In my last blog, I described the two methods available for importing the opening balances from the legacy system into the new system. In this blog, I will explain the methods and the pros/cons of each method:

Create a new G/L account as the balancing account

Let’s say that the new G/L account is called “Suspense Account”. Here is how the sub ledger balances will be brought over:

  • For each invoice on the Customer AR: Debit Accounts Receivables/Customer Ledger, Credit Suspense Account
  • For each invoice on the Vendor AP: Credit Accounts Payable/Vendor Ledger, Debit Suspense Account
  • For each stock entry: Debit Inventory Account/Inventory Ledger, Credit Suspense Account

When bringing in the G/L balances, the AR, AP and Inventory balances will be posted to the Suspense Account, making it back to zero.

This method gives complete control and validation of the balances and is my personal favourite. If there are any reconciliation differences between sub ledger and the G/L account balance, the balance in the suspense account will not become zero and will force the reconciliation.

Unfortunately, the G/L account may never be used again and will just use up space in the any accounts based reports.

Use the same control account as the balancing account

Using this method, this is how the entries will look like:

  • For each invoice on the Customer AR: Debit Accounts Receivables/Customer Ledger, Credit Accouts Receivable G/L account
  • For each invoice on the Vendor AP: Credit Accounts Payable/Vendor Ledger, Debit Accounts Payable G/L account
  • For each stock entry: Debit Inventory Account/Inventory Ledger, Credit Inventory G/L account

The balances in these control accounts will be zero and you can easily bring in G/L balances without any need to create a separate G/L account.

The advantage of this method is that there is no need to create an extra G/L account but the disadvantage is that extra entries (the balancing ones) are posted to the same account, making it very hard to read if you need to refer to the opening balance entries.

For the past 15 years, I have always used Method 1 and have always found that it forced the client to make sure that their balances are reconciled and accurate and there are no issues in the future.

Which method do you prefer? And why? I would love to know :)

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Written By Ruby Usman

Having completed a Bachelors degree in Mechanical Engineering and an MBA, Ruby spent several years working in I.T. before becoming a NAV specialist in 2000. Ruby has worked on numerous implementations involving finance, manufacturing, warehousing and service. She joined Fenwick Software in 2010. Ruby manages the blog and is a mentor to some of our junior staff.

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