1. Inventory Quantity
2 Inventory Cost
3. Supplier Balances
4. Customer Balances
5. GL Balances
All the items above have accounting implications. How do we go about taking in OB? The key challenge is that while all the above creates accounting transactions in the subledger, GL Balances also creates balances for the same accounts. This creates double balances in GL.
Different consultants follow different practices to handle the above scenario. The methodology falls into four types.
1. Do not tranfer the subledger accounting entries to GL for the Opening Balances
2. Transfer the subledger balances to GL, but map the same account to both sides of the subledger accounting entry.
3. Transfer the subledger balances to GL and then pass a reverse journal in GL
All these approaches have merits (except 1 perhaps), but I have found the following process to be very effective.
1. Create three separate OB intake acconts for the three modules. Map these accounts as balancing accounts for Creditors, Debtors and Inventory Accounts. The OB intake accounts should be Balance sheet accounts.
2 Take in Opening Balance and Post the accounting entries to GL. The GL will now look as follows.
Debtors A/c Dr
Creditors OB A/c Dr
Inv A/c Dr
Creditors A/c Cr
Debtors OB A/c Cr
Inv OB A/c Cr
3. Modify the configurations and replace the OB accounts with the correct expense accounts in the respective modules.
4. Enter the GL OB as GL transactions in the same period. You can use web adi to upload the transactions.When you upload the OB, ensure to replace the Creditors, Debtors and Inventory accounts with the corresponding OB Accounts. This means that while the OB accounts get one side of the accounting entry from the transactions entered in the respecitive modules , the other side of the accounting entry will come from GL transactions. So after posting the GL tranactions, these accounts will have a zero balance.Verify the same and end date these three accounts. (so that people do not enter transactions in these accounts by mistake)
5. The retained earnings account will automatically adjust to the correct value.
Of course, the above is a broad strategy for data conversion and there are many devils in the details as you do a deep dive into the process. Some of the challenges include, how to handle partially received POs which are yet to be paid, how to handle TDS etc.
What is the advantage of this method? By making sure that the OB Intake accounts have zero balances at the end of the process, it ensures complete integrity of the process. For example, any balance in the intake account will mean that the total balances in the subledger did not tally with the balances in the GL. This means that either subledger figures are wrong or GL figures are wrong - both of which could point to a loophole in the customer's current accounting system.