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How To Manage Cumulative Journal Entries In Order To Stay In Balance For Subsequent Months

This article includes suggestions and workarounds. Content may not be accurate for all use cases or represent best practices for the latest release. 

Question

Since Balance Sheet accounts are cumulative by nature, how should Journal Entries be handled so that the Balance Sheet stays in balance for the month they are being entered as well as subsequent months?

Answer

In situations where a journal entry exists between a balance sheet account and an income statement account, having a journal entry for only one month does not effectively show the correct balance for subsequent months (thus, the balance sheet account will be incorrect for future months). If that journal entry is repeated for each month then the income statement account will not be correct for future months.

To allow the balance sheet account to be carried forward and the income statement account to remain as-is, you can add two child accounts underneath the balance sheet account (as shown in the image below). One "child" account will have the purpose of capturing the journal entry adjustment, and the other will be responsible for capturing the cumulative value of the account via formula. This will allow the effect of the journal entry to be carried forward without having to create a new journal entry each month.

 

JE_Balance3.png

 

For example, lets say Accounts Receivable is the account that this should be applied to. A new child account called AR JE can be used as a journal entry account, and AR Balance will be created to measure the balance from the prior month.

You can then set a formula in AR Balance to be "ACCT.Accounts_Receivable[time=this-1]". The result is that the roll-up value for each month will reflect the journal entries carried forward for the cumulative balance accounts. In this setup, only one journal entry will need to be created (using AR JE) and that result will be carried forward in Accounts Receivable from the AR Balance account.