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Last modified on 1/11/2016 2:18 PM by User.

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Record, Finance, Charce, Separate, A/R, AR, Account

Record Finance Charge in Separate A/R Account

This document explains how to post Finance Charges into a balance sheet contra-account, have a separate A/R account for Finance Charges and then record the Finance Charge amount as revenue when the customer pays it.

 

  • First, an A/R Finance Charge Receivable and a Finance Charge contra-account need to be in the General Ledger.  If there are other contra-accounts for Accounts Receivable, it is a good idea to have this one as a separate account.  The new G/L accounts must be added to the chart of accounts. Contact us for assistance in adding a new G/L account via email.
    • ​For this example, the accounts will be:
      • Allowance/Finance Charge contra-account: 114-00-01
      • Finance Charge Receivable, the separate A/R account for the finance charge: 112-00-01
      • The normal A/R Trade Receivable account: 105-00-01
      • Revenue account: 655-00-01

  • ​After the G/L account is added, it must then be set to be recognized by the system.  Go to:

    • ​General Ledger (Module 4)

      • ​System Management Functions (Task 32)

        • Setup Automatic Interface (Subtask 5)

          • Change Interface Parameters (Subtask 2).

            • Which systems do you with to interface to G/L?

              • Y: Accounts receivable

              • Y: Accounts payable

              • ?: Payroll

              • ANY CHANGE ? N, press enter key

            • At this point the automatic Accounts Receivable G/L accounts will appear on the screen.  The fields to be concerned with are #5 Finance Charges and #6 FC Receivables.

          • When the cursor is at:  ANY CHANGE?, press 5 and the ENTER key. The cursor will move next to the G/L account number for the finance charges.  Type in the first five digits of the Finance Charge contra-account, then press the ENTER key

            • ​For example:  5. Finance Charges: 655-00  114-00   

          • ​​At: ANY CHANGE?, press 6 and the ENTER key. The cursor will move next to the G/L account number for the receivable finance charges.  Type in the first five digits of the Finance Charge Receivable account, then press the ENTER key.

            • ​​For example: 6. FC Receivables: 105-00  112-00 

          • ​​Press the left arrow key until you are back at main menu. 

          • NOTE:  the A/R Trade Receivable and the A/R Finance Receivable DO NOT have to be separate G/L accounts, the same G/L account can be used for both.  If this is the case, field 6 would be the regular A/R Trade Receivable account number.

  •  Once the new G/L accounts have been entered and the Finance Charge program (Task 4 in A/R) is run, the Finance Charges amount will post (once obtained and posted in the G/L module) as a debit to 112-00-xx & a credit to 114-00-xx (with ‘xx’ being the division number). 

  • If implementing this after the start of the current fiscal year you may want to take the Finance Charges already posted for the fiscal year out of the income/revenue account and put them into the contra-account.

    • ​If you have been posting finance charges in your prior fiscal years, check  with your accountant/controller, but those unpaid finance charges should stay in the normal trade receivable account 105-00-01 since the income was already recorded in the prior fiscal year.

    • To get a report from A/R for all the outstanding Finance Charges go into the A/R module and print the following report:

      • ​A/R Open Items (Task 18); Print Selected Open-Item Records (Sub-task 4)

        • ALL batch #’s

        • ALL customer #’s

        • Starting date: ALL dates (to get the Finance Charges for just this fiscal year, type in beginning date of the fiscal year to the end of month just closed)

        • ALL check #’s

        • ALL customer types

        • ALL statement types

        • Audit discount amounts against sales history (Y/N)? N

        • Print report by: 1). apply-to number/document type.

        • ALL apply-to #’s

        • Document type 4.  (Finance charges are type 4).

        • Suppress detail records? YES

        • This will provide a report of all of the Finance Charges.  A manual journal entry can be made to debit the revenue or income account and credit the A/R Trade Receivable accounts the finance charge amount had previously been going into.  Also a manual journal entry can be made to debit to the new FC Receivable account & credit the Finance Charge contra-account.

        • Example report:  Lets’ say the A/R Open Items report showed the Finance Charges for this fiscal year totaled $30,000.00.  They previously were going into the A/R Trade account 105-00-01(debit) and revenue G/L account 655-00-01 (credit). The manual journal entry would be:

                                                                        Debit                Credit

Revenue                       655-00-01                   $30,000.00

AR Trade Rec.             105-00-01                                           $30,000.00

FC Receivable              112-00-01                   $30,000.00

FC Contra                    114-00-01                                           $30,000.00

  • Record the paid finance charges: At the end of every month, right after the Clear Paid Invoices from A/R program has been run, print the A/R Open Items report again running it using the report option:  Print report by: 1). apply-to number/document type for type 4.  Each month the date range should be the start of the fiscal year to the end of the month just completed.  Remember, the previously paid Finance Charges will be cleared/gone from the A/R Open Items report. 

    • Use last month’s Finance Charge A/R total add in the new Finance Charges for the current month, subtract the amount of the Finance Charges on the report.  The difference is the amount of Finance Charges either paid or credited out.  So a manual journal entry will need to be posted into G/L for this amount.

    • Example: At the end of the previous month, there was $30,000.00 (from sample report above).  This month the A/R to G/L Interface has another $19,000.00 of Finance Charges.  The A/R Open Items report, after clearing paid invoices, for just type 4 is $48,000.00.

      • Previous balance of finance charges $30,000.00 + new FC $19,000.00 – FC A/R Open report $48,000.00 = $1,000.00, which would be the amount of paid or credited out finance charges.    

      • A journal entry needs to be created to record the difference of the $1,000.00.  The journal entry will be:

      • This can be setup in the G/L module as a recurring journal entry.  Contact us for assistance in setting up the recurring journal entry via email. 

                                                                        Debit                Credit

FC Contra                    114-00-01                   $1,000.00

Revenue                       655-00-01                                           $1,000.00

AR Trade Rec.             105-00-01                   $1,000.00                   

FC Receivable              112-00-01                                           $1,000.00

 

  • If using this method, add these steps to the A/R Month-end Procedures directly after the running the program: Clear Paid Invoices from A/R Open (A/R, Task 32, Sub-task 4)
    • A/R Open items (Task 18)
      • ​Print: Selected Open Items records (Sub-task 4) use the following selections:
        • ​ALL batch #’s
        • ALL customer #’s
        • Starting date: ALL dates (to get the Finance Charges for just this fiscal year, type in beginning date of the fiscal year to the end of month just closed)
        • ALL check #’s
        • ALL customer types
        • ALL statement types
        • Audit discount amounts against sales history (Y/N)? N
        • Print report by: 1). apply-to number/document type.
        • ALL apply-to #’s
        • Document type 4.  (Finance charges are type 4).
        • Suppress detail records? YES

      • The total of the Finance charges on this report is the amount of finance charges still left in the A/R Open Items (Task 18).

        • Last month Finance charge total          +___________

        • New month Finance charge total         +___________

        • A/R Open Finance charge total            -___________

        • Sum Fin.Chg. paid 0r Credited out      =___________

        • J/E # ________

  • Setup Finance Charge spreadsheet:

    • ​Suggested spreadsheet column set-up

      • ​Column A: Date

      • Column B: Previous month A/R Open Items finance charge total

      • Column C: New month Finance Charge

      • Column D: Current month ending A/R open items finance charge

      • Column E: Finance charge paid or credited out in the current month

      • Column F: Manual J/E #

  • ​If you need to issue a credit for a Finance Charge on a Customer’s account:

    • ​​Credit memos for finance charges can be done automatically in Finance charge entry & editing (Task 4), Calculate FC reversals (Sub-task 9).  See document “Reversal of (Old) Finance Charge Invoice - Automatically”.

    • Credit memos for finance charges can be done manually.  See document “Reversal of (Old) Finance Charge Invoices - Manually ”.

    • If you issue a credit for a Finance Charge dated prior to starting this new process, check with your controller or CPA to see if a manual journal entry needs to be made in the G/L module.