BlackLine

What’s F&A’s Role in Responding to Instability & Volatility?

May 4, 2023 by Revelwood

This is a guest post from our partner BlackLine, detailing the results of its annual survey of global F&A leaders.

War in Eastern Europe. Global inflation. Ongoing supply chain issues. Just one of these is enough to cause serious impacts on business—and currently, the world is enduring all three, along with countless other local and regional economic disruptions.

While Finance and Accounting (F&A) has a reputation for remaining calm and pragmatic in a crisis, it can be overwhelming for these departments to help steer their organizations through difficult times while keeping up with their day-to-day work. BlackLine wanted to hear directly from F&A professionals on how they’re feeling about these issues and more.

Survey Results of F&A Executives & Professionals

In a survey of 1,483 C-suite executives and F&A professionals in medium and large companies around the world, BlackLine discovered not-so-rosy outlooks and insights including:

Nearly two thirds (63%) of all respondents said they expected a worldwide recession within a year
Almost all (95%) expect rising interest rates to have an impact on the way their business operates
More than six in ten (62%) C-suite and F&A professionals predict that their companies’ financial reporting will come under increased scrutiny over the next year

Whether or not these results surprise you, they beg for real solutions and actionable ways to address them.

Trust (or Lack of) in the Numbers

Since 2018, our surveys have shown C-Suite trust in the accuracy of the financial data at their companies has fluctuated from a high of 71% in 2018, dropping to 58% in 2022. In addition, in our 2022 results, nearly half (48%) of overall respondents indicated they do not have complete confidence that their company’s financial data is accurate.

The top three reasons given for this mistrust were:

1. Some or all of my team are working from home—making it difficult to know if the right processes are being followed

2. Data from too many sources—making it difficult to know if all data is being accounted for correctly

3. A continued reliance on clunky spreadsheets and other outdated processes that leave finance teams in the dark until month-end

As previously noted, most of the C-suite and F&A professionals we surveyed this year are braced for recession. They are also concerned that rising interest rates will push up the cost of company borrowing and mean that their customers will have less to spend.

As a result of relative mistrust in numbers along with these other external factors, the accuracy of companies’ financial data is expected to come under more scrutiny. And, outside of this survey, there have been other developments, such as the SEC’s new clawback rules, which bring even more importance to certainty in financial numbers.

How Financial Automation Helps Increase Confidence in the Numbers

The various factors discussed in the survey expose a weak link in many F&A departments: manual, error-prone, and outdated processes.

And consider this—nearly two-thirds (62%) of our respondents agreed that the ability to view their companies’ financial data in real time will be a “must-have” for business survival over the next 12 months.

How can F&A departments solve for archaic processes and gain real-time visibility? By employing the intelligent use of automation.

Leveraging a solution like BlackLine to automate end-to-end accounting processes—including the financial close, accounts receivable, and intercompany—helps reduce manual errors and increases the quality of your numbers.

In addition, automating manual, transactional work frees up capacity for F&A teams, so more time can be spent on proactively identifying anomalies in the data and ensuring the integrity of the financial reporting. And it allows for earlier views of the financial reports to proactively tackle issues—this directly addresses the concern of 62% of our respondents!

Of course, technology and automation are only part of the solution—they cannot reduce economic uncertainty. However, employing solutions like BlackLine can help companies become more efficient, reduce errors in financial data, and provide visibility so F&A departments can make faster, smarter, and more informed decisions.

Get your copy of the full report Eye of the Storm: F&A’s Role in Responding to Instability & Volatility to understand:

Who is responsible for steering a business through a recession?
F&A’s role in responding to global instability and volatility
The top challenges and pain points, such as intercompany transactions
The importance of cash flow in turbulent economic period

This blog post was originally published on the BlackLine blog.

The Future of Finance & Accounting

April 6, 2023 by Revelwood

This is a guest post from our partner BlackLine, explaining 2023 predictions for Finance & Accounting.

Look for organizations to focus on process optimization, talent upskilling, and finance agility as major drivers for business leadership in the coming year, according to BlackLine experts Dominick Fatibene and James Tilk.

Technology Powering Transformation

In the webinar “New Year, New Trends: 2023 Predictions for Finance & Accounting,” they predict how technology advances will power transformations to address the top priorities of business leaders in 2023. They also show that transformation is an area of significant concern among CFOs. The webinar points out that 82% of CFOs report that investments in transformation are accelerating, and 70% of CFOs feel that they would be at a disadvantage without financial transformation.

How are organizations doing that?

Hyper-automation which streamlines and automates key parts of processes with leading-edge technologies. “I think this is an area where we’ll be seeing some of the largest investments for enterprise-wide, organization-wide process improvement,” says Fatibene.
Advanced analytics and reporting which involve increasing speed to insight and reporting visibility “To gain more opportunities to analyze information before making critical decisions,” he says.
Self-service tools that leverage technology to put power back in the hands of users, Fatibene notes.
Master data management is a critical resource, says Fatibene, because “When it comes to transformation, everything we do starts with data: how we organize it, how we prepare it and how we use it. That’s why a lot of financial transformation initiatives are revolving around master data management.”

Major Leadership Challenges For 2023

These include concerns about economic conditions, cost controls and access to capital, talent retention, and other workforce issues.

“Economies are going to continue to fluctuate, so prudent spending is a must,” notes Tilk.

Prudent spending is closely related to another challenge: workforce issues. Retaining top talent is always vital, but a new post-Covid challenge has to do with the uncertainties, for many organizations, around office real estate.

“Many corporate leaders are having to rethink real estate,” Tilk says. “For the last few years we’ve been working remote. Now companies are bringing workers back into the office on a part- or full-time basis and they’re also reevaluating what they’re going to do. Do they shrink their footprint or do they redefine their office spaces?”

Transformation & Technology Priorities

Throughout the webinar, Fatibene and Tilk examine other trends—in transformation and technology—that organizations will focus on in 2023.

According to Fatibene, keys to transformation success will be process optimization, talent upskilling, and finance agility. “Process optimization should focus on improving the ways we interact with people, processes, and data, and how to drive value through improved, organization-wide processes,” he says.

Talent upskilling is essential for all businesses today, and finance agility comes about when finance can free up capacity in order to better partner with business-unit peers.

Other BlackLine Predictions for 2023

These are several other findings by BlackLine as we look ahead to the rest of 2023. In addition to predicting increasing emphasis on hyper-automation, the webinar hosts point to a growing need for cyber security and autonomous technologies.

Cybersecurity will be forefront. “This is more critical than ever because of today’s often-distributed workforces and the high costs of security breaches,” Fatibene notes. “I saw a recent statistic that said the average cost of a data breach is $4 million.”
Autonomous technology—organizations will adopt newer technologies that can help provide personal insights to employees who might otherwise not have the time or ability to discover them through manual research.

Ultimately, the webinar points out that the top-level key to success will, as always, be finding ways to make the most out of that most precious resource—time.

“Time is limited—you can’t make more time,” says Fatibene. Because of this, notes Tilk, it’s important that people constantly examine the work they’re doing and look for ways to do it more efficiently.”

Throughout the next year, it will be vital to find the best technologies that can help workers and organizations do just that, by putting their time to the best possible use.

Watch the on-demand webinar to:

Identify 2023 critical trends impacting finance and accounting
Explain how technology improves accuracy, saves time, and benefits everyone, especially during uncertain times
Identify leading practices for optimizing and automating despite disruption

This blog post was originally published on the BlackLine blog.

Continuous Accounting vs The Risk of Doing Nothing

March 2, 2023 by Revelwood

This is a guest post from our partner BlackLine, explaining the value of Continuous Accounting.

Change is uncomfortable. We all tend to resist change when we see it coming—and even more when we don’t. Many go to great lengths to avoid what is different, especially at work.

We have our routines down pat, we can practically perform accounting processes in our sleep (and often do, especially during the close), and we like that familiarity.

But what if making a carefully calculated pivot to the right technology could actually be safer?

The reality is that although change is uncomfortable, it can be more dangerous to live with outdated manual processes and the inherent risks of human behavior.

The Risk of Doing Nothing

New possibilities to create competitive advantage present themselves all the time. This may seem overwhelming, but technology can lead to opportunities for accountants to evolve and add an even higher level of value to their organization.

Automation streamlines the most routine, manual work, and opens the door to Continuous Accounting: an approach that ultimately results in better-utilized resources.

Continuous Accounting transforms the way accounting and finance teams work by embedding automation, control, and period-end tasks within daily activities. It frees up accountants to partner with the broader business, helping to drive more informed decisions for the organization.

Process automation provides one of the greatest opportunities for competitive advantage and waiting to adopt the right technology heightens the risk of being left behind—in your industry and in your profession.

If you decide to do nothing “for now,” but your competitors and peers choose to innovate, adopting automation and a Continuous Accounting model, they will quickly set themselves apart, becoming more efficient and controlled.

They will have access to the financial information needed to inform better decision-making and gain insight into bottlenecks.

Reducing the Resistance with Continuous Accounting

When you are performing most of your month-end close processes during a defined close window, it’s difficult to provide any meaningful financial data until after “pencils are down” – which is typically several days into the new month when the data is no longer relevant.

If you continue accounting the way it’s always been done, you’ll stay trapped in the never-ending cycle of feeling behind, always reporting on last month while the business has moved on to the next.

Leveraging technology allows accounting organizations to perform certain activities more real-time, increasing visibility to prevent surprises. By analyzing smaller subsets of data on a regular basis, you can identify irregularities in a timely manner, allowing the business to react appropriately and forecasts to be updated when needed.

“A big win with Continuous Accounting is automating certain areas. This means that rather than spending valuable time in the weeds of transactional data, you’re analyzing and reviewing exceptions,” says Molly Boyle, Director of Solutions Marketing at BlackLine.

Accounting in real-time isn’t possible without the technology that can drive automation and visibility. When the manual processes are automated, your accounting team is freed to focus their time on reporting and analyzing data to identify trends or adjustments.

When you begin providing meaningful data to decision-makers, and when you can do so in a timely fashion, your value to the organization increases substantially.

The End-Goal of Continuous Accounting

The goal of Continuous Accounting is to create a more synergistic organization where accounting and finance have a seat at the table. The most effective decisions are made when different departments make them together, with the real-time reporting data that tells the full story.

But a series of steps are required to take you from doing nothing to a fully Continuous Accounting approach. And it’s essential to start by defining the end state so you know exactly what you want to work toward. You can then work backwards to break down and delegate the steps that will get you there.

These five steps provide a framework to get you started:

Evaluate your existing processes first, to avoid automating bad processes.
Thoroughly research the best finance automation solution to ensure that you implement the right technology.
Focus on the benefits – instead of your fear of change.
Start small with a stepwise approach that will prove the risk mitigating benefits of Continuous Accounting
Begin to view industry advancements as improvements, so you can recognize the most beneficial opportunities.

Continuing to repeat these steps will shift your mindset and create a ripple effect in your organization. You’ll begin to see a reduction of risk, more timely data for business decisions, and a better utilized, more engaged accounting team.

And eventually, you will realize that the uncertainty and discomfort of change have become worth it – if not a little more manageable.

Driving Your Organization to the Next Level

It may seem like less effort to stay where you are. But waiting to implement a Continuous Accounting approach could come at a much greater cost, putting you at a disadvantage that may ultimately leave you reeling.

Change is inevitable for any company striving to create competitive advantage and staying stagnant is far riskier than implementing new technology to improve old processes. For this reason, getting comfortable with being uncomfortable can drive your organization to the next level.

This blog post was originally published on the BlackLine blog.

Revenue Cycle Management

February 23, 2023 by Revelwood

This is a guest post from our partner BlackLine, explaining how revenue cycle management helps businesses be more responsive to changing market conditions.

Today’s business environment is more dynamic than ever. Business leaders are focused on strategic initiatives to position their companies for long-term growth, to gain competitive advantage, and to drive shareholder value.

Top of mind for many business leaders are topics like recruiting and retaining top talent, remote work enablement, mergers and acquisitions (M&A), and digital transformation, to name a few.

As business leaders focus on making strategic decisions around these areas, accounting teams are being increasingly relied upon to provide data and insights and to serve as strategic advisors to the business.

This post is part of a series that discusses areas of focus that require active accounting input, why it matters to accounting leaders, and the risk of doing nothing.

Cash is King

The revenue cycle, or order to cash cycle, refers to the entirety of a company’s ordering system and can involve many departments — from sales and accounting to inventory and logistics. It starts the moment a customer places an order and continues through when an invoice is settled, and all activity in between is recorded and reconciled.

All eyes are on the revenue cycle. Not just because it’s an essential function in finance and usually carries the most risk, but because it is a critical part of how an organization functions. The efficiency and effectiveness of the revenue cycle has an impact beyond sales and finance, including customer experience and retention, investor decision-making, and future organizational strategy.

From an investor, net income, and EBITDA perspective, the most important part of the revenue cycle is not what is invoiced, shipped, or billed, but rather what is collected. According to a PwC report, improved working capital management could unlock $1.4 trillion globally, increasing the return on invested capital by 8.8%. Maximizing profit is the end goal, and therefore limiting write downs, closing the gap between gross and net revenue and limiting the reasons companies fail to collect are of paramount importance. Further, cash flow fuels critical business strategies from maintaining customer service to investing in new areas, and so as they say: cash is king.

The Bottom Line

There are several reasons why a company fails to collect on what they invoice, but manual processes are the biggest driver. Within the revenue cycle, Finance and Accounting is dealing with a tremendous volume of individual transactions. When there is not an automated process for handling that data at scale, the result is preventable, but unavoidable, write-offs.

MGI Research estimates that 42% of companies experience some form of revenue leakage and according to a study published by EY, on average companies can expect 1-5% of realized EBITA to leakage, causing a direct hit to the bottom line. As such, this is not just a reconciliation problem—or even just an accounting and finance problem—it’s a bottom-line issue that company leaders and investors will notice.

Given the attention on cash in the current market conditions, it is of utmost importance to take action over areas that we can control and, in doing so, position our organizations and our companies for success.

This blog post was originally published on the BlackLine blog.

BlackLine Demo: Balance Sheet Reconciliation Modules

February 16, 2023 by Revelwood

Did you know BlackLine’s modern accounting software has many time-saving features in its balance sheet reconciliation module?

In this video, Adam Riskin, financial close and consolidation practice leader at Revelwood, shows you how to save time on balance sheet reconciliations when using BlackLine. These features include:

Auto certification rules
Populating GL balances
Reporting

Watch this video to learn how to use BlackLine for balance sheet reconciliations.

Revelwood is a BlackLine Gold Solution Provider with a team of former accountants and financial systems professionals. We help companies streamline, automate and modernize time-consuming accounting tasks for transformative changes in accounting processes.

Watch more BlackLine demos and videos:

Loading Subledger Data Directly Into a Reconciliation with BlackLine

Month-End Close Checklist with BlackLine

Matching Records from Multiple Files with BlackLine

BlackLine Names Revelwood 2022 Americas Solution Provider of the Year and 2022 Americas Newcomer Partner Award

February 6, 2023 by Revelwood

In July 2021 we joined the BlackLine Solution Provider program – and today we announced that BlackLine has named Revelwood the 2022 Americas Solution Provider of the Year and the 2022 Americas Newcomer Partner award. These awards were announced at BlackLine’s recent annual partner kickoff. But that’s not all our news! We’ve also recently become a BlackLine Gold Solution Provider for 2023, the highest tier possible!

“Revelwood became a BlackLine partner one and a half years ago,” said Jess Tan, regional vice president, Global Channels, Software & Cloud Alliances at BlackLine. “Since then, Revelwood has been all in on their partnership with BlackLine, and it shows. Revelwood went from a new partner to driving the highest annual contract value of any partner in the Americas. These results show true dedication and focus from the team at Revelwood.”

This recognition is evidence of the hard work of Revelwood’s Financial Close & Consolidation practice. “We’ve spent the last year and a half investing in our BlackLine practice,” said Adam Riskin, practice leader, Financial Close and Consolidation, Revelwood. “This has included not just hiring team members dedicated to the practice, but also earning BlackLine certifications, launching an ongoing webinar series, creating video demos and, of course, performing successful implementations for our clients.”

“We are very selective about the partners we work with,” said Ken Wolf, CEO, Revelwood. “These two awards are a testament to what we can achieve together for our clients when working with a company that truly understands the meaning of partnership. We look forward to more continued successes helping companies adopt BlackLine accounting solutions.”

Read the full press release announcing these awards and recognition.

Learn more about Revelwood’s partnership with BlackLine

Watch Revelwood’s BlackLine Demos

Watch Revelwood’s On-Demand BlackLine Webinars

Revelwood to Join BlackLine Global Solution Provider Partner Program to Deliver Industry-Leading Accounting Automation Software

BlackLine Demo: Bank Reconciliations

February 2, 2023 by Revelwood

Did you know BlackLine’s modern accounting software can help you automate and streamline bank reconciliations?

In this video, Adam Riskin, financial close and consolidation practice leader at Revelwood, shows you how fast and easy it is to perform bank reconciliations in BlackLine.

Today most companies use Excel to do bank reconciliations. They import the bank statement data into Excel. They also import the General Ledger journal entries into Excel. Then they do a side-by-side comparison. This is tedious and can be error-prone.

Watch this video to learn how BlackLine uses matching logic on bank reconciliations.

Watch more BlackLine demos and videos:

Loading Subledger Data Directly Into a Reconciliation with BlackLine

Month-End Close Checklist with BlackLine

Matching Records from Multiple Files with BlackLine

Financial Close & Consolidation: The Vital Need for Automating Accounting

January 12, 2023 by Revelwood

This is a guest post from our partner BlackLine, detailing a recent PwC report that highlights the need to automate accounts receivable.

Are corporations that need to protect working capital prepared for the coming financial headwinds?

In today’s world of accounting management, uncertainty and market volatility have become the norm. Ongoing financial and political upheavals have led CFOs and accounting teams, seeking to protect net working capital (NWC), to make decisions in a crisis-to-crisis fashion.

Corporations should therefore pay close attention to the most recent PwC report. “Working Capital Study 22/23” provides an all-too-real overview of how corporations are trying to navigate market uncertainties and why they should consider making adjustments to their financial strategies.

At the outset, the report highlights a few positive NWC ratio indicators. Since 2020, there has been a 2.5% fall in annual NWC day (a five-year low), a €0.8 trillion increase in working capital, and continued recovery from the heightened levels of the pandemic.

But the report also warns about “trouble brewing under the surface.” It speaks to impending financial “headwinds” that include rising inflation, supply chain disruptions, and the war in Ukraine and characterizes companies around the world as being unprepared for what’s to come:

PWC writes, “So is this the cue for high fives all round and a sigh of relief for having weathered the storm? Unfortunately, the short answer is no. The working capital ratios set out in the last annual financial statements show some signs of recovery. But, when we dig into the details, there are still some worrying trends and untapped opportunities to boost capital efficiency.”

To properly and sustainably protect NWC and manage accounting processes, it’s critical that companies ask some key questions:

How are we currently reacting to post-pandemic market curveballs?
How do these behaviors fit into our long-term business strategies?
Could these reactions be negatively impacting NWC?
Do we have untapped resources that could help develop more sustainable strategies to combat unpredictable market volatility?

Let’s take a look at what corporations are currently doing to try to guard against economic “turbulence” and how they can develop better long-term financial strategies to combat today’s market uncertainties.

“Just-in-Case” Approaches

The overall picture of cash position as laid out in the PwC report—declining by 10% in 2021 from 70 to 63 days—is encouraging and indicates that companies are operating with a “cash buffer to withstand uncertainties.”

Yet the report raises the concern that there is a “lag” that may lead to “a false sense of security.” Furthermore, as corporations try to stay ahead of unrelenting supply chain disruption, they adopt “just-in-case” approaches, such as:

Over-ordering, which can lead to inventory levels that fail to match market demand
High stock write-offs
Increased allocation planning driven by shortfalls and constrained capacity

Reactionary approaches might provide some salve, but they also exponentially increase “the risks of future obsolescence by extending the response time to dips in demand, as well as increased capital consumption from running at higher safety stock levels.”

The report states that corporations seem to be missing the fact that inventory performance has remained largely static. “Improvements in the working capital ratio have stalled,” the report notes. “And while it is still better than before the pandemic, we’re starting to see more signs of supply chain disruption filtering through to working capital performance.”

These issues are exacerbated by rising inflation (which the report predicts will continue for the next two years) and less access to borrowing due to rising interest rates. With central banks increasing interest rates to combat inflation around the world, corporate cash flows are coming under intense pressure. The result of this “lending squeeze” will mean that both funding and working capital will become more costly.

Driving Efficiency & Financial Resilience

With predictions of slow and weak growth, stubborn inflationary pressure, and high financing costs, the report encourages corporations wanting to protect working capital, steer through economic turbulence, and boost growth to ask themselves some key strategic questions. For example:

What is the optimal level of working capital for their businesses?
What adverse economic developments could jeopardize their working capital position?
How can they uncover and release cash that’s tied up?
Are operational processes ready to react to future disruption and proactively protect cash flow?

It’s worth zeroing in on that last question about readiness. It underscores the need for companies to adopt automated AR processes to free up working capital not available to treasury and lines of credit. This allows customers to keep spending and minimizes risk, bad debt, and revenue being backed out of the business.

By expanding team capacity and improving decision intelligence, organizations will be able to optimize working capital, brace for ongoing market shifts and volatility, and strengthen sustainable planning and growth efforts.

Improve Resiliency by Optimizing Working Capital

With “wider economic and liquidity headwinds looming” and debt funding becoming more expensive, the PwC report indicates that companies should “rethink” the way they approach working capital and stock reduction write-downs.

“The pressure on liquidity is steadily increasing,” states the report. “This makes it more important than ever to sharpen your focus on cash flow management and drive working capital optimization.”

But just how to get there? Is there a way for companies to achieve accounts receivable excellence in order to mitigate the evolving pressures on working capital?

BlackLine answers that question with a resounding yes. We’re accustomed to working with organizations needing to protect working capital so they can optimize AR business performance and soften the impact of inflation pressures, interest rate hikes, and supply chain bottlenecks.

We do this through the adoption of next-generation, intelligent AR automation, an approach that gains efficiencies across processes, departments, and global entities, saving many hours of staff time and, even more importantly, strengthening organizations’ ability to navigate unpredictable, volatile market changes.

By replacing inefficient, manual AR processes, companies can increase working capital. They are also better able to manage behavioral changes of customers facing cash crises, work through supply chain disruptions, and quickly prioritize payment processes, effectively reducing days sales outstanding (DSO) lag time.

Accounts receivable optimization helps to offset the problems created by operating in “just-in-case” mode and address issues in holistic, sustainable ways, such as:

Optimizing business performance. Increases working capital and availability of cash that are critical to a company’s success; collects more cash and significantly reduces DSO by increasing overall productivity and prioritizing the actions that have the highest impact.
Maximizing AR team capacity and efficiency. Improves productivity and morale while reducing costs by eliminating manual and error-prone processes; elevates control, gains visibility, and measures all parts of the process while achieving global standardization.
Elevating AR intelligence and data-driven decisions. Improves clarity and real-time decision intelligence by providing the most accurate, up-to-date data that’s critical for sales, operations, and treasury departments.
Improving customer and business relationships. Better communication and operational efficiency allow companies to become more reliable, trusted business partners, which could not be more important in challenging times.

According to the report, companies trying to protect working capital are sitting on unused resources. In fact, PwC estimates that companies have on their balance sheets €1.49 trillion in excess working capital, “money that could be put to much more productive uses.” One effective use of this surplus would be to automate AR systems.

This blog post was originally published on the BlackLine blog.

Modern Accounting: Adjusting Journal Entries

December 8, 2022 by Revelwood

This is a guest post from David Brightman at our partner BlackLine, explaining why it’s necessary to adjust journal entries.

What Are Adjusting Journal Entries?

Adjusting journal entries are used to adjust a company’s financial statements and bring them into compliance with relevant accounting standards, such as generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). The activity of adjusting journal entries is routinely performed by accountants to allocate income and expenses to the actual period in which the income or expense occurred or earned—a feature of accrual accounting.

Five Common Types of Adjusting Journal Entries

There are many different types of adjusting journal entries, but the five most common types are:

1) Accrued revenue is revenue that has been recognized by the business, but the customer has not yet been billed. This type of revenue is common in service-related businesses, as services can be performed several months before a customer is invoiced. Revenue must be accrued, otherwise revenue totals would be understated, especially compared to expenses for the period.

2) Accrued expenses are those that have been incurred before they have been paid. For example, a company purchases supplies from a vendor but has not yet received an invoice for the purchase. Other examples of accrued expenses include interest payments on loans, warranties on products or services, and taxes.

3) Deferred revenues indicate when a company receives payment in advance of work that has not yet been completed. This is common for professional firms that work on a retainer—such as a law or CPA firm. A client may pay in advance for work that is to be done over a period of time. When the revenue is later earned, the journal entry is reversed.

4) Prepaid expenses need to be recorded as an adjusting entry. Many companies prepay rent for an entire year. The company will record the expense each month for the next 12 months to account for the rental payment properly. Without this, financial statements will reflect an unusually high rental expense in one month, followed by no rental expenses at all for the following months.

5) Depreciation expenses, including depreciation expense and accumulated depreciation, need to be posted to properly expense the useful life of a fixed asset. Depreciation is a fixed cost and does not negatively affect cash flow, but the balance sheet would show accumulated depreciation as a contra account under fixed assets.

Given the nature of adjusting entries, they often impact both the balance sheet and the income statement. Adjusting entries are also used to correct financial errors and must be completed before a company’s financial statements can be issued. For example, something is capitalized and booked to a Fixed Asset account that, under company policy, should be booked to an expense account like Supplies Expense, or vice versa.

Where Do Adjusting Journal Entries Fit into the Financial Close Process?

At the end of each financial period, accountants go through all the prepaid and accrued expenses as well as unearned and accrued revenue and identify necessary adjusting entries.

This is often a time-consuming process that involves spreadsheets to track expenses and payments made against those expenses as well as revenue earned and payments received against that revenue.

These adjustments are often a result of the account reconciliation process during the financial close. They may also be detected by doing variance analysis of account balances to detect any unusual balance fluctuations.

How to Record Adjusting Journal Entries

When the need for an adjusting journal entry is identified, accountants prepare the journal entry to credit and debit appropriate accounts. In theory, the process for recording an adjusting journal entry can be broken into 3 steps:

1) Determine the current account balance

2) Determine what the current balance should be

3) Record an adjusting entry

This is likely oversimplifying, since companies may have hundreds or thousands of adjusting journal entries to make each period, but it gives an overview of the process needed for each entry. In addition, adjusting journal entries should include supporting documentation, links to applicable policies and procedures, and be properly reviewed and approved before being posted.

Examples of Adjusting Journal Entries

One example is to accrue for unpaid wages at month-end. A potentially more intricate example may be rebate accruals. Rebates are payments made back to you from a supplier (or from you to a customer) retrospectively, reducing the overall cost of a product or service.

In this case, you may have an arrangement with a supplier to earn a quarterly rebate based on your overall spend with that supplier. Imagine the supplier’s policy is to pay the rebate at the end of the year. Then, from an accounting perspective, this may need to be accrued for when the rebate is earned, not when it is received.

When preparing the entry, it’s helpful to reference your company’s policy and procedure to ensure compliance, and it is best practice to attach supporting documents to the journal entry, like the contract and terms. This will help speed up the approval process, as well as any audit work later.

This blog post was originally published on the BlackLine blog.

BlackLine

Survey Results of F&A Executives & Professionals

Trust (or Lack of) in the Numbers

How Financial Automation Helps Increase Confidence in the Numbers

Read more about Financial Close & Consolidation:

Technology Powering Transformation

Major Leadership Challenges For 2023

Transformation & Technology Priorities

Other BlackLine Predictions for 2023

Read more about Financial Close and Consolidation:

The Risk of Doing Nothing

Reducing the Resistance with Continuous Accounting

The End-Goal of Continuous Accounting

Driving Your Organization to the Next Level

Read more Financial Close & Consolidation

Cash is King

The Bottom Line

Read more about Financial Close and Consolidation:

Watch more BlackLine demos and videos:

Learn more about Revelwood’s partnership with BlackLine

Watch more BlackLine demos and videos:

“Just-in-Case” Approaches

Driving Efficiency & Financial Resilience

Improve Resiliency by Optimizing Working Capital

Read more about Modern Accounting:

What Are Adjusting Journal Entries?

Five Common Types of Adjusting Journal Entries

Where Do Adjusting Journal Entries Fit into the Financial Close Process?

How to Record Adjusting Journal Entries

Examples of Adjusting Journal Entries

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