In my previous post, I discussed the basic process for performing GL conversion. In this post, we’ll turn it up a notch and explore the basic journal entry flow as well as examine a few cases of how to handle subledger accounts such as the AP and AR reconciliation accounts.
Journal Entry Flow
One of the defining features of modern accounting is double entry bookkeeping which gives us the core relationship that debits=credits. In order to convert the GL, we take the legacy GL balances and re-inflate them in the new system. Exploiting the fact that debits=credits, then in the new system we can place the original balance in the converted account and then offset that entry to a conversion account. Assuming that all of the balances are converted, then the conversion account should balance to zero.
Take the following legacy trial balance:
Pushing the balances into SAP GL, we see that original balances are inflated where they belong, but that the conversion account is zero.
This flow works well for most accounts. A bit more care is required for GL accounts that are reconciliation accounts. Let’s consider AR and AP first.
Accounts Receivable and Payable
For AR and AP, a straight GL balance does not have enough detail to properly enable the subledger. At the same time, specifically excluding these accounts is a recipe for a mess which will lead to finger pointing and argumentation between the people executing and reconciling each of the conversions. In order to properly delineate the activity from both conversions, we can use the following flow.
From the legacy GL, the AR balance is mapped to an SAP AR conversion GL account. Assuming a debit balance, then our entry debits the AR conversion account and credits the GL conversion account. When the AR conversion occurs, it will zero out the AR conversion account and debit each of the customer accounts and flow through to the AR reconciliation account. Any balance left in the AR conversion account usually indicates unconverted activity or other shenanigans.
Here are the legacy invoices. These are the open invoices.
In the GL conversion, the balance of the AR account is posted into the AR conversion account and offset against the GL conversion account period by period (entries G5-G7). During the AR conversion, each individual invoice must be posted in the go live period to debit the customer account and zero out the AR conversion (entries 1-6).
Accounts Payable is done the exact same way, except the debits and credits are opposite.
Fixed assets have a similar but more complicated problem than AR or AP. There are usually many fixed asset accounts that are set as reconciliation accounts. There are accounts possibly for each asset class for the acquisition value (APC) of the asset as well as the accumulated depreciation. In the simplest flow, two conversion accounts can be used: one for converting the APC values and a second for converting the accumulated depreciation on the assets. In a more complex environment, separate APC and accumulated depreciation conversion accounts are used for each asset class.
Using these flows should help ensure that a GL conversion is successful. Other flows will work, but like this one, the flow must be systematic and well thought out. In the next and final article, I’ll discuss some of the challenges that are commonly seen, where they originate, and how they can be overcome.