The Accounting Module can be described as two empty books, one is labeled General Ledger and holds all ledgers and their associated accounts, and one that is labeled Journal and holds information on every financial transaction. It cannot live on its own, because configuration about ledgers and accounts need to be provided by the operational personnel. Once this information is set up, the portfolio will drive how money flows through the system, e.g. where money for a loan comes from, or where principals, interests and fees should go to. It is feasible to prepare some configurations to help a financial institution set up a chart of accounts based on best practices or industry standards. A consumer will post entries to the journal and the Accounting Module will trigger events to process the bookkeeping internally. Aside some basic rules, e.g. does a record’s debits and credits sum up to zero or which account based on the type will be increased or decreased, the consuming component, e.g. portfolio, is expected to execute specific rules and flag a journal entry if needed.
The entity model visualizes the main components of the Accounting Module. Every component will be examined in the following paragraphs.
A Ledger holds a collection of accounts. Every Ledger has a name and an account type (Asset, Liability, Equity, Revenue, or Expense). All accounts attached to a ledger must be of the same type. A Ledger can have a sub ledger to allow a more descriptive hierarchy. A sub ledger must be of the same type as the parent.
An account holds all financial transaction information associated with this account. An account will be of one specific type (Asset, Liability, Equity, Revenue, or Expense), and will be attached to exactly one ledger. In addition to the account number, a list of entries and a running balance will be part of this component. It is possible to relate a reference account with an account.
An entry reflects exactly one financial transaction at a specific moment in time that had influence on this account, either a debit or a credit. In addition a note can be attached to an entry to provide additional information.
The journal reflects all accounting records that happened over time. In addition to a timestamp and a note a list of accounts to debit and to credit are part of one journal entry. A complete entry can be flagged to indicate unexpected behavior and prevent further processing until the entry got signed-off. The journal is the most important component, because it provides all needed information about any financial transaction that has happened. It can be used for internal and external audits, and, if data got lost, to rebuild ledgers and accounts.
A debit entry holds information about the account to be debited and the related amount.
A credit entry holds information about the account to be credited and the related amount.
The purpose of a trial balance is to prove that the value of all the debit value balances equal the total of all the credit value balances. The trial balance lists all accounts and their value. Each account will hold either a debit or a credit value. Accounts with a zero balance will be omitted from that listing. The debit balance values will be listed in the debit column of the trial balance and the credit value balance will be listed in the credit column.