Bank Reconciliation and Period-End Processing Slideshow 7

List of Topics Slide No. What is monthend/year-end processing? 3 Period-End Processing in ACCPAC 4 Posting Subledger Batches in G/L 5 Bank Reconciliation 7 Step 1: Print the Reconciliation Status Report 8 Step 2: Identify Unreconciled Items on the Bank Statement 9 Step 3: Reverse Void Cheques 10 Step 4: Process Returned Customer Cheques 11 Step 5: Reconcile the Bank Statement 12 Step 6: Post the Bank Reconciliation 18 Post the Bank Reconciliation Subledger Batches 19 Period-End Adjustments and Accruals 20 Adjustments – Merchandise Inventory 21 Adjustments – Recurring Transactions 22 Accruals 23 Allocation 25 Payroll Entry 26 Period-End Reports 28 Year-End Processing 29

What is month-end/year-end processing? A good accounting system is designed to produce periodic reports, usually at the end of each month. At the end of the fiscal year, annual financial statements are prepared. The annual reporting period (referred to as a fiscal year) is not always the same as the calendar year ending December 31. A company can adopt a fiscal year consisting of any 12 consecutive months. The time periods covered by financial reports are referred to as accounting periods. Month-end or year-end processing refers to a thorough review of the transactions during the accounting period and making adjustments, if necessary. Review the GAAP related to period-end processing. Click to continue. Time Period Principle The economic life of a business can be divided into time periods. Objectivity Principle The Objectivity Principle requires that all information reflected in the accounting records and financial statements is gathered, analyzed, recorded and communicated using only independent and verifiable data separate from any influences of the gatherer and recorder. Consistent Reporting Principle In the preparation of financial statements, the same accounting concepts are applied in the same way in each accounting period.

Tasks at Month/Period-End Period-End Processing in ACCPAC In ACCPAC, period-end processing (both month-end and year-end) is started in each of the two subsidiary ledgers, Accounts Payable and Accounts Receivable. You have learned to delete opening balance batches in the A/P and A/R to ensure that they do not overstate G/L account balances and make certain that information created in the G/L from the subledgers is complete and accurate. You have also learned to produce analytical reports that would support financial statements in the G/L. Click. Study the remaining tasks in order to complete month-end processing. Click to continue. Tasks at Month/Period-End Post all A/P and A/R subledger batches in G/L – this updates the General Leger with the transactions entered and posted in the subledgers. Reconcile bank account with G/L accounts – verifies the accuracy of the cash records in the company’s accounts and catches any errors made by either the bank or the company in recording deposits, cheques and charges. Make adjustments and accruals – brings the accounts into proper balance Produce month-end reports.

1. Posting Subledger Batches in G/L Subledger batches with full transaction detail were created automatically in G/L whenever batches were posted in A/P and A/R. These batches (not including, of course, the opening balance batches which you deleted), must be posted to the G/L in order to produce accurate financial statements. Click. The first thing to do is to print a hard copy of the G/L Batch List (see right). This list contains batches you have created/posted in G/L and subledger batches that were automatically created when you posted batches in A/P and A/R. You need to pay particular attention to the status of each batch. All deleted batches must be investigated and verified, and all open batches must be posted. Click to continue.

Steps in Bank Reconciliation Study why Bank Reconciliation is an essential procedure at period-end. At period end, the balance in the company’s cash and the balance on the bank statement almost always do not agree. Click. Study the possible cause of differences between the balances of the bank statement and the company’s cash account. Study the steps in doing a bank reconciliation. Click to continue. Why Bank Reconciliation is essential: To verify the accuracy of the cash records in the company’s G/L cash account. To catch any errors made by either the bank or the company in recording deposits, cheques or charges. Steps in Bank Reconciliation Print the Reconciliation Status Report. Identify unreconciled items on the Bank Statement. Reverse void cheques. Process returned customer cheques (NSF). Reconcile the Bank Statement and G/L Cash account. Post the Bank Reconciliation. Outstanding cheques that have not been cashed by the company’s vendors or employees. Deposits that have been delayed or not recorded by the bank at the time of printing the bank statement. Recording errors in the company’s books. Bank errors. Bank Statement balance and company cash account balance may differ due to:

Reconciliation Status Report Bank Reconciliation (continued) Step 1: Print the Reconciliation Status Report The first step in Bank Reconciliation is to print a list of all items in the company Bank Services. This will enable you to identify which company deposits and payment items have not been cleared by the bank. Study the kind of information you will find in Reconciliation Status Report. Click to continue. Reconciliation Status Report

Step 2: Identify Unreconciled Items on the Bank Statement Bank Reconciliation (continued) Step 2: Identify Unreconciled Items on the Bank Statement You would identify the items on your bank statement that are not showing in your Reconciliation Status Report. The steps in bank reconciliation in ACCPAC vary according to what needs to be reconciled. For discussion purposes, study the November bank statement received from the Bank of North America. One thing that you need to remember: the bank debits decreases and credits increases in your bank balance, which is essentially the opposite of what you do in your company’s G/L Cash account. Click. Study the items that have been taken out of your bank account (debited) but are not in your Bank Reconciliation Status Report. Click to continue. The loan payment consisted of $1,000.00 repayment of principal and $110.00 interest (total $1,110.00). The customer cheque returned NSF from Home Publishing for $3,165.90. Insurance for $428.00. Payroll for $5,220.00. Bank monthly service charge for $50.00.

Step 3: Reverse Void Cheques Bank Reconciliation (continued) Step 3: Reverse Void Cheques Once a payment cheque has been printed and posted, it is usually sent to the vendor who would normally cash the cheque. However, occasionally a cheque must be voided for various reasons: The cheque was issued incorrecty. The cheque was lost. The cheque was never cashed. You want to stop payment. In our example, one of the items showing in the Reconciliation Status Report is Cheque #508 for $237.30 paid to Alf’s Office Supplies for an order that was never delivered. You now need to void the cheque. Click. Study the appropriate Reverse Checks window. Click to continue.

Step 4: Process Returned Customer Cheques Bank Reconciliation (continued) Step 4: Process Returned Customer Cheques In your bank statement, Cheque #035 from Home Publishing for $3,167.13 has been returned NSF (Non Sufficient Funds) (see right). You need to re-post the amount of the cheque to the A/R customer record and at the same time create a subledger batch in G/L. Fortunately, ACCPAC has the Return Customer Checks feature that allows you to do the task without creating a batch in A/R. Click. Study the appropriate Return Customer Checks window. When you click POST, the amount is re-posted in the A/R customer record and a subledger batch is created in G/L. You can verify this by displaying the A/R Aged Trial Balance Report. Click to continue.

Bank Statement Company Records Bank Reconciliation (continued) Step 5: Reconcile the Bank Statement Study the SUMMARY page of the Reconcile Statements window. The Bank side shows the unreconciled Bank Balance of $15,361.08. The Deposits in Transit amount came from the A/R subledger batches containing deposits that were posted in G/L earlier. Withdrawals Outstanding are the cheques issued and posted in A/P and eventually posted in G/L. Click. At the right, the company Book Balance shows the current G/L CASH account balance(Book Balance) and the difference between the Bank Balance as per the statement and the CASH balance in the company records (Out of Balance By). Click to continue Bank Statement Company Records

Reconcile the Bank Statement (continued) The object is to make the Adjusted Statement Balance and the Adjusted Book Balance equal so that the Out of Balance by amount is zero. You will do so by making appropriate entries in the various pages in the Reconcile Statements window. Click the RETURNS tab. This page lists all customer cheques that have been returned. As far as the company’s books are concerned, the cheque from Home Publishing was received and deposited. In Step 4, you merely re-posted it, but the original entry has not been cleared. To clear, you would select the entry for Home Publishing on the RETURNS page and change the status to Cleared. Click to move to the WITHDRAWALS page.

Step 5: Reconcile the Bank Statement Bank Reconciliation (continued) Step 5: Reconcile the Bank Statement WITHDRAWALS Page This page lists all payments entered and posted in the A/P subledger and eventually posted in G/L. At top right is the bank statement showing the payment cheques that have been cleared by the bank. You need to change the Reconciliation Status on the WITHDRAWALS page from Outstanding to Cleared. Click. The Outstanding Amount on the Summary section of the Withdrawals page is reflected on SUMMARY page of the Reconcile Statements window. Click to move to the DEPOSITS page.

Step 5: Reconcile the Bank Statement Bank Reconciliation (continued) Step 5: Reconcile the Bank Statement DEPOSITS Page This page lists all deposits entered and posted in the A/R subledger and eventually posted in G/L. At the bottom, the deposit that have been cleared by the bank is shown. You need to change the Reconciliation Status on the DEPOSITS page from In Transit to Cleared (see DEPOSITS page at top right). Click the ENTRIES tab (above).

Step 5: Reconcile the Bank Statement Bank Reconciliation (continued) Step 5: Reconcile the Bank Statement ENTRIES Page On the ENTRIES page, you would enter the debit items in the bank statement that are not in the company books. At the bottom right, debit items on the bank statement are shown. Study the completed ENTRIES page (top). Click to continue.

Step 5: Reconcile the Bank Statement Bank Reconciliation (continued) Step 5: Reconcile the Bank Statement SUMMARY Page The total of the entries on the ENTRIES page will be entered in the Bank Entries amount on the SUMMARY page of the Reconcile Statements window. Click . Study the updated SUMMARY page after all the entries are completed. Notice that the Adjusted Statement Balance and the Adjustment Book Balance are equal, making the Out of Balance by amount zero! Click to continue.

Step 6: Post the Bank Reconciliation Bank Reconciliation (continued) Step 6: Post the Bank Reconciliation When the Adjustment Statement Balance and the Adjust Book Balance are equal, you can post the Bank Reconciliation. Click . Do what the warning message before posting. All Banks is selected before clicking POST. You have now completed the Bank Reconciliation procedure. Click to continue.

Subledger batches automatically created: Post the Bank Reconciliation Subledger Batches When you post the Bank Reconciliation in Bank Services, ACCPAC automaticallly creates subledger batches. In our example, ACCPAC created three. These batches need to be posted in the G/L. Click and study the three subledger batches that were automatically created. Click to continue. Subledger batches automatically created: An A/P subledger batch for the voided cheque. An A/R subledger batch for the NSF customer cheque. A BK subledger batch for the posted bank reconciliation.

Period-End Adjustments and Accruals Why do you need to make adjustments at period-end? During an accounting period, financial transactions are entered in the company records according to source documents such as cheques received and issued, invoices received and issued, credit/debit memos, etc. (GAAP: Objectivity Principle) However, some financial events may occur that do not generate source documents. At period-end, these types of transactions should be taken into account before producing period-end reports. (GAAP: Full Disclosure Principle) Click. Study examples of financial events that do not generate source documents and would require adjustments. Click to continue. Supplies are recorded in an asset account at the time of purchase. During the accounting period, they are consumed, and therefore the asset account should be adjusted at period-end to reflect the decrease in their value. Decrease in Office/Store Supplies Insurance protection usually covers a specific period of time in the future (e.g., for one or more years). It is recorded as PREPAID INSURANCE when the premium is paid in advance. At period-end, the value of used-up amount for insurance protection should be calculated and recorded. Expiration of Insurance Protection Other prepaid assets that may decrease in value are: Land/building leases. Subscriptions. Equipment leases. Professional or legal fees paid in advance. Expiration of other Prepaid Assets In time, equipment and other assets such as vehicles, etc. may decrease in value. At the time of purchase, each of these assets is recorded in a separate asset account. At period-end, the value of these assets has to be evaluated and adjustments must be made to reflect the decrease in value. Amortization of Equipment and other Assets

Expenses are matched with revenues in the period when GAAP: Matching Principle Click and study the principle and example below. Example: An accounting consultant, Faye Anderson, bought $600.00 worth of paper and printing supplies in December. She collected $2,800.00 consulting fees from her clients that month. Faye entered $600.00 for paper and printing supplies as prepaid asset at the time of purchase. At the end of the month, she calculated that she used up $285.00 worth of the supplies she purchased earlier. When Faye prepares her monthly financial statement for December, she should report the $2,800.00 revenue and her expenses to earn the revenue, including $285.00 (not $600.00) for supplies. Click to continue. Matching Principle Expenses are matched with revenues in the period when efforts are made to generate the revenue.

Adjustments Period-End Adjustments and Accruals (continued) Merchandise Inventory Under the periodic inventory system, a count and valuation of the inventory must be done at each period-end. COLLEGIATE’s count was $81,765, an increase of $3,500. Click. Study the adjustment entry required in the G/L. Study the appropriate G/L Journal Entry in ACCPAC. Supplies A count of the supplies on hand was $9,061.00, a decrease of $250.00 Study required adjustment entry in the G/L and the appropriate G/L Journal Entry in ACCPAC. Click to continue. Dr Supplies Expense 250.00 Cr Supplies on Hand 250.00 Dr Merchandise Inventory 3500.00 Cr Closing Inventory – Product 3500.00

Adjustments - Recurring Period-End Adjustments and Accruals (continued) Adjustments - Recurring Some adjustment entries are the same every month. Rather than typing the entries into a new batch every month, it is more efficient to use the Recurring Entries feature. Amortization of Fixed Assets Click. Study the monthly amortization of fixed assets. Study the appropriate G/L Recurring Entry in ACCPAC. Adjustment to Prepaid Expenses Study the monthly entry for expired insurance and the appropriate G/L Journal Entry in ACCPAC. Click to continue. Dr Insurance Expense 216.00 Cr Prepaid Expense 216.00 Dr Amortization Expense 1400.00 Cr Accum. Amort. – Service Equip. 1100.00 Cr Accum. Amort. – Office Equipment 300.00

Accruals Utility Expense Period-End Adjustments and Accruals (continued) Accruals Accruals are expenses that have been incurred but not yet invoiced by the vendors/suppliers. An entry must be made to properly match revenues in the same period as the expenses to earn them. (GAAP: Matching Principle) Utility Expense A good example of accrued expenses is utility bills. Utility companies send bills covering a certain period; e.g., from 15th of one month to the 14th of the next month (see underlined dates at right). Estimate the average monthly utility bill and find the daily consumption rate. Multiply the average daily consumption rate by the number of days in November (16 days). Click.

Accruals (continued) Period-End Adjustments and Accruals Assuming that the estimated utility consumption for November is $950, study the appropriate journal entry. It is credited to Accrued Liabilities because the expense is a payable amount at this time. Click. Study the appropriate G/L Journal Entry in ACCPAC. Click to continue. Dr Utility Expense - Clearing 950.00 Cr Accrued Liabilities 950.00

Allocation Period-End Adjustments and Accruals (continued) One of the advantages of ACCPAC over entry-level accounting software is its capability to allocate revenues and/or expenses to more than one account. This feature, referred to as Auto Allocation, is a time- saving feature. Click. Study the Detail page of the RENT EXPENSE CLEARING account. Click the ALLOCATION tab. Study the G/L accounts under the RENT EXPENSE CLEARING account and the percent of allocation for each account. Study the appropriate Create Allocation Batch window. You can then post the batch in the G/L. Click to continue.

Payroll Journal Entry for November Period-End Adjustments and Accruals (continued) Payroll Entry COLLEGIATE does not use the ACCPAC Canadian Payroll module to process the pay for its employees. If ACCPAC payroll is used, the payroll journal entry would be created as a subledger batch from the payroll module. Instead, COLLEGIATE uses the payroll service offered by the Bank of North America, NorPay. NorPay deposits the net pay for each employee in his or her bank account and then debits COLLEGIATE’s bank account for the total net pay. The payroll bank debit was processed in the bank reconciliation. NorPay provides COLLEGIATE with several payroll reports including the payroll journal entry. This journal entry must now be manually entered as a general journal entry. Study COLLEGIATE’s payroll journal entry for November. Click. Dr Salary Expense - Service 2100.00 Dr Salary Expense - Product 2900.00 Dr Salary Expense – Office 1100.00 Dr Benefit Expense – Service 310.00 Dr Benefit Expense – Product 420.00 Dr Benefit Expense – Office 170.00 Cr CPP Payable 410.00 Cr EI Payable 320.00 Cr Income Tax Withholding Payable 1050.00 Cr Payroll Clearing 5220.00 Payroll Journal Entry for November

Payroll Journal Entry Payroll Entry (continued) Period-End Adjustments and Accruals Payroll Entry (continued) Note that the net pay in the general journal entry is credited to the PAYROLL CLEARING account. In the bank reconciliation, the net pay was credited to bank and debited to Payroll Clearing. If there are no errors in either the bank reconciliation or the payroll entry, the balance in the Payroll Clearing account at the end of the month will be zero. Click. Study the completed G/L Journal Entry window for COLLEGIATE’s November payroll. Click to continue. Dr Salary Expense - Service 2100.00 Dr Salary Expense - Product 2900.00 Dr Salary Expense – Office 1100.00 Dr Benefit Expense – Service 310.00 Dr Benefit Expense – Product 420.00 Dr Benefit Expense – Office 170.00 Cr CPP Payable 410.00 Cr EI Payable 320.00 Cr Income Tax Withholding Payable 1050.00 Cr Payroll Clearing 5220.00 Payroll Journal Entry

Posting Journals Batch Status Report Source Journals Period-End Adjustments and Accruals Period-End Reports There are five reports that should be printed, reviewed and filed at period-end. Click each one below and study the description at the right. Batch Status Report Posting Journals Source Journals Transactions Listing Trial Balance The text will give you step-by-step instructions on how to print each one of them. Click to continue. Posting Journals The printed posting journals are a part of the permanent hard copy accounting records. They are a record of all the entries posted to the General Ledger during the month. They can be used to trace an entry back to its source or forward to the ledger account. They form an important piece of the audit trail. ACCPAC prints posting journals on 8.5 x 11 inch paper, which may be 3-hole punched and filed in binders. Posting journals that have not been cleared may be reprinted at any time by checking the Reprint Previously Printed Journals box. If you have sufficient disk space, it should not be necessary to clear any printed posting journals until year-end. The posting journals for the subledger batches and the bank reconciliation batches have already been printed. The posting journals for the five adjustment, accrual, allocation and payroll batches have not yet been printed. It is more efficient to print multiple posting journals all at once after all processing is completed instead of individually after each posting. Batch Status Report The Batch Status Report is printed as part of the audit trail showing all the posted and deleted batches for the period. It should be reviewed to ensure that there are no batches that are either open or with the status Posting in Progress or that there are no ERROR Batches. If any of these batches are found, they should be investigated and either posted, deleted or corrected and posted before finalizing the period-end process. Source Journals A Source Journal is a journal listing of all posted entries with the same Source Code(s). Although the same information is included in the posting journals, it may be easier to review when entries from the same source are grouped together. The entries are also sorted differently in account order. In Chapter 1, you created a Source Journal for the General Journal. You could create additional journals, e.g., Sales Journal for all entries with the source AR-IN. Transactions Listing The G/L Transactions Listing Report is equivalent to the General Ledger in a manual system. It is the list of all G/L accounts with posted entries. The General Ledger should be reviewed by the accountant to check for: Accounting errors, e.g., distribution errors or entries posted to the wrong period; Omissions, e.g., usual expenses not recorded; and Unusual items, e.g., large transactions out of the norm. Trial Balance The Trial Balance is the list of all accounts with their balances, just like the Trial Balance in a manual system.

Create New Year Year-End Processing When you are ready to begin entering transactions for a new fiscal year, you would use the Create New Year function. Click. Study the description of the Create New Year function. After running the Create New Year process, you should run the Period-End Maintenance option. Study the tasks that you can perform using this option. Click to continue. Create New Year Create New Year creates and posts entries that transfer the balances of the income statement (income and expense accounts) to the RETAINED EARNINGS account specified in the G/L Options window (under a manual accounting system this is known as a Closing Entry). A posting journal is created that lists the detail of the closing entry. The entry is assigned the source code GL-CL automatically. If your company uses more than one Retained Earnings account, ACCPAC allows you to specify the applicable segment codes to which to close. Before running the Create New Year process, you must create a fiscal calendar for the new year using Common Services Fiscal Calendar window. Delete Account History older than the number of years specified to keep in the G/L Options. This saves storage space on the disk drive. Delete Fiscal Sets older than the number of years specified in the G/L Options. This also saves storage space on the disk drive. Reset the batch and posting sequence numbers to zero for the new year. Period-End Maintenance allows you to:

More… Go back to your text and proceed from where you have left off. Press ESC now, then click the EXIT button. EXIT