Let’s say you have a large customer with a huge number of small-dollar unapplied credit memos, invoices, unapplied cash, debit memos, and deductions. For arguments sake, let’s suppose you can round up 1,200 credit memos totaling  $625,000, and 1,600 deductions totaling $615,000, all un-matched for one reason or another. So you have a great idea to get rid of 2,800 accounts receivable items with one journal entry, and reduce the aging on this account by 56 pages, making the account a breeze for your collectors to manage.

What could go wrong?

  • First, and most obvious, is that the customer will deduct for many of the credits you are writing off and you will have to eat the loss because there is no offsetting credit entry, or if your audit trail is good (few are), you will have to unearth the credit and then do it correctly.
  • Secondly, the accounts payable post auditors may submit a double deduction two years later, and you will be stuck, unable to prove credit memo.
  • Thirdly, your accountants will have a problem with this practice, delaying your audit results if they find out.
  • Lastly, the highly remote application of Escheatment rules to unapplied credit memos and cash as “unclaimed property”.

Keep in mind, though, that it is your responsibility as well as proper accounting practice to correctly apply these transactions, and that is when good reconciliation technology is necessary, as the best systems, by using multiple matching criteria and powerful computing, can make short work of this problem. We at Leib have the service, enabled by our great Carixa technology, that is the solution to reconciliation problems of any scope or complexity.