I like to think of a General Ledger system as a mini-bank…or a giant piggy bank with lots of different slots. Did you ever have one of those saving boxes growing up, where one slot would be “Savings,” another slot would be marked “College,” and a third would be marked “Donation”? In my mind, that’s how I think of the General Ledger. But instead of one box with only a handful of slots, the General Ledger is more like a huge filter where every penny gets appropriated to the right account.
This picture might sum it up best:
As you can see from the path of the money, it first went through the office, then the loan type, then deposited itself in the Fees G/L account.
Lending institutions need to track exactly where all funds are being deposited and credited. And each lending institution needs a different way of depositing/crediting funds into those G/L accounts. Some lending institutions like to deposit funds based on office and then loan type, as exemplified above. Other institutions might set up G/L accounts based on loan classification (state where the loan was originated), investor number, and loan type.
A good G/L system allows for variety, but the variety needs to be easy to understand and not just thrown around in some random order. It needs to make sense and be easy to track.
One of the keyways to organize G/L accounts is by using parameter substitutions. Parameter substitutions make it easy to know exactly which G/L account funds are deposited into or credited from based on characteristics of the loan or deposit account.
First, G/L accounts are set up in your G/L system using the keys of the parameter substitutions. For example, if the G/L account structure is for a 4-digit office, then account number, then 2-digit loan type, you would create the G/L accounts with those specifications. For example, for office 1 with Loan Types 10, 11, and 12, you would create the following G/L accounts:
Then when determining what G/L to debit/credit specific funds, you could use the parameter substitution of “TP” to indicate to debit/credit the funds into the G/L that matches the account’s loan type, as shown below:
The available parameter substitutions used by GOLDPoint Systems includes:
We discussed in another blog post about a common issue you may come across when testing on our system. You may get a message that says the G/L account is missing or invalid. Often, the problem stems from the account using a newer loan type or other parameter substitution condition, and the accompanying G/L account was never set up in the G/L system. (See How to Resolve the Payoff Error Message in CIM GOLD.)
It’s an easy problem to solve. You would just add that G/L account according to the parameters in the G/L system. Or, you would change the parameter substitution to a static number (e.g., 12 instead of TP) that is tied to a valid G/L account. The system will let you know if the G/L is valid after you click <Save Changes> (see below).
As you can see in the image above, that G/L account is not valid or does not exist in the G/L system. So you would need to enter a valid number that does exist and is active in the G/L system.
Hopefully this blog post will help you better understand how helpful parameter substitutions can be.