Posting Transactions after the Fact (Accrual Logic)
As mentioned earlier, the general ledger system is period driven, and the sub-ledger reports used by the other parts of the accounting system are date or time driven. This fact means that period cut-off or closing procedures are critical to proper system operation.
In general, the system period should be changed based on the calendar date (at the end of the last day in each calendar month). This procedure provides the following advantages.
• The logic is simple as the general ledger period is based on the calendar month you are operating in (this is true in a calendar or fiscal year environment).
• Month end reports can actually be produced at the actual month end
• There is a clear relationship between the general ledger period cut-off and the date cut-off used on the reports.
• The procedure for reconciling the general ledger control balances to the appropriate sub-ledger reports is straight forward. The month end sub ledger reports reflect all activity from prior periods and no activity from periods occurring after the report was produced.
• All sub ledgers will use the appropriate cut-off logic. If you happen to try to leave a period open after month end to allow updating one sub-ledger, you may inadvertently allow transactions for another sub-ledger to be processed in the wrong period. For example, if you leave the system period set to the last period after month end to allow AP invoice entry, operators in the warehouse may end up posting current inventory receipts to prior periods (this will cause a problem if you have already produced a final inventory valuation report for the prior period).
The disadvantages to using the simple cut-off procedures listed in the last section include.
• The general ledger may not include activity that should be recorded in the prior period. This can be an important consideration at yearend or when the financial or tax effect of the transactions is relatively large.
More:
Prior Period Adjustment
Procedure