There are simply some entries that don’t fit the mold and need to be managed outside of the normal routines of accounting general ledger systems. Most often these entries are considered “manual” because they require human intervention in some form to move forward. These journal entries can be categorized as follows:
- Recurring/Standard Entries: Manual entries made on a regular, periodic (monthly, quarterly) basis. Often judgment-based entries or adjustments due to system limitations, such as reserves or revenue recognition.
- Non-Recurring: Entries that are generally known at the beginning of a period, but will not be repeated in future periods. Often transaction-related, such as an acquisition or sale.
- Ad-Hoc: Entries not anticipated, but that arise due to issues, errors or omissions. Typical items include reconciliation adjustments, or corrections due to clerical errors.
- Intercompany Reclasses: These warrant calling out separately from ad hoc entries, although the amounts are also unknown. The volume can be high, but the amounts immaterial. Multi-currency exposure – and the ability to trace to the original source of the transaction – compounds issues surrounding volume and balancing requirements on Intercompany Accounts. The entries tend to be for management reporting purposes and are made for cross business unit charges, such as shared expenses.
Manual entries of any sort are a source of concern, error and inefficiency. The issues related to these entries vary from company to company, depending on their general ledger systems and tolerance levels. However, a few issues continue to rise to the top that warrant consideration.
- “Lifecycle” Documentation is Difficult
- Unable to attach and store all types of supporting documentation from external applications
- “Packaging” final journal entry with original support insufficient
- Ad Hoc Entries Require Break in Process
- Manually interface to ERP to create journal entries
- Approval processes can be ad hoc
- Validations to ERPs are as robust or available in manual JE processes
- Intercompany Journal Entries are Excessive and Difficult to Stop
- Too many journal entries for intercompany reclassification
- Intercompany manual journal entries are hard to track and prevent
The solutions to these issues are not as easy as it might appear. Automation is only a part of the puzzle.
The requirements list for an automated journal entry solution should include the following:
- Integration of general ledger validations
- Ability to handle journal entries with one to one, one to many and many to many accounts
- Functionality to tag support with the associated journal entry number from the ERP and report back the result of the JE posting
- “On the fly” workflow
- Capability to have reversing and recurring journal entries
- Support for managing intercompany reclassifications and threshold to limit based on materiality
- Strong reporting tools
Finding ways to bring an agile and flexible solution to aid in the management of these entries is an exciting proposition. There will always be entries that need attention “outside” the box. The agile solution to manage and control these entries is possible. Companies have the opportunity now to build their requirements lists to request agility, visibility and control.
By: Theresa Clark
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