A topside entry is an accounting journal entry used to correct or adjust the GL Accounts.
Topside entries will not be recorded in the Sub Ledgers.
Those are posted directly in the General ledgers
Why record a topside entry?
It adjusts the account balances without affecting the previously recorded transactions.
Do you remember the concept of adjusting journal entries?
This type of entry is a final adjustments to financial statements. Just the name here is a little fancy.
In this blog post, we’ll explore the basics of topside journal entries and how can we use them to maintain accurate financial records.
How Does Topside Journal Entry Works?
A topside journal entry affects only the general ledger account balances, not any underlying transactions that created those balances. This type of entry usually adjusts one or more account balances on the balance sheet or statement of profit or loss.
How about some examples here?
1) If there is a erroneously overstatement its profits in a month, we can use a topside entry to adjust the account balances.
2) We can also pass a Topside entries in case of
a) Error in the recording of transactions or
b) When there is omission of something from the financial statements.
To make a topside journal entry, you must have both a debit and credit side with matching amounts. So this will ensure that the accounting equation comprises equal balances.
Additionally, each topside journal must be accompanied by a description that explains why it was necessary. We call the explanation or description narration. This helps provide transparency for anyone who reviews the financial statements afterwards.
Benefits of Topsides Entry
- Topsides entries are beneficial for businesses because they allow them to make corrections without changing any underlying transactions in their records. This means that financial statements are more accurate and up-to-date than if recording of all adjustments happen manually.
- Using topsides entries can also save time because we can make adjustments without having to go through each transaction one by one to figure out which ones require adjusting or correcting.
- They can also be used for more complex tasks, such as restructuring liabilities or correcting balance sheet classifications.
- Time-Saving: While topside journal entries may be non-routine, their benefits outweigh the time it takes to make them. By recording these entries at the corporate level, companies can quickly adjust their consolidated financial statements without adjusting each subsidiary’s statements.
Topside Entry Considerations
Business Entities are misusing the Topside entries as these does not undergo same steps as the other journal entry.
Are you wondering why these are different?
The top sides entries won’t have the same internal controls in place.
These are manual entries, too. thus, more vulnerable to risk
How can misuse of topside entries occur?
Decreasing the expenses or liability and increasing the profits or assets value.
So, using these entries result in window dressing of the financial position/activity.
Therefore, Auditors or Management who reviews these entries shall need to have a special focus on these.
Understanding what a topside entry is and how it works can help to stay on top of its accounting needs. It doesn’t stop there. It helps in ensuring accuracy and transparency in its financial records. By making corrections as needed with these entries, businesses can save time and energy while ensuring accuracy in their books. That’s a win-win situation! With proper use and understanding of this accounting tool, businesses can keep their finances up-to-date and accurate in no time!