Linking Transactions in PROCAS author avatar

Transaction linking is a process unique to PROCAS. Think of it as telling a story through accounting transactions. Linking occurs when transactions become and, if necessary, remain associated with one another. Linking can be seen throughout the accounting system. Some of the most common areas include: the Receipts Journal and the Disbursements Journal. In addition, linking can (at least it should) be seen in reversing entries.

Linking can be difficult to understand at first, but putting in the time and effort to implement proper linking can help you avoid having unsightly reports that look like this:

 

When looking at the financial journals in PROCAS, you may have noticed they each have a column called “Trans.” This is the column where linking is done.

 

Typically, when inserting a new transaction, all lines of detail will autofill the “Trans” column as the specific transaction number. For example, in the transaction below, lines 1 and 2 have G100265 in the “Trans” column, which is the same as the transaction number. This is fine in many cases, but if the transaction needs to be linked to another entry, the “Trans” column will need to be adjusted.

 

A transaction is entered into the accounting system in order to establish an event. Some events are one-time occurrences that do not come up again in the future. Therefore, no future transactions need to be linked to it. In other instances, the initial transaction is only the beginning. The initial transaction establishes the event, but future transactions will be associated with it. To keep the story of the event connected through all transactions that are affected, future transactions need to be linked to the original entry.

It may be difficult to understand the process when reading about it, so let’s use an example.

Say you just calculated an invoice for last month. The current period amounts are perfect; the cumulative amounts are perfect. You print the invoice and click “Create Sales Journal Transactions.” A sales journal entry is created to establish a receivable for the amount the client owes your company (debit) and to recognize revenue earned during the period (credit). You will notice when the sales journal entry is created, the “Trans” column in each line of detail is the same as the transaction number. This is correct because the sales journal is the initial event. No further action is required.

 

Next, let’s say your client receives the invoice and pays your company the amount owed. When the payment is received, you open the receipts journal to record it. You debit the cash account and credit the accounts receivable account. The “Trans” column on the accounts receivable line should be linked to the sales journal that the payment is being applied towards. This allows you to keep the sales journal associated with the payment. See the below example.

In receipts journal entries, it is also important to include the task and client code on the accounts receivable line. The information on the receipts journal should match the sales journal entry in order to be properly linked.

 

Linking the receipts journal to the sales journal will allow you to easily follow the story of events from beginning to end: an invoice is generated and submitted to the client for payment. Payment is remitted.

Linking the receipts journal to the sales journal will also relieve the accounts receivable balance associated with the specific invoice. This will clear the sales journal from your Accounts Receivable Aging reports.

In the above receipt transaction, you will notice the “Trans” column on the cash line is referencing itself. This is correct. No linking is required on the cash line. The receipts transaction is the initial event for the cash account; therefore, it is correct to leave the “Trans” column as the receipt transaction number. You cannot link the cash account line to the sales journal transaction, because the cash account does not exist on the sales journal transaction.

One important thing to remember when linking transactions is that they must be linked in the proper order. Transactions should typically be linked forward. In this case, the AR account makes its first appearance on the sales journal. For this reason, the receipts journal transaction (a subsequent event) should be linked to the sales journal transaction (the initial event) and not vice versa. You cannot link the AR account on the sales journal to the receipts journal transaction because the AR account does not exist independently without the sales journal. Think of the story of events here. You cannot start the story with the payment. The story starts with the invoice (sales journal), so all subsequent events should be linked to the sales journal.

Still doesn’t make sense? That’s okay, let’s use another example.

You just received an invoice from what is hopefully one of your favorite vendors, PROCAS. The amount invoiced is $790 and payment is due within 15 days. You open the purchases journal to put the invoice in line for payment. You fill out the header information on the purchase journal such as transaction date, vendor, invoice date, amount due, etc. Next, you go down into the details to debit the appropriate expense account and credit accounts payable. You will notice that the “Trans” column on both lines of detail will autofill as the purchase journal transaction number. This is correct since the event starts here. In other words, no linking is involved on the purchase journal transaction because this is the beginning of the story.

 

The following week, you are getting ready to cut checks. You go through the automated checks process to print a check payable to PROCAS. A disbursement journal transaction is automatically created. When you go to the disbursements journal, you will notice there are 2 lines of detail. The first line is a debit to accounts payable. The second line is a credit to cash.

 

The AP account was established in the purchases journal when you input the invoice into the system. Upon paying the invoice, the AP account should be relieved now that the liability has been resolved. In other words, the AP account on the disbursements journal should be linked to the purchases journal transaction that established the liability.

 

You will notice the “Trans” column on the accounts payable line references the purchase transaction for the specific PROCAS invoice. The story begins with the purchase of PROCAS software access. The invoice for the purchase is recorded in the purchases journal. The story ends with the payment to vendor PROCAS on the disbursements transaction. The payment is recorded in the disbursements journal. Linking the disbursement journal transaction to the purchase journal transaction will relieve the liability to PROCAS.

Now that we have gone over linking techniques, try running your AR and AP reports in PROCAS. If you notice there are any vendors and/or clients with a lengthy history showing up on the report, check to verify associated journal entries have been properly linked. If a payment has been made or received, but there are still transaction details on the report, this is a sign there is a problem with linking.

You are always able to go back to prior period entries and correct the linking. This will not have any impact on your financial statements. Linking prior period transactions will only affect the display of the vendors and/or clients on your reports, not any general ledger balance details.

If unposting prior period transactions is not an option for you, linking can also be fixed by inserting current period journal entries to associate transactions with one another. For more in depth training on linking, feel free to reach out to our Consulting Team.

 

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