NetClose - Top Side Adjustments
Top-Side Adjustments
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In accounting, "top-side adjustments" refer to manual journal entries made at a high level within an organization to correct or adjust financial information. These adjustments are typically made outside of the regular accounting system and are used to ensure that financial statements accurately reflect the financial position and results of operations. Within NetClose, even after you lock down transactions (found in this article), a user with specific permissions can perform these Top-side Adjusting Entries as needed.
Top-side adjustments are often necessary for various reasons, such as:
Materiality: When minor errors or discrepancies in financial data are not material enough to warrant correcting the underlying transaction or process, top-side adjustments can be used to correct the financial statements directly.
Timing: In some cases, the accounting system may not capture transactions in the correct accounting period due to timing issues. Top-side adjustments can be made to allocate revenue or expenses to the appropriate period.
Complex Allocations: When intricate cost allocations are required that the regular accounting system cannot handle, top-side adjustments can be employed to ensure accurate allocation of costs.
Consolidation: In a multi-entity or multinational organization, top-side adjustments might be necessary during the consolidation process to eliminate intercompany transactions and ensure accurate financial reporting at the group level.
Special Reporting Requirements: Certain regulatory or reporting requirements might necessitate adjustments not captured by the regular accounting system.
Correction of Errors: If errors are discovered in the financial statements after they have been published, top-side adjustments may be used to rectify these errors without altering the original transaction records.
Budgeting and Forecasting: Organizations might use top-side adjustments to align actual financial data with budgeted or forecasted figures to assess performance accurately.
It's important to note that while top-side adjustments can be helpful in certain situations, they should not be overused. Relying too heavily on top-side adjustments can indicate underlying issues in accounting processes, controls, or systems. Organizations should strive for accurate and complete recording of transactions within their accounting systems to minimize the need for these adjustments.
Proper documentation, approval processes, and controls should be in place for top-side adjustments to ensure transparency, accuracy, and compliance with accounting standards and regulations.