Managing Adjustments
General Ledger Integration on Salesforce, Part 8
Hello! My name is Alexandra. I am a Solution Engineer for Salesforce.org. Welcome to my blog series about GL integration!
In Part 7, we walked through the crucial intermediary steps of the gift cycle, from designing your posting process, to exporting gift transactions from the CRM, and ultimately posting them to your GL system.
COMPLETING THE GIFT CYCLE
We’ve made it through the nuts and bolts of receiving gifts and posting them to the general ledger, woohoo! In this article, I will review the final steps the Learning Empowerment accounting team takes to complete the gift cycle (aka “close the books”) and why it is so important for a nonprofit’s financial reporting.
Making Adjustments
Change is the only constant, right? That adage certainly applies in the world of nonprofit finances. Maybe you never receive a payment check for a gift that was pledged a few months ago. Perhaps your gift entry clerk keyed in the wrong fund code. Or, there was a miscommunication between the donor and fundraising officer.
Let’s start by learning how to make adjustments or changes to a transaction once it’s posted to the GL.
Uh oh! One week after Diane the Donor made her $1,000 pledge donation, Diane sends in a check for $100 and lets LE know she can actually only give $100, not $1,000. While the fundraising team might be a bit bummed at the loss, the silver lining is that making the change is no sweat for LE’s finance team since they’re using the Salesforce Accounting Subledger.
Recall that once a Ledger Entry is created it is permanent and cannot be changed. We also want to keep the $1,000 donation itself intact because that is what the fundraising team originally raised and we need to assume it is already posted to the General Ledger. So how does LE properly handle the change? Through an adjustment entry called a “Write Off.” George enters a Payment against the Donation in the amount of $100 and marks it as Paid. Then he enters another Payment in the amount of $900, but this one he marks as Written Off. Now, the debits and credits appropriately reflect the original donation, the actual amount received, and the amount that needs to be written off as bad debt. Here’s what the accounting treatment looks like for that change:
Notice that the debits and credits still balance out to zero, which means that when the adjustment Ledger Entries post to the GL the ledger will be in balance. This process also ensures auditability. By keeping the original donation and ledger entries intact and creating adjustment write off entries to track any changes, accountants and auditors have transparency into financial activity. Without this transparency, it would be difficult to reliably answer questions about a donation.
The Permanence of Ledger Entries
I’ve mentioned a couple times that Ledger Entries are “permanent” (as in, cannot be edited or deleted). Why is that? Transparency and auditability are such critical tenets of nonprofit financial reporting that Accounting Subledger does not allow Ledger Entries to be edited at all, enforcing a “hard stop” against attempts to alter a ledger entry once created. You can’t accidentally modify a Ledger Entry. Rather, once a Ledger Entry is created, it is permanent and locked against changes because we operate on the assumption that it is sent over to the accounting system. That way the audit trail cannot be broken and stakeholders can rely on the information in the general ledger when making key business decisions. Don’t forget that this permanence is balanced by the flexibility and control Accounting Subledger gives you to determine when a Ledger Entry is created.
Accounting Periods
Accounting Periods are another “hard stop” mechanism finance teams deploy to protect the transparency and reliability of the general ledger. Once Anna the Accountant finalizes the GL, produces the financial statements, and “closes the books” for June, we don’t want to give anyone the ability to go back into June journals and make a change. Accounting Periods allow you to define periods (typically a month) and assign the periods as “open” or “closed.” If the period is open, users can enter ledger-impacting records for a date within that period. Those transactions will eventually get posted to the GL. If the period is closed, it is considered “locked” and users will be blocked from dating a transaction within that period. Generally speaking, current and future months will be open for recording journals while past months will be closed. Most organizations employ accounting periods on a yearly basis as well, closing out an entire year once that year’s IRS reporting has been submitted.
Why You Should Manage Adjustments in Your CRM
So we know it’s important to keep financial statements (and thus the GL) reliable, transparent, and auditable. And the permanence of Ledger Entries as well as Accounting Periods help enforce that. Hence, adjustment entries are the mechanism for reflecting the changes to gifts that will inevitably arise while keeping the original Ledger Entries, and an audit trail, intact.
Did you notice that when Learning Empowerment realized they needed to correct the amount of Diane’s donation, George the Gift Manager handled that directly in Salesforce? When he entered the Payment activity, Accounting Subledger created the adjustment entries for him. LE is following best practice by managing the entire revenue transaction lifecycle, including adjustments, in the CRM. Salesforce is their single source of truth for revenue, and with Accounting Subledger Growth it acts as a true subledger. This solves for a big pain point many nonprofits who don’t have a subledger built into their CRM have to deal with.
When you don’t have a true subledger built into your CRM, you’ll need to manage all adjustments in your GL system. The result is your fundraising and GL books don’t match up. Fundraising makes changes that don’t flow to accounting, and then the books don’t match but accounting has no idea why. Or, accounting makes changes that do not get read back to fundraising, and that is problematic too.
Take this example: George & the LE development team think they’ve hit their fundraising goal for a campaign and turn their attention to a new task. But they don’t realize that a huge pledge gets written off as bad debt. So they haven’t actually received the amount they expected. If fundraising was aware of this, they could pivot their strategy in real time and reach out to other donors. Managing adjustments in your GL system often means more time and resources spent on menial tasks that your staff could otherwise be spending on fundraising and strategic mission work. Accounting Subledger gives you back that time and critical visibility into your revenue.
Summary
That’s it! Thanks to our friends George and Anna at Learning Empowerment, we’ve stepped through a complete gift cycle. When Diane’s donations were received, George entered them into NPSP and made sure to record important gift attributes like fund designation. Accounting Subledger translated the gift attributes into debits and credits (aka the “language of accounting”) so that Anna understands exactly how the donations impact LE’s finances. Even when George made an adjustment to Diane’s pledge donation, those changes seamlessly flowed to LE’s accounting system and Anna knows she can rely on the information in her general ledger to be up-to-date. Now Anna can create key financial reports that LE’s executives and Board depend on — like cash flow projections, budget versus actuals, FASB reports, and more — and all stakeholders have peace of mind that they are making decisions based on a reliable, accurate, and timely view of their revenue.
In the next article, I will discuss the technology tools and processes behind moving subledger data from your CRM and into your financial management system.
