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Hi,
I am Rajasekhar from Hyderabad and I am very thankful to you for elaborating the following thing. It gives clear picture about the topic.
Once again thanks for your clear explanation.
Regards,
Ch. RajaSekhar
| | | ---------------Original Message---------------
From: Vidhya Dhar
Sent: Friday, November 11, 2011 10:53 AM
Subject: Postings to G/L Accounts with Open Item Management Are Not Permitted
Hi Niranjan
Let me explain in simple terms:
Suppose you lend money to your friend. You want to keep a tab on what you
lent so that you may follow up in future until your friend repays you the
money in full. Is it not? Therefore, you maintain your friend as a
customer who owes money. The related document through which you lent money
requires open item management. Until your friend pays you, it is said to be
an open item requiring follow up as the line item represents an incomplete
transaction. Once your friend repays, you would not require any more follow
up since the entire deal is over and complete. The process of such
completion converts the status of the open item into a cleared item .
Let us account a similar transaction and you will get a better idea:
You do a service to your customer :
1. You raise an invoice on the customer for 1000 USD and the customer
promises to pay and settle the invoice after three months.
The accounting entry would be Customer Debit ( Managed on open item basis
) 1000 USD Service Revenue credit 1000 USD
Since your service has been rendered in full, you do not need open item
management for the service account. But you need to keep a tab on your
customer for three months (or the date on which he / she pays, whichever
is earlier). Therefore, the customer account is managed on open item basis.
2. Your customer settles his dues by paying money 1000 USD three months
later.
The accounting entry would be Cash Debit 1000 USD ( cash is cash and you
have received it......you do not need to follow this up and hence you do
not need open item management) and Customer Credit 1000 USD.
When the dues are settled, you do not need any more follow up and the open
item is cleared at the time of payment.
Got a hang of open item management?
The process of settling the transaction is called clearing account.
Therefore , the process is made up of two steps....... The invoice phase (
requiring follow up with customer ) and settlement phase ( called as
clearing......the clearing is also called as an offsetting posting since it
stops an earlier follow up).
In your case, cash is always cash and the general ledger account relating
to cash does not require follow up. Therefore, it does not require open
item management.
Clear?
Regards,
VidhyaDhar |
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