Your General Ledger chart of accounts is a system that classifies accounts of different types with different account numbers.

General Ledger account types determine where they belong on Income Statements, Balance Sheets, Trial Balances, and other reports. They're also key for close year process and understanding the income during a period. If an account is set up with the incorrect type, reports display incorrect balances and the net income for the closing entries is incorrect.

Income Statement Account Types (Profit and Loss)

• Income/Other Income
• Expense/Cost

Balance Sheet Account Types

• Current Asset/Noncurrent Asset
• Current Liability/Noncurrent Liability
• Equity/Retained Earnings

Consider your account types carefully with an accountant. Changing your account type may cause the account number to be out of place on your ledger. Consult an accountant to ensure you make the changes correctly.

Choose an option below based on your specific scenario. Review the criteria for each before beginning any steps. The three options:

• Create a new account
• Change the account type on an existing account
• Adjust closing entries from the prior fiscal year

Create a new account

Use this option if the following are true

• The account number is wrong
• The account contains entries before the beginning of the prior fiscal year
• You don't need the account you created, and you can move the entries to a new account

Create a new account, record journal entries, and update financial statements

1. Create a new account with the appropriate account number and account type.
2. Record General Ledger journal entries to transfer balances from the account set up incorrectly to your new account.
3. Add your new account to your financial statements and accumulators.
   • Update the default financial statements or accumulator in Financial Statement Designer
   • Manually edit your custom statement and accumulators to place the account into the correct section based on the new account type

Change the account type on an existing account

Use this option if either of the following are true

• You need to change the account type, but it remains in the same grouping (Income Statement or Balance Sheet)
• You need to change the account type from an Income Statement account to a Balance Sheet account and all entries are in the current year

Change the account type and update financial statements

1. Change the account type in General Ledger Setup, Accounts. If you use prefixes in your account format, also correct the account type in Setup, Prefix/Base, Base accounts.
2. Correct your financial statements in Financial Statement Designer (FS). Note the following considerations:
   • Update the default financial statements or accumulator in Financial Statement Designer
     • The File, Create process creates/updates default designs and accumulators based on the account types assigned at the time this is performed
   • Manually edit your custom statement and accumulators to place the account into the correct section based on the new account type

Adjust closing entries from the prior fiscal year

Use this option if the following are true

• The account type needs to change from Income Statement to Balance Sheet
• You closed the year one time while there were entries in the account for the closed year

This option requires that you make journal entries related to prior year balances. If you don't want to correct the account with journal entries, use the following articles as alternate workarounds. These processes require manually updating account balances and reconciling balances. We recommend you work with your Sage Consultant on this process.

• The account type was incorrectly set as asset, liability, equity, or suspense
• The account type was incorrectly set as income, cost, expense, or other income

Reverse existing balances, reclose the year, and change the account type

1. Run the Year-to-date Ledger on the account for the last period of the prior fiscal year.
2. Note the Ending balance of the account.
3. Run the Year-to-date Ledger for the beginning of the current fiscal year.
4. Note the Opening balance of the account.
5. Calculate the difference between the balances to use for the adjustment.
   • Incorrectly set up as an income statement account: Subtract the ending balance of the prior year from the beginning balance of the current year
   • Incorrectly set up as a balance sheet account: Multiply the beginning balance of the account by -1
6. Create a journal entry at the end of the prior year.
   • Use the account with the incorrect type
   • Use the year end for the journal entry
   • If the adjustment amount is negative, record a credit or negative debit
   • For the description, note the current account type and what it should have been, to make reviewing the process easier for future audits
   • For the other side of the entry use the clearing account
   • Use the year-end date for the accounting date
   • Enter the offsetting debit/credit entry to make a balanced batch
7. Re-close the prior fiscal year.
8. Change the account type in General Ledger Setup, Accounts. If you use prefixes in your account format, also correct the account type in Setup, Prefix/Base, Base accounts.
9. Create a journal entry to put the balance back using the clearing account and the account you corrected.
10. Re-close the prior fiscal year.