Automating Accounting for Cash in Transit with QAD Enterprise Applications

Posted on: January 20, 2010 | By: SuperUser Account | QAD Financials

United States base companies continue to use physical checks to pay their suppliers and vendors. These hard/disbursement checks are typically mailed to their recipients via the United States Postal Service. Because of this transit time, these disbursement checks can be outstanding for a number of days until these checks are cleared by intermediate banks and settled at the payer’s bank. At settlement, the funds are withdrawn from the payer’s bank.
Accounting systems typically relieve or reduce the general ledger cash account balance when the physical check is generated. Assuming no adjusting entries are booked, until the check clears the payer’s bank, Current Assets on the Balance Sheet are over-stated and Current Liabilities on the Balance Sheet are under-stated.
To Fairly State the Balance Sheet at accounting period-end, Accountants will make adjusting journal entries to adjust cash and payable balances for the dollar amount of the outstanding checks. Specifically, cash is debit and payables are credited. This adjusting journal entry is neither complex nor difficult to create. It does however lend itself to audit scrutiny as a weakness in a company’s financial internal control environment. This audit scrutiny can be avoided by leveraging the software functionality built into Accounting Systems.
Within the QAD Enterprise Application Software, such functionality exists with its “Payment in Process Software”. Simply stated, when the disbursement check is created in QAD, accounts payable is debited and the liability account called payment in process or cash in transit is credited. When the company receives the list of cleared checks and cancels those checks in QAD, the payment in process account is debited and the cash account is credited. The result of these transactions is a properly stated Balance Sheet and a stronger financial internal control environment.
For more information regarding setup of this functionality, you can contact:
Andrew Vitullo, CPA
Principal, Logan Consulting
312-345-8834 (Office)
330-328-4158 (Mobile)

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