AR & AP Reconciliation

Overview

Accounting Seed provides both current and historic aging reports for Accounts Receivable (Billings) and Accounts Payable to manage current unpaid assets and liabilities, as well as see the status of open Accounts Receivables and Payables at the end of a specific Accounting Period. This knowledge article covers the reconciliation of historic agings to the General Ledger.

Click a link below to learn more about the following:

• Definitions of Current vs. Historical Agings
• Enabling Historical Agings
• Run Aging Reports
• Prepaid Accounts Payable: A Known Reconciliation Item
• A General Approach to Reconciliation
• Other Possible Reconciliation Issues

Definitions of Current vs. Historical Agings

Current Agings

Are used to report what Accounts Receivable (Unpaid Billings) or Accounts Payable (Unpaid Vendor Invoices) have not been paid as of this very moment. These reports are used for collections of billings or selection of vendor invoices to pay.

Historical Agings

Are used to report what Accounts Receivable (Unpaid Billings) or Accounts Payable (Unpaid Vendor Invoices) at the end of a specific accounting period. These reports are used by auditors and accounts ensure the trial balance has an accurate value for accounts receivable or accounts payable at month end. They are a detailed listing of what makes up the balance at the end of an accounting period.

Enabling Historical Agings

Enable via Default GL Accounts

To run the Historical Aging reports you need to enable Period Sensitive Agings once for your organization on the Enablements screen. Note: upon install this setting is not enabled. To enable this feature navigate to the Enablements screen and check the "Enable Billing Period Sensitive Aging" and "Enable AP Period Sensitive Aging" checkboxes.

How Historical Aging Reports Work:

During the Accounting Period Close routine, Accounting Seed creates history records for each Billing (Billing Aging History) and each Account Payable (AP Aging History) with a non-zero balance. This History record contains the balance and the age at the last day of the Accounting Period. Historical Aging Reports are run from the Billing/AP Aging History objects filtering on a specific accounting period. Once a Billing/AP record reaches a zero balance the routine creates one more history record for the first Accounting Period that the Billing/AP has a zero balance.  

Note: The Closed Accounting Period field on a Billing/Payable is populated with the period when the balance reaches zero (0) on a Billing/Payable. Similarly if a zero balance Billing/Payable is subsequently adjusted so that the balance is no longer zero, then the Closed Accounting Period will be cleared.

Run Aging Reports

Current Aging Reports

• To run a current accounts receivable aging, from Accounting Home navigate to Management Reports>All Reports Folder and select Billing Aging by Customer-Current.
• To run a current accounts payable aging from Accounting Home navigate to the Management Reports>All Reports Folder and select Payable Aging by Payee-Current.

Historical Aging Reports

• To run a historical accounts receivable aging from Accounting Home, navigate to Management Reports>All Reports Folder and select Billing Aging by Customer-Historical. You will need to update the Accounting Period Filter to focus on the specific period you would like to report on.
• To run a current accounts payable aging from Accounting Home, navigate to Management Reports>All Reports Folder and select Payable Aging by Payee-Historical.  You will need to update the Accounting Period Filter to focus on the specific period you would like to report on.  

Please note that many customers often link historical aging reports to an Accounting Period so they do not need to change the filter each time they would like to run the report for a new period.

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Prepaid Accounts Payable: A Known Reconciliation Item

Please note the accounting for Accounts Receivable has a slightly different architecture then the accounting for Accounts Payable in Accounting Seed.

Accounts Receivable Architecture

There are three sources for creating debits and credits in the AR control account. These two transaction types are:

• Billing
• Billing Cash Receipt

This architecture allows for there never to be any known reconciling items since these two transactions are tied to an accounting period.

Accounts Payable Architecture

There are only two sources for the creation of Debits and Credits in the AP control account:

• Accounts Payable
• Cash Disbursements
• AP Disbursement (APD) - This is created when you apply a manual Cash Disbursement against an outstanding Payable invoice. 

As a result, if a cash disbursement is created with the Debit GL Account set as the Accounts Payable control account with an accounting period earlier then its related Account Payable it will be a reconciling item. This is because the cash disbursement will be decreasing the balance on Accounts Payable without the original Accounts Payable transaction recorded. This will be a reconciling item until the period on the Accounts Payable and the period on the Cash Disbursement are both less than or equal to the current period you are running the report for.  In addition, the Cash Disbursement has been applied against the related Payable. The reconciliation item is, in essence, a timing difference.

To identify prepaid cash disbursements create a report with the following parameters:

Report Type:
Cash Disbursements AP disbursements.

Report Filters:
Cash Disbursement period Less than or equal to the current period AND AP Period on the AP Disbursement record greater than the current period.

A General Approach to Reconciliation 

If the total of your historic accounts aging does not tie to the trial balance you need to go back to the last accounting period where the aging was in balance. The next Accounting Period is the one you need to focus on resolving. After this accounting period is reconciled you can go on to the next one. Please note that prepaid accounts payable are a known reconciling item. Please see the section above detailing this.

1. Find the last accounting period in balance.
   By finding the last accounting period in balance you can identify accounting period where the first occurred and correct it. Reconcile the next accounting period before you move on to subsequent accounting periods.
2. Check that there are no undesired entries to AR or AP control account.
   The number one reconciliation issue is that a transaction from another source has posted to the control account by accident. Run a transaction report for the AR or AP control account for the period in question. All the transactions should come from Billing, Cash receipts and Billing Cash Receipts for AR and Accounts Payable and Cash Disbursements for AP. Make sure there are no undesired transactions coming from Journal entries, scheduled revenue and expense, Time Cards, or inventory movements.
3. Create a transaction summary by account to compare to the aging.
   The easiest way to reconcile the aging to the control account is to create a transaction report for the AR or AP control account and group it by Account. The accounting period filter should be all accounting periods less than or equal to the current period. You will then be able to compare the total of the transaction report to the aging report for each customer or vendor. The difference will typically be flushed out.

Other Possible Reconciliation Issues

Other possible reasons for reconciliation are as follows:

Potential Issue 1: There are no Billing Aging Records or Accounts Payable Aging records and the accounting period is closed.

Resolution 1: Historic Agings may not be enabled. Navigate to Default GL Accounts and enable the agings. Open and re-close Accounting periods as appropriate.

Potential Issue 2: It seems like there are missing Billing Aging Records or Accounts Payable aging records and the accounting period is closed.

Resolution 2: Historic agings may have been accidentally deleted. Open any accounting periods in question and close them again. This action will re-generate the historical aging records. It is suggested you fix your security settings to prevent this from happening again.

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