GL - Recurring Journal Entries
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
What is a Recurring Journal?
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Each accounting period the journal should have the same accounts but the amounts could be different. A recurring journal entry enables you to automate similar or repeating entries. For users who need to post certain transactions frequently with few or no changes, it is an advantage to use recurring journals.
Recurring entries allow for common repeatable transactions to be saved in a template and created in multiple accounting periods upon request, making it unnecessary to retype the entire transaction thereby improving productivity. The Auto-generation of recurring accounting entries minimizes the occurrence of errors and omissions. Systems allow the generation of recurring entries at weekly, monthly, or any other frequency.
Characteristics of Recurring Journals:
-
Needs to be entered periodically
-
The same set of accounts are included every period
-
The same number of Journal Lines
-
Logic exists to define the line selection criteria
-
Simplifies the process of recording repetitive journal entries
-
Creates same journal entries with varying or same amounts in different accounting periods
Methods to Create Recurring Journals:
1. Same Account Combinations with no amounts:
This is useful when the same accounts need to be used every period however the amounts get changed every time. In this scenario, the template is defined with no amounts, and amounts are entered manually every accounting period for which the entry needs to be generated.
2. Same Account Combinations with fixed amounts:
This is useful when both accounts and amounts can be pre-determined. A good example of this scenario is fixed rent payable each month on a specific date. In this case, the template is defined with actual amounts, and journals are created and posted for relevant accounting periods.
3. Same Account Combinations with mathematical logic to calculate amounts:
This is useful when accounts can be pre-determined and amounts will be based on some logic or pre-defined formula. A good example of this scenario could be defining salesmen accounts as the pre-determined accounts. The commission is to be paid to these salesmen as a fixed percentage of sales made by each salesman during the month and sales for each salesman are recorded in separate accounts. A recurring journal can be defined that can look for the balance in respective sales accounts at the end of the period and automatically calculate the commission and create the required accounting entry for commission payable.
Examples of Recurring Journals:
This method works best for repeatable transactions. For example annual expenses that can be charged through twelve equal monthly entries such as, rent or insurance expense allocation or annual lease rentals. Each month 1/12th of the total annual expense can be debited and credited to the appropriate accounts and appear as the current month’s actual transaction. Users can benefit by creating a recurring entry for some of the business scenarios listed below:
- Fixed Rent to be paid every month
- Fixed Insurance to be paid every month
- Leasing Payments
- Amortization Expenses
- Fixed Expenses
- Payroll Expenses
- Based on Usage – Like departmental allocation of rent based on space utilized
- Depreciation
- Allocations
Generic Process to Create Recurring Journals:
Users need to define recurring journal formulas for transactions that they want to repeat every accounting period, such as accruals, depreciation charges, and allocations. The formulas can be simple or complex but need to have some logic of ascertaining the amounts for each of the accounts that need to be repeated. Each formula can use fixed amounts and/or account balances and period-to-date or year-to-date balances from the current period, prior period, or same period last year. Given below is a generic process flow to define recurring journals:
- Define Accounts, Amounts or Formula or Logic
- Create Recurring Template
- Define the accounting periods for which the recurring journals need to be created
- Generate Journals by Running automated recurring journals creation program
- Enter missing data in case of Skelton journals – missing amounts
- Review, Edit, Approve and Post recurring journals
Allocations V/s Recurring Journals:
Recurring Journals are for transactions that repeat every accounting period as explained above and allocation Journals are for single journal entry using an accounting or mathematical formula to allocate revenues and expenses across a group of accounting dimensions like cost centers, departments, divisions, locations, or product lines depending upon usage factors.
Related Links
You May Also Like
-
Funds contributed by owners in any business are different from all other types of funds. Equity is the residual value of the business enterprise that belongs to the owners or shareholders. The funds contributed by outsiders other than owners that are payable to them in the future. Liabilities are generally classified as Short Term (Current) and Long Term Liabilities. Current liabilities are debts payable within one year.
-
Generally Accepted Accounting Principles define the accounting procedures, and understanding them is essential to producing accurate and meaningful records. In this article we emphasize on accounting principles and concepts so that the learner can understand the “why” of accounting which will help you gain an understanding of the full significance of accounting.
-
Global Business Services (GBS) Model
Global business services (GBS) is an integrated, scalable, and mature version of the shared services model. Global Business Services Model is a result of shared services maturing and evolving on a global scale. It is represented by the growth and maturity of the Shared services to better service the global corporations they support.
-
Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts.
-
There are two commonly used methods of accounting - Cash Basis and the Accruals Basis. Understand the difference between accruals and reversals. Recap the earlier discussion we had on accruals and reversals and see the comparison between these two different but related accounting concepts. Understand how the action of accruing results in reversals subsequently in the accounting cycle.
-
Although technically a general ledger appears to be fairly simple compared to other processes, in large organizations, the general ledger has to provide many functionalities and it becomes considerably large and complex. Modern business organizations are complex, run multiple products and service lines, leveraging a large number of registered legal entities, and have varied reporting needs.
-
GL - Understanding Chart of Accounts
A chart of accounts (COA) is a list of the accounts used by a business entity to record and categorize financial transactions. COA has transitioned from the legacy accounts, capturing just the natural account, to modern-day multidimensional COA structures capturing all accounting dimensions pertaining to underlying data enabling a granular level of reporting. Learn more about the role of COA in modern accounting systems.
-
Shared Services is the centralization of service offering at one part of an organization or group sharing funding and resourcing. The providing department effectively becomes an internal service provider. The key is the idea of 'sharing' within an organization or group.
-
Operational Structures in Business
Large organizations grow through subsidiaries, joint ventures, multiple divisions and departments along with mergers and acquisitions. Leaders of these organizations typically want to analyze the business based on operational structures such as industries, functions, consumers, or product lines.
-
Reversing Journals are special journals that are automatically reversed after a specified date. A reversing entry is a journal entry to “undo” an adjusting entry. When you create a reversing journal entry it nullifies the accounting impact of the original entry. Reversing entries make it easier to record subsequent transactions by eliminating the need for certain compound entries. See an example of reversing journal entry!
