When correcting a general ledger entry that landed in the wrong G/L account, it is quite common to simply post a journal to “move” the entry to another G/L account.
For example, let’s assume that I posted an accrual, but in the wrong sales account: 10200 instead of 10100.
The usual process would be to post a correcting journal:
DR 10200 500
CR 10100 500
However, by doing this, you will be left with both a credit and a debit entry of 500 in G/L account 10200. This means that if you were to analyse the CR or the DR entries in that account on their own, both would be overstated by 500.
The solution is to use an often-forgotten BC feature: the ‘Correction’ tick box on a general journal line.
Let’s have a look at the effect of the tick box.
The usual way would be to post this journal, to move the incorrect posting from 10200 to 10100.
The result is a standard double entry:
I could however setup my journal differently, with the first line being a correction line, and the second one being the correct posting:
If I do this, I will first reverse the original entries, and post the new entries. But crucially, the entries being reversed are posted as a “negative” credit, and a “negative” debit.
The overall effect on account 10200 is nil, as the original credit was adjusted with a ‘negative’ credit:
Note that if you use the ‘Reverse Transaction…’ function from the General Ledger Entries screen, you will get a corrective entry as well:
