense, and
at some point in time you incurred Long Distance expenses.
at some other point in time, you paid the Local phone expense, and
at the same point in time, you paid the Long Distance expense.
Two business transactions are used to record that two different categories of expense have been incurred. Each of these business transactions involves two GL account Entries.
Below are the 'T' accounts illustrating the 4 entries. In our example, the 3rd and 4th entries involve the same 'Accounts Payable' GL Account.
| 1st GL account entry | 2nd GL account entry | 3rd, 4th GL account entries |
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If and when you do decide to pay, you issue a check. A bank account is then reduced by the amount of your payment. TeemWork also records that you owe less money that you did before the check was issued.
In the 'Phone Bill' example, two business transactions are occur when the check is issued. Each of these business transactions involves two GL account entries.
The figure below illustrates how these entries are recorded.
| 1st and 2nd GL account entry | 4th and 5th GL account entry |
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The total for the debits and credits are equal.
A check can be used to pay for Assets
GL accounts of the Type 'Asset' can also be involved when checks are recorded.
Let us suppose that you have received a bill of $4500 from 'Air-Cool Systems' because you have purchased an air conditioning unit from them.
Issuing a check to pay for this asset involves two business transactions.
at some point in time you purchased an asset of $4500, and
at some other point in time, you paid for this $4500 asset.
The first transaction increases an account of type 'Asset'. At the same time TeemWork records that your 'accounts payables' have increased.
Below are the two GL accounts that were involved when the asset was purchased.
| 1st GL account entry | 2nd GL account entry |
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The second transaction takes place when the asset is paid.
When the check is issued, TeemWork records that a Bank Account has been reduced. At the same time, TeemWork records that the 'accounts payable' are reduced by the same amount.
The figure below displays the two GL account entries are involved.
| 1st GL account entry | 2nd GL account entry |
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In this example. we see that your Assets remain the same. We also see that the Debit total is equal to the Credit total as it must.
A check can pay for Assets as well as Expenses
It is possible to enter a single check to pay for Assets as well as Expenses.
Let us suppose that you ask one of your suppliers to develop a custom computer program and that you also ask him to install the networking equipment that you require to use this computer program.
The new networking equipment is an asset. You determine (maybe, with the help of your accountant) that the cost of the computer program is a legitimate expense rather than an asset.
One check is issued to pay for the networking equipment and the programming expense. Issuing this check involves 4 business transactions.
at some point in time an networking asset was purchased, and
at some point in time a programming expense was incurred.
at some other point in time, you paid for the networking asset, and
at the same time you also paid for the programming expense.
The illustration below shows how the first two business transactions are recorded.
Four GL account entries are made. One GL account entry is for an Expense, one is for an Asset and last two record that your 'accounts payable' have increased.
| 1st GL account entry | 2nd GL account entry | 3rd and 4th GL account entries |
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The last two business transactions occur when the check is issued.
Again each business transaction involves two GL entries. A total of four GL entries are therefore involved. Two of them reduce your 'accounts payable'. The other two entries reduce your bank account balance.
| 1st GL account entry | 2nd GL account entry |
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