Report III: Q360 Month End Reconciliation – a Financial Integrity Tool

Part 3 of the Key Report Series: Drill into reports from the Q360 Month End Reconciliation, a financial integrity tool.

In this MasterClass webinar, we explore key month end financial reports users of Q360 should reference as part of month end reconciliation.

This webinar was recorded on March 22, 2023.

Target Audience

• Users in financial roles​
• Users of Q360 (all versions) – demos will use v22.02
• Recommended: Attended and/or reviewed past MasterClass webinar sessions in the Key Report series:
  • “Report I: Recommended Key Reports – Executives”
  • “Report II: Key Reports for Sales and Operations Planning and Execution”

By the end of the session, you will be able to:

• Explain why closing month end is critical
• Identify the purpose of control accounts and associated subledgers
• Identify aspects of account balances and subledgers for further research
• List steps required to perform month end reconciliation
• Identify gaps / issues with processes and incorporate best practices

Agenda:

1. Introduction
2. Definitions – Matching Principle, Control Accounts, Month End Reconciliation Items
3. Steps – Perform Month End Reconciliation
4. Follow Up – Summary, Lessons Learned
5. Q & A
6. Wrap Up

Frequently Asked Questions:

Throughout this webinar, we address several common questions that arise during the Month End Reconciliation process

1. Is it common in most systems to reconcile balance sheet accounts as part of the auditing process? (04:51)  Absolutely.  Auditors need to verify the inherent data that makes up the GL balance on the balance sheet. This data is held in a subledger whose balance needs to be reconciled to the GL. 
2. What is the Matching Principle and why is it important? (07:15)  The matching principle is a fundamental concept in Generally Accepted Accounting Principles (GAAP) / (IFRS for Canadian or Australian customers). It requires that revenues and their associated expenses be recognized in the same accounting period. The purpose of this principle is to provide an accurate representation of a company’s financial performance by reflecting the true economic cost of earning revenues.
3. What is “Difference” and why would I see it on the month end screen? (09:14)  “Difference” is the [Summary-level GL Balance – aggregated totals in Subledger Balance].  This is mostly due to manual entries being created on control accounts (not recommended).  However, the other reason is a process issue where the accounting need is met but the Subledger does not capture the transaction made.
4. What is the best practice for changing control accounts after they have been set up? (10:23)  Do not do this. Please do not change the control accounts once set up on your Company Setup screen.
5. What is an example of a process that might cause AR Balance to not match the Subledger Balance?  (11:52)  An example is when customers post credits directly to the AR GL on a credit invoice and apply the invoice to another AR invoice (thereby duplicating the AR impact) instead of applying the credits to open invoices where credits are made to a revenue GL.   These will show up if you drill into the Difference column of the Month End Reconciliation form.
6. Service Contract Deferred Revenue – what are the typical issues you see here?  (14:34)  The most common scenario is that the GL on the service contract line item is not set to the Deferred Revenue GL.  Another possible issue is that the service contract term is not set correctly and can skew the service revenue recognized. 
7. Project Deferred Revenue – what are the typical issues you see here?  (16:05)  The most common issue seen is where credits are created on the project without removing the projected revenue via a change order on an AR invoice after the project is closed.  
8. Project WIP (project equipment shipped, but not yet costed) – will I see any issues here?  (16:45)  Not unless someone has changed the GL account (see #4 above).  If you see a “Difference” here, contact your Customer Care Team.
9. Inventory Purchase Suspense – What happens when we don’t have timely vendor invoices?  (18:34)  This is an important thing to note since any variance between the PO and the vendor invoice value will need to be accounted for and costed to the project as Purchase Price Variance (PPV) (true cost of the materials is not captured).  Q360 does not allow projects to close if PO’s are not invoiced fully on a project. 
10. Inventory clearing – What best practices might impact this?  (20:38)  We need to watch for an increasing balance.  An increase would indicate that costs are not posting and associated revenue is not being recognized.  This impacts revenue, profitability, and if left un-invoiced for items shipped, your cashflow. 
11. Inventory – Is the RMA process a common area for issues?  What about physical inventory counts? (22:10)  Yes.  This is the most common area of concern.  The RMA process is not followed and inventory is left undervalued.  For Physical counts, the best practice is to perform them routinely to ensure valuation is accurate and obsolete inventory is written off.  This also helps with materials forecasting. 
12. Sales Clearing – What is the most common reason for this to be out of balance?  (22:59)  This happens when the order linked to an invoice is different than the order on which the parts were shipped.
13. Prepaid Expenses – Are the issues with Prepaid similar to those with Deferred Revenue?  (24:52)  Yes.  If the GL is not set to the Prepaid GL or the terms not defined correctly, the subledger can be out of balance or the expense recognized may be incorrect. 
14. Retention – Why is it good practice to have Retention in a separate account? (25:40)  To ensure AR aging is not impacted by the retention, and to prevent retention being reposted in AR aging when providing it to your bank or lending institution. 
15. What are your recommendations for month end checklists?  (29:23)  We recommend each company create a month end checklist based on their company setup and procedures that need to be completed.  It is also a good idea to create an internal project for month end and assign tasks to individuals based on their roles.  Each individual in the team in turn should have their own checklist to complete their tasks effectively.  
16. Inventory Clearing Subledger – What should we look for in the subledger reports?  (36:48)  Any older order line items (sort by date) should be investigated.  Older line items mean costs and associated revenues are not recognized, or the invoice has not gone through to the customer, losing the company money.  It can also mean a process breakdown where invoices may have been sent out manually. 
17. Sales Clearing – What should we look for here?  (37:28)  Any older line items (sort by date) should be looked into.  Older line items mean revenues are not recognized and your liability to ship items has not been met.  It could also mean a process breakdown somewhere along the lines where the order was cancelled but a credit was not generated.