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No Ordinary Journals: Top-Side & Post-Close

February 13, 2010

In the world of journal entries, manual non-routine journal entries are the riskiest.  Among them, top-side and post-close journal entries are especially dangerous (here is a diagram of where the others fall on the riskiness scale). Why? 

Top-side journal entries are recorded at the corporate level, typically after financials are consolidated.  They do not flow through to the sub ledgers / subsidiary ledgers. Because they don’t hit the lower-level books, the subsidiary is often not aware of these transactions, and cannot validate them or provide input even if the transactions are specific to the subsidiary.

Post-close journal entries “hit” a prior month’s financials–financials that have already been finalized. Changing the books after it’s been reviewed and finalized by everyone is a big deal.  What’s more, these journals can easily be overlooked because they do not affect current month performance. 

Here are a few ways to prevent abuse, catch errors, and give peace of mind on top-side and post-close journal entries…if you must use them.

  • Generate directly from the system a list of all top-side and post-close entries recorded before finalizing the financial statements for the month. Even if this list is empty most of the time (which is ideal!), it’s important to do this every month so that you know when these journals pop. It is also important that the list is system generated and not manually compiled.
  • Set the system to auto reverse top-side entries if they are temporary, so for instance, if these are “placeholders” until the overnight “batching” updates in the GL. That way no one has to remember to go back into the system and back them out. The close is hectic. Having to manually reverse top-side entries during this time is just one more activity that burdens the close process.
  • Only allow one or two people in the department to have system rights to record these types of entries.
  • No matter the amount, make sure that all top-side and post-close journals are approved by senior management before posting—like the VP of Finance or CFO. As these are no ordinary entries, they need no ordinary approval. Senior management likes to focus on the big picture hates to dwell in transactions, so one added benefit to this will be fewer entries flowing through.

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The Back Office Mechanics Blog by Nancy Wu is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.

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