As someone who has audited, documented, and designed several dozen accrual accounting processes, one of the worst process flaws I’ve seen is starting accruals before closing AP subledgers. Below are three reasons why it is both painful and risky for GL and AP teams to start accruals prior to closing AP:
If the AP team has not closed because they still have to process all the invoices in their inbox for the month, you’ll lose the ability to display the latest invoices in your system during vendor outreach (note that Gappify’s accrual solution auto-aggregates invoices in email confirms). Vendors who are able to see the latest list of invoices you have (billed) will obviously be in a far superior position to provide accurate estimates of unbilled expenses.
When accrual confirmations are improperly initiated before AP is closed, you’ll add an unnecessary step as AP/GL must now verify that the unbilled expense estimate reported by your vendor did not get processed in AP after booking your accrual JE (i.e., the expense is duplicated as both an accrual and as a late AP invoice entry).
The teams I’ve seen incorrectly post accruals before closing their AP are usually the ones who also close AP later in their month-end close. Doing this holds up your prepaid and fixed asset amortization/depreciation and delays the ability to start and complete your recons.
As many of you know, every single day is critical in a month-end accounting close. Sequencing your close activities properly (such as starting accruals only after AP is closed) can help you potentially shave off precious days from your close process.
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Gappify, founded in 2016, is a cloud-based provider of accrual automation solutions for mid-market and enterprise accounting teams. The company is headquartered in Oakland, California, with offices in New York City, and Manila, Philippines.
Its team consists of accountants and CPA’s from Big Four accounting firms and software innovators. Gappify is also supported by strategic advisors from some of the world’s most recognized technology companies and is affiliated with the top companies & accounting organizations.
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