January 3, 2013

Overdraft Entries using Automatic Journal Entries Introduction: The overdraft Tab of the Automatic Journal Entries setup is used to allow the proper presentation of the Cash account(s) on your Financial Statements. If the cash balance is positive, you would like the Cash account to display in the Current Assets section of the balance sheet for example. When the balance is negative, in the Current Liabilities area. There is no reason to manually update your financials every month to get this appearance. Setup involved: Creative Solutions Accounting gives you the ability to transfer a negative amount for an account(s) to a different account depending on its balance. In an overdraft situation we want a credit balance in the asset account to flow into a different account, usually a liability, so it shows correctly on the financial statement. CSA will track these balances as you advance your client’s General Ledger periods. Using the Overdraft feature in Automatic Journal Entries (AJE), we can transfer the balance to a liability account for reporting purposes. It is helpful to setup the AJE before you start processing in a client. Let’s look at how we would setup the AJE: Create the needed Overdraft Account(s) In our CSAADVANCE client, our cash account is 101 “Checking-General”. We need to setup an overdraft account for the credit balance to flow to if we are in an overdraft situation. Add a new account called ‘Cash Overdraft’ to the cart of accounts. To be consistent with our Chart of Accounts, we’ll add this as number 200 and code it as a Liability.

Create the Automatic Journal Entry: From your menu bar, select Setup | Automatic Journal Entries. Next select Add and go to the Overdraft Tab. We want to enter a Reference number, Description, and the Journal to post the transactions to if we are using multiple journals. 1. Our reference is 44 2. Description will be “Cash Overdraft Calculation” 3. Select Automatic Journal Entries from the Journal drop down box. Next, we want to enter the account or range of accounts we want CSA to calculate from. This will always look at the year to date amounts when calculating. Our cash account is 101 and when the system sees this account less than zero, it will move the balances into a second account. Enter the account or range of 101 to 101. Next we need to enter the account number we want to distribute the negative balance to. This is our newly added account (200) called “Cash Overdraft” and this will be our distributed account. Note: If you enter an account that doesn’t exist, the system will prompt you and you can add it on the fly.

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January 3, 2013 There is also a reversing option that is grayed out. This AJE will automatically reverse when the general ledger period is advanced placing the balance back into the Asset Cash account(101). Finally, we must setup the “Compare to” section. This section is like a conditional expression where you can setup the condition to be met to perform the automatic journal entry. In the first field, we should select the “less than” sign. The second field should be set to 0.00. So, if the range of accounts balance is less than zero, it will transfer the amount to the overdraft account. Here is what the AJE looks like:

What actually happens in the Chart of Account balances? When account 101 has a positive debit balance, nothing is changed. The presentation in the balance sheet looks normal and the overdraft AJE doesn’t display in transaction data entry. Cash here has an $18,236.21 debit balance and shows in the Balance Sheet under Current assets.

For the purposes of this exercise make a test journal entry to adjust cash by $20,000 giving it a credit balance. $18,23 6.21 - $20,000 = ($1,763.79).

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January 3, 2013 After this “dummy” transaction is created and posted, the following AJE is created. The AJE makes the cash balance of account 101 have a zero balance and places the balance in our overdraft account 200:

As you move through the periods of the year and process more transactions, the AJE will recalculate again and again to determine if the year to date amount is still less than zero and, if it is, will again post the credit balance to the “Overdraft” account. When the period is complete, it will reverse itself back out. Once the period is advanced, the automatic journal entry will reverse, so the original credit balance will then appear in the “Checking: General” account, and the “Overdraft” account will then be zero. Important!! There is no need to post transactions directly to the Overdraft account (200). Posting transactions to this account will not allow the balance to return to zero in the period that cash has a debit balance. How can I see the calculation? The AJE Diagnostics dialog shows how the selected automatic journal entry was computed by the program. When the Transactions window is active, select Automatic Journal Entry Diagnostics from the Edit menu or from the F3 or right-click context menu.

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January 3, 2013 Account Group Setup: There is one simple change that must be made in the Account Group Setup in order for the overdraft account to show on the Balance sheet. The “Current Liabilities” account group MUST include our new Overdraft account. Add it to the Current Liabilities account group that you use on your statement(s). In our sample client we have updated the CurrentLiabilities to include account 200.

The Balance Sheet: Below is how the overdraft is displayed on the Balance Sheet after posting 2 years of transactions. Cash in this client has a credit balance of $1,763.79 for 2003 and had a debit balance of $81,252.44 in 2002. CSA places a zero balance in the prior or future year depending where the balances are. If both years had a zero balance, the row would not display in the statement by default.

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January 3, 2013 Making adjustments to prior periods: The AJE will look only at the year to date amount. If the current period has a credit balance, but the year to date still has a debit balance, no automatic entry will be made. In order for every period to be adjusted by the overdraft AJE(if needed), you must post every period; the system will prompt you if this is needed.

Making adjustments to the cash account in prior periods will prompt the system to recalculate the AJE. CSA will check the amount in the cash account(s), the AJE will recalculate, and the Reversing entry is adjusted as well. When you move ahead to the current period, the AJE will recalculate, and remove the reversing entry if needed. If an adjustment was made in the prior period to further increase the credit amount, the AJE will recalculate to reflect the amount, and the reversing entry will also be adjusted. Multiple Overdraft accounts Depending how you would like the Cash displayed on your financials, you have many options available. You could have the AJE look at a range of accounts to see if they are a negative amount. This would be in cases when your client has multiple cash accounts and you want to display them all lump summed together as “cash” on the balance sheet. If you want to display each cash account separate and each is an overdraft account, you will need multiple AJEs; one for each cash account.

When doesn’t the Overdraft AJE work on your clients? The AJE Overdraft calculation will only work in GL periods that have transactions to support the Chart of Accounts balances. Balances that are imported, converted or created in prior periods with no transactions are no longer saved and can not be updated by the AJE. This may mean that the AJE will only update balances going forward after you set it up. If you have transactions saved for your prior periods, simply setup the AJE and move to the prior periods and post every month. This will adjust every period and the Chart of Accounts balance will be updated. Again, the AJE will only work in periods with transaction details. You may check this by printing a General Ledger for the prior year(s). If no transactions exist, the general ledger report will be blank. In these situations you will want to start using the AJE calculation and manually make adjustments to the financial statement for at least one year. The easiest way to make a field print with a zero balance is to simply click in the cell contents you want to display as a zero balance and put a zero in the field. This will overwrite the calculated amount Bank Rec considerations The Bank Rec are of CSA will not show or be effected by setting up the Overdraft account. It will pull in the negative cash balance into the bank rec and it can be processed just like any other client without overdraft entries.

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January 3, 2013 Other AJE’s The Overdraft AJE is always calculated last; so if you have other Age’s that affect cash; the overdraft AJE will take into consideration those entries.

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