Contra of AP _and_amp; AR questions 1662

  • Hi all
    I need an advise on contra of AP and AR accounts. Is there an issue from Sox and/or GAAP perspective?
    If this is allowed, what are the key controls needed?

  • Could you please tell me what AR and AP accounts are please.

  • Accounts Receivable and Accounts Payable???

  • Erika - can you provide us with an example of what you are questioning? Would a contra account be something similar to unapplied cash receipts for AR?
    More details will allow for better discussion and a clear answer for you to work with.

  • I think Erica might be asking us how SOX based accounting standards might compare and contrast with GAAP, or at least that’s how I’m interpreting this 😉 🙂
    As AP/AR finanicals are slightly tangible than other liabilities or assets from an accounting standpoint, there are special controls needed to assure no one ‘cooks the books’. These controls apply both to GAAP and the more stringent SOX requirements. For years, I’ve seen this in the insurance industry, where you have GAAP and more stringent statutory accounting controls (e.g., where you can’t claim certain GAAP acceptable assets or liabilities in the more rigid statutory reporting framework)
    COSO standards are certainly recommended SOX based principles and might be a good starting point. I may not be on the right track here, and I’ll share some links below in case they help:
    A few Google search links looked promising accounts payable controls accounts receivable controls
    A few good links on AP/AR controls

  • A totally non-value add reply, but I think the question is around contra account…
    contra account
    An account which offsets another account. A contra-asset account has a credit balance and offsets the debit balance of the corresponding asset. A contra-liability account has a debit balance and offsets the credit balance of the corresponding liability.
    Still doesn’t answer Erika’s question, but should reduce misinterpretation.

  • Thanks milan for the clarifications as my searches came up empty 🙂 … You brought back some long forgotten memories of both college and insurance accounting principles 😉

  • To then answer the questions as posed -
    GAAP does allow contra accounts, but you need to understand what the contra accounts contain. For example, if you overpay a vendor, you generally cannot record the resulting receivable from the vendor as a contra to AP unless you are carrying additional payable balances with that vendor and you have a right of offset. The overpayment generally should be recorded as a receivable on the balance sheet. An understanding of GAAP is essential when performing SOX control work.
    SOX does not speak to specific accounting rules. It is in place to ensure that the appropriate accounting rules are being followed and that controls are in place to provide assurance of that.

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