Understanding the Basics
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Before you can begin using Portico's general ledger processing, it's important that you have a basic understanding of the accounting principles behind Portico general ledger processing.
Debits and Credits
The credit union’s “normal” balance is based on the net of all debit and credit transactions posted to an account for a specified time period. There can be deviations from this normal balance, but the deviation should be explainable.
The terms debit and credit often cause confusion. Remember to think of how the credit union accounts are affected. A debit to a credit union member is a credit to the credit union.
| Debit | Credit |
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Increase in assets |
Decrease in assets |
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Increase in expenses |
Decrease in expenses |
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Decrease in income |
Increase in income |
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Decrease in liabilities |
Increase in liabilities |
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Decrease Member equity |
Increase Member equity |
Since an asset account normally maintains a debit balance, if you purchase a new asset and wish to record the purchase as an accounting transaction, you would increase your asset balance. To do this, you debit your asset account. A credit causes your overall asset balance to decrease.
Debit is derived from Latin and means “left” and Credit means “right”.
T Accounts
T accounts are a graphical representation of the effects a transaction will have on the general ledger accounts. Like a scale, the right and left sides must balance.
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General Ledger Account |
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Debit |
Credit |
Accounting relies on the following basic equation:
Assets = Liabilities + Equity or Assets = Liabilities + [Member Shares + Reserves]
If you increase assets, you also increase liabilities and/or equity.
For every debit, there must be an equal credit.
Balance Sheet Accounts
Assets, Liabilities and Owners Equity are each reflected on statements of condition or balance sheets, which indicate the financial position of the credit union. Credit unions frequently use the following balance sheet general ledger accounts:
Asset:
- Loans to members
- Cash
- Prepaids
- Furniture and Equipment
- Interest receivable
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Asset |
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Debit |
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Liability:
- Accounts Payable
- Interest Payable
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Liability |
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Credit |
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Equity:
- Regular shares
- Reserve accounts
- Undivided earnings
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Equity |
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Credit |
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Income Statement Accounts
The income and expense accounts are sometimes referred to as temporary accounts because their balance becomes zero when it is transferred to Owners Equity. Credit unions frequently use the following income statement GL accounts:
Income:
- Interest on Loans
- Investment Interest
- Fees and charges
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Income |
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Credit |
Expense:
- Salaries
- Data processing
- Utilities
- Supplies
- Dividends
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Expense |
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Debit |
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Reserves
The Board of Directors is responsible for operating the credit union on a sound basis, which includes the establishment of safeguards to protect members’ shares. One way to do this is to establish strong reserves and undivided earnings.
Liquidity reserves are money. All other reserves represent earnings retained from current or prior period’s operations.
Some reserves are based on regulatory guidelines. However, reserves can also be established for specific purposes such as contingencies, losses, planned expansion, etc.
Regulatory bodies stress the establishment of adequate reserves because reserves protect credit unions from cyclical economic downturns and provide a cushion during periods of low earnings.
Types of Reserves
- Regular Reserves
The Federal Credit Union Act requires that Federal credit unions establish and maintain a regular reserve to which losses of the credit union can be charged. - Undivided Earnings
Represents retained earnings not required by statutory guidelines. These reserves are usually established to provide a cushion for future periods where regular reserve contributions may be necessary, to utilize for credit union purposes such as investment in capital, or additional dividends or interest refunds. - Reserve for Loss Contingencies
Prepares for probable losses where an asset has been impaired or a liability has been incurred that can be reasonably estimated and future events will confirm the existence of the loss. - Reserves in State-chartered Credit Unions
State-chartered credit unions use reserves for the same purpose that Federal credit unions do. However, some state-chartered credit unions do not establish an allowance for loan loss account; therefore, they take loan losses to their regular reserve account.
Chart of Accounts
The need for accounts to record transactions in an orderly fashion creates a need for guidelines of how to assign identifying account numbers, otherwise known as GL account numbers. For consistency in GL structure, use the following prefixes for GL account numbers:
| Account Number | Description | Balance | Increase | Decrease |
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700 |
Assets |
DR |
DR |
CR |
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800 |
Liability |
CR |
CR |
DR |
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900 |
Equity |
CR |
CR |
DR |
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100/400 |
Income |
CR |
CR |
DR |
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200/300 |
Expense |
DR |
DR |
CR |
System-Required GL Accounts
The following general ledger accounts are system-required and cannot be deleted:
- Share, certificate and dividend general ledger accounts as specified for each share and certificate type.
- Principal, Interest, Late Charge (if applicable) and Student Loan Interest Receivable (if applicable) GL accounts as specified for each loan type.
- Teller Sales general ledger accounts as specified on the Transactions – Teller Sales/General Ledger tab.
- Plus, the following general ledger accounts:
| GL Account Number | Description |
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731000 |
Bank |
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739100 |
Vault Cash |
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739200 |
Teller Cash |
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739299 |
Checks Cashed |
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801900 |
MRCDI Payable |
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801910 |
Member Pay Loan Protection Payable |
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802100 |
Batched Receipts (092 Transaction) |
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803100 |
Undistributed Payroll |
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805100 |
Share Draft Liability |
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830100 |
Interest Refund (if applicable) |
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844000 |
IRA Withholding |
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871100 |
Payroll Suspense |
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872200 |
Share Draft Suspense |
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873300 |
Batched Receipts Suspense (092 Transaction) |
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874400 |
ACH Suspense |
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998100 |
Interbranch Share Clearing |
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998200 |
Interbranch Loan Clearing |
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998300 |
Interbranch Back-Office Clearing |
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998400 |
Interbranch Miscellaneous Clearing |
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998600 |
Accounts Payable (if applicable) |
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998900 |
Interbranch Shared Service Center (for Shared Service Center users only) |
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999999 |
Suspense |
The Accounting Cycle
Credit Unions have guidance from the National Credit Union Administration (NCUA) applying generally accepted accounting principles to issues specific to credit unions. Each period, the credit union goes through a complete accounting cycle. The cycle, in order from first to last, is as follows:
- Posting to General Ledger
- Basic Journal Voucher window - Permits entry of general ledger (non-member) journal vouchers that represent current month or prior month activity.
- Transactions - Teller Sales/General Ledger tab - Creates general ledger debits to your Vault Cash account, and offsetting credits to the appropriate liability or teller sales general ledger account.
- Transactions - Miscellaneous Teller Disbursals tab - Creates general ledger credits to your Vault Cash account or checking account, and offsetting debits to the general ledger account specified by the transaction (an expense account, for example).
- Ordering a General Ledger Journal and Trial Balance Report 280 - These entries are reported on the General Ledger Journal and Trial Balance Report 280 as post closing adjustments to the Beginning Balance for the month in which the entries were made. These entries are grouped as the first transactions reported for an account; totals of these post-closing adjustments are shown; and the adjusted Beginning Balance for the month is shown. All transactions affecting a GL that are tied to a processing rule appear on the report as batch transactions per teller ID or Back Office (BO). The entries made using the following transactions show up as direct hits itemized on the GL Trial Balance.
- 269 Share Deposit from GL Transaction
- 279 Share Withdrawal to GL Transaction
- 369 Certificate Increase from GL Transaction
- 379 Certificate Decrease to GL Transaction
- 631 Loan Charge-Off Transaction
- 632 Loan Type Change Transaction
- 669 Loan Payment from GL Transaction
- 679 Loan Advance from GL Transaction
- 703 GL Journal Voucher Entries – Current Month Transaction
- 705 GL Journal Voucher Entries – Prior Month Transaction
- 706 Recurring GL Transaction
- 708 Journal Voucher Batch Detail Transaction (Expanded JV)
- 741 Member Journal Voucher Transaction
- 860 Teller Sales and Reversal Transaction
- 871 Miscellaneous Disbursal – Cash Transaction
- 872 Miscellaneous Disbursal – Check Transaction
- Researching GL Information
- GL Accounts window - Displays ten general ledger accounts and their balances with one inquiry, beginning with the general ledger account entered with the transaction as of the prior day close of business.
- GL Activity window - Displays beginning balance, month-to-date debits and credits, current balance, and current day's debits and credits for a general ledger account.
- GL History window - Displays current day GL account history and displays previous GL account history. History can be retained for 45, 90, 120, or 180 days.
- Recording/Adjusting Entries
- Adjustments - Member Journal Voucher tab - Allows you to modify a member's share balance, loan principal balance, loan interest paid amount, or a general ledger balance by journal voucher.
- Share Journal Vouchers tab - Allows you to transfer funds from a general ledger account to a member's share account and allows you to transfer funds from a share account to a general ledger account.
- Adjustments – Certificate Deposit from General Ledger tab - Allows you to transfer funds from a general ledger account to a member’s existing certificate of deposit.
- Adjustments – Certificate Withdrawal to General Ledger tab - Allows you to transfer funds from a member’s existing certificate of deposit to a general ledger account.
- Adjustments – Loan Payment from General Ledger tab - Allows you to decrease the loan principal, interest, or late charge amount using a general ledger or by cash or check.
- Adjustments – Loan Advance tab - Allows you to increase the loan principal, interest, or late charge amount using a general ledger or by cash or check.
- Preparing Financial Statements
- Statement of Condition Report 290 - For single branch credit unions, the Statement of Condition Report provides information in the statement of condition format.
- Statement of Condition Report 295 - For multiple branch credit unions, the Statement of Condition Report provides information in the statement of condition format for each branch with combined totals.
- Statement of Income and Expense Report 300 - For single branch credit unions, the Statement of Income and Expense Report summarizes the income and expenses.
- Statement of Income and Expense Report 305 - For multiple branch credit unions, the Statement of Income and Expense Report summarizes the income and expenses for an individual branch with combined totals.
- General Ledger Recap Report 791 - This online report shows month-to- date and current day's debit and credit amounts as well as current balance of all your general ledger accounts. Portico creates this report in the back office cycle; however, it can also be produced using the Morning/Evening Reports window at the credit union, and will include all GL entries made at the time the 791 Report is completed. Note: The 739200 GL account should be verified every day for a zero balance.
- Online Financial Report 795 - Orders prior month financial reports showing entries as of the current day, with new month-end balances, and prints on the audit printer.
- Journalizing Closing Entries
- Basic Journal Voucher window - This transaction is performed the same in this step as it is in Step 1.
- Recurring Journal Vouchers window - Add, display, change, delete, or post recurring entries.
- Expanded JV
- Ordering Closing Trial Balance
- General Ledger Journal and Trial Balance Report 280 - This report is used the same in this step as it is in Step 2.
- General Ledger Journal – CU Level Report 282 - Displays all transactions for all branches in date order.
- General Ledger Journal and Trial Balance Report 284 - Provides a list of new daily GL entries that were a direct hit to the GL. This is a short report only.