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intra operating unit cross charges problem

A Japanese company Z has three ledger USA, JAPAN And UE. Each ledger, apart from Japan, has two Cash Books and two different Bank Accounts. The reason why there are two accounts in USA and UE is because they have a Yen account and a local account.

Now, If the ledger UE receive money from ledger USA in the yen account rather than the euro account, what happens?

Or, if the ledger UE transfered money to the USA ledger account using the yen account instead of the local account what would happen?

The two example below are very similar but one is concerned with receiving money in the wrong account whereas the latter is about paying using the wrong account. What ideally I would like to understand is how can I fix the two problems above.

Would I simply need to do two cross charges for each example? Or would I need to do a cross charge for one account and then book a journal for the other account at month end?

I hope it is clear, if not please let me know it.

Many thanks

Answers

Richard Archer
Title: Principal
Company: CG Management Solutions
(Principal, CG Management Solutions) |

Most multi-currency computerized accounting systems I've seen do the currency translation for you, so if you post to the right cash book for the actual bank account in which the money was received or paid, there shouldn't be a problem. The problem will be, for example, if the money was supposed to go into the Euro account and was recorded in the Euro cash book, but was actually put in the Yen bank account. At that point your cash book and ledger will show money in the Euro account, but the money will actually be in the Yen account, so your general ledger cash accounts will be out of balance.

You can correct the mistake when you do the monthly bank reconciliations or you can make separate entries.

For efficiency, a lot of accountants I've seen make net transfer journal entries. That can be faster, but if there is a mistake, then the problem of reconciling and cleaning the accounts is even worse.

I'm a big proponent of make gross, rather than net adjustments. They may take a little extra time, but each adjusting entry ties directly to what should have occurred. In the case of a case book error, this process has two steps:

First, reverse the Cash Books error using the same values and accounts that were in error.

Second, make a correct journal entry (or re-enter the original transaction) to the Cash Books using the correct accounts and amounts.

However, before you do this, you must decide whether you want the bank account to match the Cash Book or whether you want the Cash Book to match the bank account.

In the first case, the Cash Book has the correct entry, but the cash is in the wrong account. So, the correction is to transfer cash between the accounts with the journal entry recording the transfer between banks being a net zero entry to the Cash Books

In the second case, the money transaction is in the correct bank account, but the Cash Books have to be adjusted. That is when my suggested two step correcting entry would apply.

Whether you have to follow the first case or the second case depends on the demands of the corporate treasury department. Corporate Treasurers spend a lot of time planning cash flow and determining where they need to have cash in bank and what currency they will use for making payments. So, when a cash transaction occurs in the wrong bank account, it can cause a big problem for the Treasury Department's cash planning.

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