Opening Balance Adjustments
When onboarding to Rillet, you’ll import your historical financial data (contracts, invoices, journal entries, etc.). As this information is added, you may notice differences between your legacy system and Rillet’s calculations for balances such as Deferred Revenue, Prepaid Expenses, Accounts Receivable, and Retained Earnings.
Common Causes of Opening Balance Adjustments
Adjustments are typically required due to:
Changes in revenue recognition methodology (for example, moving from whole-month recognition to daily calculations).
Changes in prepaid amortization methodology.
Removing stale credits from Accounts Receivable (AR) aging.
Errors in prior revenue recognition.
How to Record an Opening Balance Adjustment
To address these differences, the Rillet team will propose an opening balance adjusting journal entry (JE) to be recorded on or before your go-live date.
There are two common methods:
P&L Impact: This method adjusts balances through the Profit and Loss statement. Example: Correcting an error in deferred revenue by posting the offsetting amount to revenue.
DR: Revenue $100
CR: Deferred Revenue $100
Direct Retained Earnings Impact: This method adjusts balances directly to Retained Earnings. Example: Correcting deferred revenue with the offset posted to retained earnings.
DR: Retained Earnings $100
CR: Deferred Revenue $100
Note: It’s a good idea to consult your auditors to confirm the appropriate accounting treatment for your adjustments. This ensures your opening balances are aligned with your accounting policies.
Examples of Opening Balance Adjustments
Example 1: Change in Revenue Recognition Methodology
Suppose you have a customer on a 6-month subscription for $6,000, paid upfront, starting on the 15th of the month. In your legacy system, you recognized a full month of revenue regardless of the start date. In Rillet, you decide to use the Even Period, Prorated First and Last method.
This difference creates a $500 discrepancy on your go-live date.
To update your financials:
DR: Revenue (or Retained Earnings) $500
CR: Deferred Revenue $500
Once recorded, your Rillet subledger will match your balance sheet going forward.
Example 2: Removing stale credits from AR Aging Suppose your legacy system shows an open $1,000 credit in AR Aging. The customer churned two years ago and will not use this credit, so you want to remove it during onboarding.
When migrating your data, Rillet will exclude this stale credit.
To adjust your balances:
DR: Accounts Receivable $1,000
CR: Revenue $1,000
After posting, your AR Aging in Rillet will match your balance sheet.
For more information, your Rillet implementation consultant can guide you through the process.
See Also
Learn more about onboarding and system adjustments:
See Also:
Explore related onboarding and accounting setup:
System Implementation Reversals
Last updated