How to Ensure Accurate and Efficient Top-Sided Journal Entries

Make sure to undo any temporary topside entry adjustments you’ve made when no longer necessary if some or all of them were. For instance, if you made an adjustment because of an accrued expense, you no longer require that adjustment once the expense has been paid. Check to see if you can automatically reverse these entries in your accounting system after some time. Top side entries is a term that is used quite loosely and can refer to a number of things which are similar in nature. As explored this is mainly consolidation or adjusting entries to the financial statements which do not impact underlying trial balances. Depending on circumstances they may be later pushed down to underlying trial balances if the entries being made make sense to do so.

Topside accounting is integral to global financial reporting, allowing parent companies to adjust consolidated financial statements for a more accurate depiction of their financial position.
This ensures corporate-level adjustments are supported by evidence and reflect actual economic events.
Accountants responsible for a company’s accounting system can put controls in place to ensure that top-side entries are used properly.
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To make a topside journal entry, you must have both a debit and credit side with matching amounts. You could also request that topside entry adjustments be reviewed by internal and external auditors. This provides senior management with knowledge of each change, the chance to learn more, and the ability to accept or reject each suggested adjustment.

In such firms, there are adjustments made by the parent company on the accounting sheets of its subsidiaries during the preparation of the consolidated financial statements. This practice is referred to as top-sided journal entry and is allowed within the scope of the Generally Accepted Accounting Principles (GAAP). It is perfectly legitimate practice to allocate some of the parent company’s income or expense to its subsidiaries to accurately reflect business activity. However, it can also be used to improperly reduce liability accounts, increase revenue or decrease expenses. Typically, companies record them after the consolidation of journals or ledgers and right before preparing the financial statements. They are also not reflected in a company’s general ledgers and sub ledgers as those may happen after period end.

Create written policies on topside entries

They may also be for practical purposes due to limitations of accounting software, the chart of accounts, business processes or any other reason. Inappropriate adjustments can distort financials, misleading stakeholders about the company’s true financial status. Regulatory bodies like the SEC have guidelines to prevent manipulation, emphasizing documentation and transparency. These risks underscore the need for robust internal controls and audit processes to ensure topside entries are justified, accurate, and transparent. Based on the findings from the review of top-side entries, management should evaluate and enhance internal controls and policies to prevent future issues.

Get senior management approval

Topside accounting adjustments align diverse accounting practices across subsidiaries to present a unified financial picture. This is particularly critical for foreign exchange adjustments, where currency fluctuations can significantly impact reported figures. For example, if a European subsidiary reports in euros, but the parent company consolidates in U.S. dollars, exchange rate differences must be accounted for and adjusted. Limiting the number of employees in your business who are permitted to make topside entry adjustments can also be helpful. Give a select few dependable individuals the required access privileges to your accounting system.

FA13 – Adjusting Journal Entries Explained

These topside entries are typically carried out by the parent company when preparing consolidated topside accounting financial statements. The subsidiary companies typically are not aware of topside adjustments and are not involved in making them because they typically do not flow down to the subsidiary ledgers. Generally Accepted Accounting Principles (GAAP) consider topside adjustments to be generally acceptable, despite the possibility of abuse. An expense that you have incurred and recorded but have not yet paid is known as an accrued expense. Since you probably hadn’t received an invoice when the expense occurred, it’s possible that this expense is based on the supplier’s estimate. Supplies ordered from what is a topside journal entry a vendor, loan interest payments, and taxes are examples of accrued expenses.

Before you post any topside entry adjustments, make sure you have senior management approval for each adjustment. This gives senior management awareness of each change and the opportunity to ask questions and accept or reject each proposed adjustment. Topside accounting enhances the transparency and reliability of financial statements, offering a comprehensive view of a multinational company’s financial standing. By addressing the complexities of various accounting standards and ensuring compatibility across subsidiaries, topside adjustments create a cohesive narrative of a corporation’s financial performance.

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Cadency is designed with both the CFO and CIO in mind and its core System of Controls provides peace of mind to CFOs while its System of Integration and Automation offering directly aligns with CIO’s priorities. It provides standard interfaces with end to end data and transport security and is completely maintained and supported by Trintech. This not only eliminates the expensive customization, maintenance and support efforts for our customers but also future proofs them for new ERP upgrades. These controls ensure financial reporting is accurate, compliant, and reflective of true business performance. A structured system incorporates checks and balances, including segregation of duties, transaction authorization, and regular audits, to prevent errors or misstatements. Adjusting entries are all in the name – adjustments made to the accounts as part of the workings for the financials or to the financials themselves rather than in an underlying trial balance.

Let’s say the owner of an advertising company decides to invest $10,000 cash in his business. Reclassifications contribute to the coherence of financial reports by shifting items to appropriate categories that match the parent company’s reporting framework. For example, unrealized gains or losses may be moved from equity to other comprehensive income to comply with standards like IFRS 9. This ensures financial instruments are reported in a way that reflects their economic substance.

Reconciliation processes verify the integrity of topside entries by comparing recorded amounts with supporting documentation and subsidiary ledgers. This ensures corporate-level adjustments are supported by evidence and reflect actual economic events. For example, reconciling adjustments related to asset valuations involves cross-referencing with independent appraisals or market data to confirm accuracy. You could also invite auditors, both internal and external, to review the companys topside entry adjustments.

If you are a CFO, you should be thinking about what controls you have in place to protect your firm from such risk. When preparing the consolidated financial statements in such companies, adjustments are made by the parent company to the accounting sheets of its subsidiaries. The Generally Accepted Accounting Principles (GAAP) permit this practice, known as top-sided journal entry. Allocating some of the parent company’s income or expense to its subsidiaries in order to more accurately reflect business activity is a perfectly acceptable practice. However, it can also be employed inadvertently to lower liability accounts, boost revenue, or cut costs. Usually, businesses record them right before preparing the financial statements, following the consolidation of journals or ledgers.

Why are topside entry adjustments used?

Making written guidelines for how topside entries should be completed is another way to promote regular and accurate topside entry adjustments.
We understand that the CFO organization is focused on improving and optimizing the Record to Report process to produce accurate financial reporting while reducing risk and cost.
Therefore, the journal itself, which is a subsidiary book, contains what is a topside journal entry all of the original entries.
The value lost on fixed assets over an accounting period is represented by depreciation expenses, also known as non-cash expenses.

This makes sure that you are aware of any potential topside entry adjustments and may make it less likely that the privilege will be abused. Topside entries significantly influence financial statements by altering metrics like net income, earnings per share, and return on equity, which are closely monitored by investors, analysts, and regulators. Properly applied, these entries ensure financial reports reflect economic events impacting the organization. By adjusting for various factors, they help align financials with strategic objectives and operational realities. Posting is done from the journals pages by selecting journal entries and clicking the Post button. Automate your posting process by scheduling an automatic posting process to periodically select and post batches.

Top-side journal entries are recorded at the corporate level, typically after financials are consolidated. Because they don’t hit the lower-level books, the subsidiary is often not aware of these transactions, and cannot validate them or provide input even if the transactions are specific to the subsidiary. The income statement, cash flow, balance sheet, all of them are based on the initial recordings of journal entries. Of course, this is situational and will depend on the circumstances and the entries themselves but does occur on occasion.