SUMMARY: This best practice guide provides a step by step approach to reconciling the total of a prior period A/R or A/P aging to the A/R or A/P control account balance on the balance sheet for the same prior accounting period. If reconciling the A/R aging or A/P aging through today with the current control account on the balance sheet is the problem, please see the best practice guides on this topic by clicking the links above.

As with reconciling the aging through today with the current A/R or A/P control account balance, the source of the difference between the total of the prior period aging and the A/R or A/P control account balance on the balance sheet for the prior period can’t be known apart from going through each step below, then determining if that step completely or partially fixed the difference

The difference can be caused by an incorrect control account balance for the prior period, an incorrect prior period aging total, or a combination of the two. This best practice guide will address those two areas, then conclude with an Appendix covering common issues with the prior period aging that don’t impact the total of the report.

Fixing Problems with the Prior Period A/R or A/P Control Account Balance

The essential first step to reconciling a prior period aging to the prior period control account balance is to reconcile the aging through today with the current balance in the control account. Reconciling these will often modify the control account balance, which in turn can help the prior period aging reconcile to the prior period control account balance.

First review the best practice guides on reconciling the A/R aging or A/P aging through today with the current control account balance and make sure these agree before proceeding with this best practice guide.

Other reasons exist that can cause the prior period control account to have an incorrect balance. One to be aware of is when voiding checks. When voiding checks in C&P, if the check’s accounting period is locked, the user is presented with the option to void it into the current accounting period . If the user voids it in the current accounting period, this will cause the prior period aging not to agree to the prior period control account balance for the period of the check.

However, this will net out in the current accounting period where the prior period aging and the prior period control account will again agree. Likewise, if a C&P user had to manually adjust the control account to make the aging through today and the current control account balance agree, then most likely the prior period aging and the prior period control account balance won’t agree until the period into which the adjustment was made.

Fixing Problem Invoices on the Prior Period Aging

To effectively fix any problem invoices on a prior period aging, one needs to first understand the underlying dynamics of how C&P generates a prior period aging, which is different from how it generates an aging through today.

Where the aging through today simply generates a list of invoices that currently have a balance due, a prior period aging rebuilds the aging through the prior period evaluating every invoice and payment in the database. It does this through a two step process. First, it determines which invoices and payments are in a period after the chosen prior period (i.e. in the “future”).

These invoices and payments are excluded from the second step where C&P applies the remaining payments against the remaining invoices. Any invoices with a balance due after this is done will print on the prior period aging for the chosen period.

Two conditions must be met for C&P to consider an invoice or payment to be in a period after the period for which the prior period aging is being run. First, the period of the invoice or payment must be after the period chosen for the report. Second, the date of the invoice or payment must be after the first day of the fiscal year (located in Preferences > Accounting Periods).

When C&P incorrectly determines what invoices or payments happened in the future, this in turn will cause the rebuilding of the prior period aging to be incorrect. This will have the result of an invoice printing on the prior period aging that should not be there and/or an invoice that does not print on the prior period aging that should be there.

How to Find Problem Invoices Adversely Impacting the Prior Period Aging

First, do an initial pass and look for invoices that obviously should not be on the prior period aging through the period chosen for the report. Generally, this is an old invoice that for sure was already paid before the period chosen on the report.

Second, compare the prior period aging for the current period with the aging through today and see where they disagree. Check client by client or vendor by vendor looking for invoices on the aging through today that are not on the prior period aging, and vice versa, invoices not on the aging through today that are on the prior period aging. This is done by moving the current accounting period in preferences forward one period, which will then permit the current accounting period to be chosen as a prior period on the aging report.

How to Fix Problem Invoices Adversely Impacting the Prior Period Aging

Solution #1: Correctly Set the First Day of the Fiscal Year

If the current accounting period is 1 - 12, then set the first day off the fiscal year to the first day of period 1. If the current accounting period is set to period 13 or later, then set the the first day of the fiscal year to the first day of period 13. The current accounting period and the first day of the fiscal year are set under Preferences > Accounting Periods.

It’s essential that the first day of the fiscal year is set correctly due to it’s importance in determining if an invoice or payment happened in the “future” and because C&P will recalculate the first day of the fiscal year when running the prior period aging when the current accounting period is 13 or later.

Solution #2: Match the Period and Date on Invoices and Payments

Though C&P allows the date on an invoice or payment to be different than the accounting period on the record, doing this can cause problems on a prior period aging, especially for period 12 invoices or payments dated in the next fiscal year . To avoid this problem, make sure invoices and payments are given a date that matches the accounting period on the record.

To fix such problem invoices or payments, unpost them, edit the date only to match the period of the record, then repost them.

TIP: If some of these invoices and payments date back before the first day of the fiscal year, then to unpost them first change the first day of the fiscal year to before the date of the invoice or payment. C&P will now allow it to be unposted. Then only edit the date, repost it, then change back the first day of the fiscal year. Though this invoice or payment will unpost/repost into the current accounting year, the G/L activity this creates will offset to zero in the period of the invoice or payment.

Below are examples of what can happen when the date does not match the accounting period on invoices and payments. Again, the biggest area of concern are period 12 invoices and payments that are dated in the next fiscal year:

Invoice Period and Date Mismatching Examples:

Using a calendar fiscal year where the first day of the year is the first day in January, an invoice is posted with an accounting period of 12 (December), but then given an invoice date in January of the next fiscal year. Later in the next fiscal year, after closing the accounting year, a prior period aging is run for the end the first quarter (now period 3 after closing the year). This invoice has not been paid through period 3, so it should show up on the prior period aging with a balance due. However, it will not show up because it meets the two conditions mentioned earlier for determining “future” invoices. It’s period is after period 3 and it’s date is after the first day of the fiscal year. C&P thinks the invoice was entered in period 12 of the current fiscal year and thus excludes it when rebuilding the aging through period 3.

The opposite situation is possible, but not as probable, where a “future” invoice is incorrectly included on a prior period aging. This is because it would require an invoice to be back dated into the prior fiscal year and have a period after the period for which the prior period aging is being run. This normally only happens due to user error when entering the date for the invoice, where with the situation above, a user may knowingly future date an invoice into the next fiscal year.

Payment Period and Date Mismatching Examples:

An invoice with period 9 is paid in period 12, but this payment is dated in January of the next fiscal year. Running the same period 3 prior period aging after closing the year, this invoice should not print on the report because it was already paid in period 12 of the prior fiscal year. But, the invoice will show up on the report as unpaid because C&P thinks the payment happened in period 12 of the current fiscal year.

Likewise, the opposite situation is possible, where a “future” payment is applied to a prior period invoice, causing this invoice not to print on the prior period aging when it should. As with the invoice example above, this would require the payment to have a period after the period for which the prior period aging is being run, but accidentally back dated into the prior fiscal year.

In conclusion, solutions #1 and #2 above will fix the problem invoices on the prior period aging, where invoices showed up that shouldn’t have, or vice versa, where invoices didn’t show up that should have. Sometimes it’s hard to find all problem invoices, hence why it’s a good idea to check the prior period aging for accuracy every month, which makes finding problem invoices much easier (using the method above where the aging through today is compared to the prior period aging for the current period).

APPENDIX - Correcting Prior Period Aging Columns and Removing Offsetting Invoices

Below are two common situations that don’t impact the totals on the prior period aging, but a C&P accountant should be familiar with how to fix them.

How to correct a prior period aging when all invoices are showing as current (i.e. invoices are not aging correctly in the Current-30-60-90 day columns).

The solution lies in properly setting the first day of the fiscal year. The solution is the same as Problem #1 above, where when the current accounting period is set to period 1-12, the first day of the fiscal year should be set to the first day of period 1, and when the current accounting period is set to period 13 or later, then the first day of the fiscal year should be set to the first day of period 13.

How to remove offsetting positive and negative invoices from the prior period aging.

This happens when a credit invoice is added to offset a positive invoice. When Clients and Profits sees that a client or vendor has no balance, then balances on the offsetting invoices will be automatically cleared (set to zero) when an aging through today is run. However, they will remain on the prior period aging because, in reality, no payments have been entered against them.

To clear offsetting invoices, payments need to be applied against them. However, it’s essential to give these payments the correct accounting period and date so that they are not improperly filtered out as “future” payments. The same principles apply to both client invoices and vendor invoices, but detailed steps for each area are provided below:

HOW TO CLEAR OFFSETTING CLIENT INVOICES FROM THE PRIOR PERIOD AGING

1. Check that the client has a current balance on the aging through today. If not, then add and post a one dollar miscellaneous invoice to temporarily create a balance for this client.

2. Go to Setup > Utilities > Verify/Recover and verify/recover the A/R Account Balance for this client. This will restore the balances to the offsetting A/R invoices so that payments can be applied against them.

3. Go to Accounting > Client Payments. First, add a negative client payment (i.e. negative amount) to clear the negative A/R invoice(s). Debit the suspense account (G/L account # 999998) and credit the A/R control account. Use the same date and period as that on the credit invoice (this ensures the payment is not incorrectly excluded as a “future” payment) . Select only the negative invoice in the distribution window. Save and post the client payment. 

4. Repeat step #3 to add a positive client payment to clear the positive A/R invoice(s) using the same G/L accounts as in step #3. Of course, use the date and period that’s on the positive invoice (which may be different from that on the negative invoice). Note: Do not apply the payment to the one dollar invoice if one was used to create a client balance in step #1.

5. Once the offsetting A/R invoices are cleared off the prior period aging, unpost and delete the one dollar miscellaneous invoice if one was entered to create a client balance in step #1.

NOTE: G/L account balances will not be affected through period 12 because the payments will cancel each other out. Though if the negative and positive invoices had different accounting periods, then the payments will have a net impact in those periods because it’s advised in the steps above that the payments match the period of the respective invoice it is paying.

HOW TO CLEAR OFFSETTING VENDOR INVOICES FROM THE PRIOR PERIOD AGING

1. Check that the vendor has a current balance on the aging through today. If not, then add and post a one dollar overhead invoice to temporarily create a balance for this vendor.

2. Go to Setup > Utilities > Verify/Recover and verify/recover the A/P Account Balance for this vendor . This will restore the balances to the offsetting A/P invoices so that vendor credits can be applied against them.

3. Go to Accounting > Checkbook > Edit > Check Tools > Add Vendor Credit. First, add a negative vendor credit (i.e. negative amount) to clear the negative A/P invoice(s). Credit the suspense account (G/L account # 999998) and debit the A/P control account. Use the same date and period as that on the credit A/P invoice (this ensures the vendor credit is not incorrectly excluded as a “future” payment). Save and post the vendor credit.

4. Repeat step #3 to add a positive vendor credit to clear the positive A/P invoice(s) using the same G/L accounts as in step #3. Of course, use the date and period that’s on the positive invoice (which may be different from that on the negative invoice). Note: Do not apply the vendor credit to the one dollar invoice if one was used to create a vendor balance in step #1.

5. Once the offsetting A/P invoices are cleared off the prior period, unpost and delete the one dollar overhead invoice if one was entered to create a vendor balance in step #1.

NOTE: G/L account balances will not be affected through period 12 because the vendor credits will cancel each other out. Though if the negative and positive invoices had different accounting periods, then the vendor credits will have a net impact in those periods because it’s advised in the steps above that the vendor credits match the period of the respective invoice it is paying.