GL-1: Chart of Accounts- and posting group machanism

Dear All,

This is my first blog and need to share some experiences for the benefit of the functional people who are beginners or new commers. I found it really difficult to solve my quarries in functional things in begenning so i thought to share whatever i know one by one for the benefit of the community of NAV.

First of all lets discuss the whole mechanism of posting groups and chart of accounts.

A. Background about Chart of Accounts:

In India, Tally is really popular and there is general tendency of an accountant to find it difficult to shift its mind from the tally to an ERP like NAV. In Tally every general ledger can be seen in the trial balance. The customer is also an account under the head Sundry Debtors/ Customer and vendors are also ledger accounts but under the head Sundry Creditors. In NAV it is not like that.

In NAV, there are 5 masters:

1. Customers
2. Vendors
3. Items
4. Bank
5. Fixed Assets

That means anything which related to above head would not be shown in the trial balance (in NAV the trial balance can be referred to as "Chart of Accounts"). The trial balance part of the related accounts under above 5 heads can be taken separately and can be tallied with the account in chart of accounts, Like if you want to take the trial balance you would see in chart of accounts a head "Domestic Customers" now the list of all those customers can not be seen in this chart of accounts. That is available in separate report, the total of which must tally with this account. So, please dont be confuse in this part.

I am assuming that the fields of chart of accounts are pretty clear to you so i am not going to discuss here about the its fields. If anybody has any quarry about the chart of accounts page and the way it is being maintained, please send me in comments. 

B. Posting groups

As per the nature of item the posting groups can be understood. There are two type of accounts: Balance sheet and Account Statement (Profit & Loss account). Any sale/purchase account involves two type of accounts: one is balance sheet and another is P&L. Lets take an example of sales entry

Customer A/c Dr
Sales A/c Cr

In the above entry, customer is balance sheet item and sales is P&L Item. same is in purchase entry. So, the posting groups are of following types:

1. Specific posting groups (which is basically connected to balance sheet item of an entry)
2. General posting groups (which is basically connected to P&L items of the entry)

1. Specific Posting groups are as follows:
 a. Customer posting group
 b. Vendor Posting group
 c. Inventory posting group
 d. Fixed Assets Posting group
 e. Bank Account posting group

These posting groups would be a created. The same would be selected in the connected master. When the master would be created its connected group would be selected. Like when you will create the customer master, there would be a field " customer posting group" which would be selected. The customer posting group would have the account associated with that group. When you would post the sale invoice system would use the group from customer and post the entry in the general ledger associated with that group. Same happens with purchase accounting.

Now if we see the P&L account like sales account. Now sale in general ledgers might depend one two paremeters

1. To whom i am selling

2. What i am selling

So, customer and item combination determine the sale account. Like the account "software export account" this account would be used when we know that customer is forign and item is software.

So following group would be used 

General posting groups would be of following types

1. General business posting group: this would determine to whom i am selling. Customer and vendor masters would have this field. 

2. General product posting group: this would determine what we are selling. This would be attached to item master.

The account of sales and purchase would be fixed in general posting setup. This is simple setup which connects accounts with the combination of general product and business posting groups. 

So in summary there are 2 types of groups ie specific which are for balance sheet accounts used in any entry. These group master would connect group with account of balance sheet.
The group master would be mandatory field on the masters like customer etc. 

This is general discussion. The second part of this blog would include the posting groups detailed descriptions including invetory interim and posting methodology.