Entering Beginning Balances

Definition Of Terms

System Start-Up Date

This is the date chosen by management that is the date where actual live work on the system begins. All data input prior to this date is viewed as historical.

Original Entry Programs

These are programs where original documents, such as invoices or timesheets, are entered. This refers specifically to Accounts Payable Trade Invoice Entry, Subcontract Invoice Entry, Payroll Timesheet Entry, and Accounts Receivable Invoice/Receipts Entry.

Statement Date

This generally refers to the document received from an accountant or CPA that gives a set of beginning balances. This provides starting figures from which to begin live entries and determine the System Start-up Date.

General Ledger Transaction File

The accounting system does not have a separate ledger for Accounts Payable, Accounts Receivable, Payroll, etc. All transactions flow into one file called the General Ledger Transaction File. Each transaction is identified with the appropriate Journal I.D. (A/P,P/O,P/R), transaction date, amount, posting fiscal period, etc.

Historical Records

Historical records are records kept of the Original Document entered. These would include invoices in Accounts Payable, timesheets in Payroll and invoices and receipts in Accounts Receivable. Information is stored in the individual modules such as the Accounts Payable or Receivable History file and the timesheet file. Invoice date, discount amount and date, due date, invoice description and cost disbursement would be the type of information stored on an Accounts Payable Invoice.

System Integration

The entry of beginning balances in the accounting system requires an understanding of the flow of input data and integration of the system. Posting in Accounts Payable, for example, affects not only the Accounts Payable Historical records but also the General Ledger and/or the Job Cost Ledgers. This is true of all the accounting system original entry programs.

There are two ways of affecting balances in the General Ledger and Job Cost files. The first is through Original Entry Programs: With this method, original documents are entered through the original entry programs. Typically during entry on an Accounts Payable invoice, it would be specified whether that invoice should be costed to a job or directly to a General Ledger expense account.

During posting of a vendor, a historical record of that document would be recorded. Then, if the invoice was costed to a job, the job cost-to-date would be updated on that job and cost item. If the invoice was costed directly to a General Ledger expense account (or upon completion of the job cost update), the proper General Ledger transactions would be made to the General Ledger Transaction File and the proper month-to-date and year-to-date balances would be updated. The automatic updating of all appropriate ledgers during a posting process is a powerful feature in the accounting system.

The second method of affecting General Ledger balances is through General Ledger Transaction Entry: These entries are generally adjusting entries such as depreciation, corrections, etc. Entries to job and cost items, and with any journal ID, such as A/P and P/R, may be made here. All entries will automatically update the job cost-to-date, General Ledger month-to-date and year-to-date balances. It is important to note that although ‘A/P’ or ‘P/R’ may be used for the journal ID, the original entry process is bypassed and no historical records will be created.

Balance Between Journals

In a normal hand record system of bookkeeping, a balance can always be verified between the various journals of original entry and the corresponding ledgers. For example: at any given point in time, the total of all outstanding payables invoices should equal the balance of the Accounts Payable Account on the balance sheet. The same is true of the accounting system. This balance between ledgers will be maintained automatically through normal system operation. There is no automatic check of this balance between the journal and the ledger. Processing will still continue despite an inequality of this balance. The operator should be concerned about maintaining this balance. Verifying this balance is one of the key controls that can be used to prove the correctness of record keeping. Therefore, just as in hand record keeping, the burden is on the operator to verify and/or correct the journal to ledger balances.

Step By Step Instructions

The following is a logical pattern of cause and effect, which provides a systematic method of entering all beginning balances. We have chosen the Historical Date for this example; however, the same principles apply for entering beginning balances with a Future Date. At this point, the system data bases such as General Ledger chart of accounts, vendor and customer file and employee file should be set up. Also all options in System Setup should have been supplied with valid General Ledger accounts. Entries cannot be made until these steps are done. (Exclude any part of the following which does not apply.)

Enter Data Through the Original Entry Programs:

1.Enter all open job budgets. This is done through Job Setup in the Job Cost Menu. Include Jobs In Progress at the system startup date as well as all jobs that have been opened since the system startup date.

2.Set up the fiscal periods in the General Ledger Fiscal Period Setup to reflect the system start-up date. It is strongly recommended that a fiscal period named Beginning Balances or Start-Up be included at the beginning and one named Adjustments or Year-End between each fiscal year.

3.Enter Accounts Payable invoices that were open as of the system start-up date through Accounts Payable Invoice Entry. Paid invoices need only be entered if it is desired that these invoices show up on the vendor’s historical listings.

4.Enter subcontract invoices that were open as of the system start-up date.

5.Proof List, Backup, then Post all A/P invoices to the Beginning Balances fiscal period and verify against the General Ledger for correctness of transactions.

6.Enter all Accounts Receivable progress billings that were open as of the start-up date. This is done through Accounts Receivable Progress Billing Entry.

7.Enter all Accounts Receivable trade invoices that were open as of the start-up date. This is done through Accounts Receivable Trade Invoice Entry.

8.Proof list, Backup, then Post Accounts Receivable invoices to the Beginning Balances fiscal period and verify against the General Ledger for correctness of transactions.

9.Enter all employee Quarter-to-Date and Year-to-date totals through Employee Record Entry.

Note: Blank paper may be used to perform actual check writing for previously processed checks until the point of current check writing is reached.

Balance the Job Cost Figures Through the General Ledger Transaction Entry:

At this point all information should have been entered using original entry programs. Now it is possible to select invoices to be paid, and run Accounts Payable and Payroll checks if necessary. The following allows Job Costs and Final Beginning Balances that were not affected by the Accounts Payable, Payroll and Accounts Receivable postings to be brought on line to be entered to the General Ledger.

10.Print the Job Costing Analysis Report for all jobs. Select the Complete report format.

11.There is now a listing of all cost-to-date figures for each job and cost item. Since these figures came directly from the postings done in steps 1-9, they contain only the most recently accrued costs and probably differ from the actual known costs on each job and cost item as of the start-up date. Using this report, subtract the actual known costs from the current cost-to-date figures on the Job Cost Analysis Report. This can be done easily with a columnar pad or a spread sheet.

12.Using the difference column from step #11, create and enter a series of journal entries in General Ledger Transaction Entry to the Job and Cost Codes needing adjustments.

13.Print a Proof listing, Backup, then Post General Ledger transactions to the Beginning Balances fiscal period and verify for correctness.

14.Reprint the Job Cost Analysis Report from step #10. Verify that all current cost-to-date figures are equal to known job cost figures as of the start-up date. If balances do not match, return to step #10.

Make A Final Balance Of The General Ledger:

15.Print a General Ledger Working Trial Balance.

16.Using a Balance Sheet and Profit/Loss statement which is valid as of the system start-up date, make adjusting entries in the adjustments column of the Working Trial Balance. These entries will either increase or decrease the balances in the General Ledger to match the correct balances on the statement. Verify column totals and the cross balance.

17.Using the adjustments columns of the Working Trial Balance in step #16, create and enter adjusting journal entries in the General Ledger Transaction Entry to the various accounts. Be sure to have a balanced journal entry and that entries are made to the Beginning Balances fiscal period.

18.Print a Proof listing, Backup, then Post General Ledger transactions and verify for correctness.

19.Verify all journal to ledger balances. If balances do not match the statement, return to step #15.

Backup The System Data

Make several backups. One backup should be kept in a safe place away from the office. It is a rarity, but occasionally a computer is stolen or a fire can destroy all the work and effort put into a business. This backup and a similar yearly backup help to protect investments against such an eventuality. It is recommended that these backups be taken off the premises and stored in a safe place. Please refer to the section on MAKING BACKUPS included in this guide.

You Are On Your Way

It is now possible to begin entering current data to bring records from the system start-up date up to the current date (if necessary) and continue processing on a live on-going basis.