Opening Balance Adjustments

During your onboarding to Rillet, you will add your historical financial information into Rillet, such as contracts, invoices, journal entries etc. As objects are added to Rillet, you may encounter differences between the legacy information and Rillet's calculations for balances such as Deferred Revenue, Prepaid Expenses, Accounts Receivable and Retained Earnings.

Common causes of opening balance adjustments:

• Changes in your revenue recognition methodology. For example, going from Whole month revenue to Daily revenue calculations.

• Changing your prepaid amortization methodology.

• Removing stale credits from your AR Aging.

• Errors in your previous revenue recognition.

Recording an opening balance adjustment

To update for these changes, you Rillet team will propose an opening balance adjusting journal entry to be recorded on or before your go live date.

There are generally two methods for recording opening balance adjustments:

• P&L Impact - This type of adjustment involves correcting the amounts by directly impacting the P&L. For example, to correct an error in deferred revenue, the offsetting amount would be posted to revenue

  DR: Revenue $100

  CR: Deferred Revenue $100

• Direct Retained Earnings Impact - alternatively, this type of adjustment involves correcting the amount by directly posting to retained earnings. For example, to correct an error in deferred revenue, the offsetting amount would be posted to retained earnings.

  DR: Retained Earnings $100

  CR: Deferred Revenue $100

It is common to obtain input from your auditors on the required accounting treatment for your situation.

Examples

Example 1: Change in revenue recognition methodology

Lets assume you have a customer on a 6 month subscription for $6,000, paid up front, starting on the 15th of the month. In your legacy rev rec treatment, you were recording a full month of revenue regardless of when the subscription started.

In Rillet you decided you use the Even Period, Prorated First and Last methodology for your rev rec.

The differences in these two method causes a discrepancy in the subledgers of $500 on the go live date.

To update your financial statements for this new method, you will need to record an opening balance adjustment.

DR: Revenue (or Retained Earnings) $500

CR: Deferred Revenue $500

Once corrected, you Rillet Deferred Revenue subledger will perfectly match your balance sheet going forward.

It is very common to have a correction to revenue which negatively impacts revenue recognition.

Example 2: Removing a stale credits from AR Aging

Lets assume your legacy system has a open credit on the AR Aging for $1,000. This customer churned over 2 years ago and is not expected to use this credit, therefore you want to remove the credit during your Rillet onboarding.

When migrating your historical data, Rillet will exclude this credit from the AR Aging.

To update your financial statements for this new method, you will need to record an opening balance adjustment.

DR: Accounts Receivable $1000

CR: Revenue $1000

Once corrected, you Rillet AR Aging will perfectly match your balance sheet going forward.

For more information, please discuss with your Rillet implementation consultant