Introduction: Journal Entry (15-05)

Overview

This selection allows entry and modification of General Ledger adjustment entries. Each transaction is assigned a unique transaction number as it is added to the file that is used for reference during the change, delete, or inquiry options.

REMEMBER: If there are current month and future month entries to be updated, the current month entries are updated to the current transaction file and all future month entries are sent to a “FUTURE” file. These future month transactions are NOT “lost”. They remain in the “FUTURE” file until the current General Ledger month is closed. After the month-end closing, the system will be in the next current operating month. To bring the transactions from the “FUTURE” file into this current month’s transaction file run ‘JOURNAL ENTRY AUDIT/UPDATE‘ OR run ‘A/P P/R P/O A/R AUDIT/UPDATE‘. Journal Entry also allows entry of reversing journal entries. Any journal entry indicated as a reversing journal will automatically reverse itself on the first day of the month following the date of the journal entry.

The General Ledger system allows the entry of Journal Entries dated up to 11 months ahead of the month in which the General Ledger is currently operating. These entries are called “Future Period” entries. During update, “Future Period” entries are written to a holding file. They are held in this “Future” file until they are automatically drawn back into the General Ledger at the time the General Ledger current operating month matches the month for those “Future” entries.

For example:

General Ledger is currently running in May. Enter and Update Journal Entries dated June. These entries are stored in the “Future” file until the General Ledger current month is rolled forward to June. At that time, the June entries are automatically drawn back into the main General Ledger files.

The General Ledger system further allows the entry of Journal entries dated up to 12 months before the month in which the General Ledger is currently operating. These entries are called “Prior Period” entries. During update, “Prior Period” entries are posted only to the Year-to-Date amounts of the respective General Ledger account numbers. They are NOT reflected in any Month-to-Date amounts, nor will they appear in any journal listing. The complete details to all “Prior Period” entries are stored in a separate “Prior Period” file. This “Prior Period” file is used for audit purposes only – it serves no other purpose for the General Ledger system. This “Prior Period” file may be read only through the RDB REPORT system. The name assigned to the file is GL.PTRN. The prior period file stores in addition to all the details of all prior period entries the month and year the General Ledger was currently in at the time each prior period entry was made.

Prior Period entries fall into two categories:

1.
Those entries whose date falls in a month before the current fiscal year.

2.
Those entries whose date falls before the current General Ledger month.

The only difference between the 2 types of entries is that each affects only the appropriate fiscal year’s Year-to-Date amounts.

For example:

A Prior Period entry into one of the months of the current fiscal year affects only the current Year-to-Date amount (current Year-to-Date balance in the case of a balance sheet item) for that account and the historical monthly total corresponding to the month the Prior Period was dated.

A Prior Period entry into one of the months of the immediately preceding fiscal year effects:

a.
If it is a balance sheet account, the YTD balance for that account at the beginning of the current month and the appropriate historical monthly total for that account corresponding to the month the Prior Period was dated.

b.
If it is to an income statement account, the YTD balance at the beginning of the current month of THE RETAINED EARNINGS ACCOUNT and the appropriate historical monthly total for the income statement account corresponding to the month the Prior Period was dated.

Prior Period entries by definition, only affect the year-to-date fields in the General Ledger. A prior period entry where one side of the entry is posted to an income or an expense account modifies the year-to-date profit or loss. As a result, a “parallel” entry must be made for this net profit or loss change, into the Income Summary and Current Years Earning accounts dated the same as the prior period entries.

If this “parallel” entry is not made, the Balance Sheet printed immediately after Month End Closing will not balance. The out of balance amount being the result of the change to the Year-To-Date profit or loss from prior period entries.

For example: Assume we are a calendar year corporation. We are presently operating in the month of May and a prior period entry is made dated March. This prior period entry will be a credit of $100 to the accumulated depreciation account in the asset portion of our Balance Sheet, and $100 debit to the depreciation expense account in our Income Statement:

As we can see from this example, we are reducing the year-to-date profit of our corporation by $100. To properly reflect this point in our General Ledger, we would then immediately make one more prior period entry. This entry would also be dated March. It would have one side of the entry as a debit to the Current Years Earning account in the equity section of the Balance Sheet of $100. The other side of the entry would be a credit to the Income Summary Account of the Income Statement of $100. We have now properly reflected the profit/loss impact of our prior period entry in the equity section of the Balance Sheet.

Tags: