Hello to everyone out there on Sage City! Over the years I have offered and received much advice on Sage City and its predecessors. I have probably learned as much from reading your posts as well as from having my interest piqued to investigate some of your questions. I don’t always have the answers, but then someone else steps in and usually can offer up some assistance. This is what makes this community such a great resource.
Starting with this blog post, Sage honored me by asking if I’d make “sage” contributions from the point of view of someone who does not work directly for Sage. To be totally honest, I am a Sage Partner working primarily with Sage 100, but I don’t work directly for Sage corporate. Previously I worked for nearly 30 years in public accounting doing audits, tax returns and other “CPA stuff,” so a lot of my advice will come from that perspective.
I’m honored to be requested by Sage to do a periodic blog here on Sage City and I hope I live up to the expectations. With that said, on to my first topic (or maybe it is a gripe?).
While working as an auditor there was many a time that a client would hand me a supporting schedule that purported to show me what was in a given general ledger account. It was fairly common to get a schedule that presented a number that did not match the general ledger. At which point, we would have to figure out why.
Part of your monthly routine should be to print out these supporting schedules (a bank reconciliation, an A/R aged invoice report, an A/P trial balance, a purchases clearing report, etc.) and make sure they are in agreement with the general ledger. If they aren’t, it is time to do some research as to why.
Any general ledger account that has subsidiary data that ties to another module (bank rec, receivables, payables, inventory) should match up. However, if you make adjustments to a control account using general journal entry, the underlying detail records do not get adjusted. Sure, you can post a $400 debit to accounts receivable, but to what customer does that apply?
So, my rule number one is to avoid doing general journal entries to a control account.
Working as an auditor, I would often make journal entries to these accounts. I didn’t think about it that much in my early years, but as I got involved working with MAS 90 (as it was called back then), I realized that I had to tell the client which specific item in the details needed to be adjusted. If I adjusted receivables, I better tell them we were adjusting invoice #5678 for ABC Distributing.
Now there would be times when you couldn’t identify a specific customer or it was just a waste of time to do so. A good example of the time waster is accounts receivables with credit (negative balances). A common audit entry would be to reclassify these credit balances from the asset side of the balance sheet to the liability side of the balance sheet.You really don’t want to go into the details of A/R and A/P to do this. That’s a big time waster.
I don’t like making a general journal entry to the control account either because then the control account doesn’t agree with your accounts receivable trial balance. And if you forget to reverse it later than that disagreement carries on.
So here is my advice; make a general journal account and call it A/R-Reclass Credit Balances in the asset section of your chart accounts. Also, make another account in the liability section and call it A/R Credit Balances.
For example: If your accounts receivable has a balance of $50,000, and that includes $4,000 of credit balances, make the following entry to these new accounts: credit the liability account for $4,000 and debit the asset account for $4,000. Your end result should look something like this:
With this approach, you have achieved the required presentation and kept the control account in agreement with you accounts receivable trial balance.
I also use this technique for late adjustments that need to be in the financial statements, but the receivables module is already closed out. Make the adjustment to the separate general ledger account, and reverse it later when you can put the detail entry into the accounts receivable module.
Hopefully you found this valuable. Next time, I plan on covering mismatched dates when posting sales invoices.
SOMETIMES THE BEST SOLUTION IS NOT OBTAINED BY ANSWERING THE QUESTION ASKED BUT IN UNDERSTANDING WHY THE QUESTION WAS ASKED
Thomas “TomTarget” Rogers Jr.
Target System Technology, Inc.
Thanks Tom! I am already looking forward to your future contributions!!
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