US ACCOUNTING PROCESS GUIDE — RTR, AP, AR, P2P, O2C, RECON & FINANCIALUS

STATEMENTS
GAAP | Record to Report | Fund Services

US ACCOUNTING PROCESS
COMPLETE GUIDE
Record to Report (RTR) · AP · AR · P2P · O2C · Reconciliation · Financial Statements
Month-End Close · Variance Analysis · US GAAP · Journal Entries
Interview-Ready Mastery Guide with UI Screen Mockups & Navigation

~50 Pages 6 UI Screen Mockups 15 Interview Q&As 40+ Glossary Terms

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US ACCOUNTING PROCESS GUIDE — RTR, AP, AR, P2P, O2C, RECON & FINANCIALUS
STATEMENTS
GAAP | Record to Report | Fund Services

Contents
Complete chapter listing

RTR — Record to Report Overview

01
The RTR cycle, roles, and why it matters

US GAAP Fundamentals
02
Key principles, accounting equation, accrual vs cash

Journal Entries
03
Rules, types, DR/CR, examples + JE Workbench screen

Chart of Accounts
04
Structure, account types, numbering convention

Accounts Payable (AP)

05
AP lifecycle, 3-way match, ageing + AP screen

Procure to Pay (P2P)

06
End-to-end P2P cycle, steps, controls

Accounts Receivable (AR)

07
AR lifecycle, DSO, collections, write-offs + AR screen

Order to Cash (O2C)

08
End-to-end O2C cycle, steps, controls

Reconciliation — 4 Types
09
Bank, Balance Sheet, Interco, Sub-ledger + Recon screen

Financial Statements
10
P&L;, Balance Sheet, Cash Flow, Equity + FS screen

Month-End Close
11
Checklist, timeline, hard vs soft close + Close screen

Variance Analysis
12
Budget vs Actual, Price-Volume, Rate-Volume

Accruals & Prepayments

13
Accrual accounting, reversals, prepaid schedules

Fixed Assets & Depreciation

14
Asset lifecycle, depreciation methods, impairment

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US ACCOUNTING PROCESS GUIDE — RTR, AP, AR, P2P, O2C, RECON & FINANCIALUS
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Intercompany Accounting
15
Interco transactions, eliminations, reconciliation

Tax Provisions & Deferred Tax

16
Current tax, deferred tax assets/liabilities, ASC 740

Interview Q&A;
17
15 fully written model answers across all topics

Glossary
18
40+ must-know accounting terms

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US ACCOUNTING PROCESS GUIDE — RTR, AP, AR, P2P, O2C, RECON & FINANCIALUS
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Record to Report (RTR)

01
The end-to-end financial close and reporting cycle

What is RTR?
Record to Report (RTR) is the end-to-end business process that collects, processes, and reports an
organisation's financial data for a given period. It starts with recording individual financial transactions (journal
entries) and ends with the production of audited financial statements and management reports. RTR is the
backbone of the Finance & Accounting function — every other process (AP, AR, payroll, fixed assets) ultimately
feeds into the RTR cycle.

"RTR begins the moment a transaction occurs and ends when the audited financial statements are signed off
by the Board. Everything in between is RTR."

The RTR Cycle — 8 Phases

1 Transaction Capture
Every financial event — sale, purchase, payroll run, asset purchase — is recorded as a journal entry in the
general ledger. Source documents (invoices, receipts, contracts) support each entry.

2 Sub-ledger Management
Detailed transaction data lives in sub-ledgers: AP ledger, AR ledger, fixed asset register, inventory ledger,
payroll ledger. These must reconcile to the general ledger at all times.

3 Period-End Accruals
Expenses incurred but not yet invoiced (accruals) and invoices paid but not yet expensed (prepayments) are
posted as adjusting journal entries to match revenue and expenses to the correct period.

4 Account Reconciliation
Every balance sheet account is reconciled — comparing the GL balance to supporting evidence (bank
statements, sub-ledger, schedules). Breaks are investigated and resolved.

5 Intercompany Eliminations
For consolidated entities: intercompany transactions (sales between subsidiaries) are eliminated so they don't
inflate group revenue. Intercompany balances must match exactly.

6 Trial Balance Review

The GL trial balance is reviewed to confirm debits equal credits, all accounts are as expected, and no unusual
items exist. Large variances vs prior period are investigated.

7 Financial Statement Preparation

P&L;, Balance Sheet, Cash Flow Statement, and Statement of Changes in Equity are compiled from the trial
balance. Reviewed by Controller and CFO before external distribution.

8 Management Reporting
Variance analysis (Actual vs Budget), KPI dashboards, and board packs are prepared to help management
understand financial performance and make decisions.

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US ACCOUNTING PROCESS GUIDE — RTR, AP, AR, P2P, O2C, RECON & FINANCIALUS
STATEMENTS
GAAP | Record to Report | Fund Services

Key RTR Roles

Role Responsibility

Staff Accountant Records day-to-day JEs, processes AP/AR, bank recon

Senior Accountant Prepares complex JEs, leads month-end, reviews recons

Controller Oversees RTR cycle, reviews FS, signs off on close

CFO Final approval on FS, presentations to Board/investors

External Auditor Independent verification of FS accuracy (annual)

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US ACCOUNTING PROCESS GUIDE — RTR, AP, AR, P2P, O2C, RECON & FINANCIALUS
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US GAAP Fundamentals

02
Key principles every accountant must know

The Accounting Equation

ASSETS = LIABILITIES + EQUITY

The ten foundational US GAAP principles govern how every financial transaction is recorded:

■ Revenue Recognition (ASC 606): Revenue is recognised when performance obligations are satisfied — not
when cash is received. The 5-step model: identify contract, identify obligations, determine price, allocate price,
recognise revenue.

■ Matching Principle: Expenses must be recognised in the same period as the revenue they help generate.
This drives accrual accounting — you record an expense when incurred, not when paid.

■ Accrual Basis: Transactions are recorded when earned/incurred regardless of cash flow. Opposite of
cash-basis. Required for GAAP financial statements.

■ Going Concern: Financial statements are prepared assuming the entity will continue operating for the
foreseeable future (at least 12 months). If not, disclosure is required.

■ Consistency: Accounting methods must be applied consistently from period to period. Changes require
disclosure and retrospective restatement where material.

■ Materiality: Only information that would influence the decision of a reasonable investor needs to be
disclosed. Immaterial items can be aggregated or omitted.

■ Conservatism: When uncertain, err on the side of caution — recognise losses earlier, gains later. Underlying
principle behind impairment testing and lower of cost or market.

■ Historical Cost: Assets are generally recorded at their original purchase cost, not current market value
(except for certain financial instruments and impaired assets).

■ Full Disclosure: All information material to a financial statement user must be disclosed — either in the
statements themselves or in the accompanying notes.

■ Entity Concept: The business is a separate accounting entity from its owners. Personal and business
finances must never be mixed in the accounting records.

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Journal Entries

03
The building blocks of all accounting — rules, types, and examples

The Double-Entry Rule

Every financial transaction must be recorded with at least one debit and one credit. Total debits must always
equal total credits. This is the immutable foundation of double-entry accounting and is enforced in every
accounting system from QuickBooks to SAP.

Account Type Increases with Decreases with Normal Balance

Assets DEBIT Credit Debit

Liabilities Credit DEBIT Credit

Equity Credit DEBIT Credit

Revenue Credit DEBIT Credit

Expenses DEBIT Credit Debit

Types of Journal Entries

■ Standard / Routine JE: Recurring entries that happen every period — rent, depreciation, payroll. Often
automated in the ERP on a recurring basis.

■ Accrual JE: Records income earned or expense incurred but not yet invoiced/paid. E.g. accruing December
electricity bill received in January.

■ Prepayment / Deferral JE: Allocates a cash payment across future periods. E.g. annual insurance premium
of $12K is posted as prepaid asset then amortised $1K/month.

■ Reclassification JE: Moves a transaction from one account to another — e.g. reclassifying a long-term
liability to current because it matures within 12 months.

■ Correction / Error JE: Reverses or corrects a previously posted entry containing an error. Always includes a
clear memo explaining what was corrected and why.

■ Reversing JE: Automatically reverses an accrual JE at the start of the next period to prevent double-counting
when the actual invoice arrives.

■ Eliminating JE: Used in consolidation to eliminate intercompany transactions between entities within the
same group before producing group financial statements.

■ Closing JE: At year-end, transfers all revenue and expense account balances to Retained Earnings,
resetting income statement accounts to zero for the new year.

Journal Entry Examples — Common Transactions

■ Revenue Recognition — Service Delivered

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Account Debit Credit Memo

Accounts Receivable $84,200 Recognise revenue on delivery

Service Revenue $84,200 Performance obligation met

■ Cash Receipt from Customer

Account Debit Credit Memo

Cash / Bank $84,200 Customer pays invoice

Accounts Receivable $84,200 Clear the AR balance

■ Recording a Vendor Bill (AP)

Account Debit Credit Memo

Operating Expense $12,400 Expense in period incurred

Accounts Payable $12,400 Liability to vendor created

■ Paying a Vendor Bill

Account Debit Credit Memo

Accounts Payable $12,400 Clear the AP liability

Cash / Bank $12,400 Cash outflow to vendor

■ Accruing Salaries (Month-End)

Account Debit Credit Memo

Salaries Expense $48,200 Expense in correct period

Accrued Salaries Payable $48,200 Liability until payroll runs

■ Depreciation — Fixed Asset

Account Debit Credit Memo

Depreciation Expense $8,400 Period expense allocation

Accumulated Depreciation $8,400 Contra asset reduces book value

■ Prepaid Insurance — Monthly Release

Account Debit Credit Memo

Insurance Expense $1,200 Release 1/12 of annual premium

Prepaid Insurance $1,200 Reduce prepaid asset balance

■ Intercompany Loan — Parent to Subsidiary

Account Debit Credit Memo

Interco Receivable (Parent) $500,000 Asset: loan to sub

Cash / Bank (Parent) $500,000 Cash out to subsidiary

Cash / Bank (Sub) $500,000 Sub receives cash

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Interco Payable (Sub) $500,000 Sub owes parent

SCREEN MOCKUP — Journal Entry Workbench

RTR Suite — US GAAP Journal Entry Workbench Period: Mar 2026 | Entity: Meridian Corp

JOURNAL ENTRY WORKBENCH — CREATE / REVIEW / POST

Dashboard PERIOD OPEN:
12MAR
PENDING
2026

JE HEADER APPROVAL WORKFLOW

Journal Entri. JE Number: JE-2026-03-0142 Preparer: Amer A.
DONE
Date: 31 Mar 2026 Reviewer: Sarah M.
Accounts Paya. Type: Accrual / Manual DONE
Controller: James K.
Description: Mar interest accrual — bonds payable PENDING
Accounts Rece.
CFO Sign-off: Auto (< $50K)
Period: 2026-03 (Open) N/A
Posted By: AmerAccount
Line Account Code A. — Pending Review
Description Cost Centre Debit (USD) Credit (USD) Memo
Reconciliation
1 6200 Interest Expense — Bonds Payable FIN 84,250.00 Mar bond interest accrual
Fin. Statemen.
2 2410 Accrued Interest Payable FIN 84,250.00 Offset — bonds payable

Month-End Clo. 3 6210 Amortisation — Bond Discount FIN 3,180.00 Effective interest method
4 1520 Bond Discount — Contra Liability FIN 3,180.00 Discount amortisation
Variance Anal.
DR = CR ✓ $87,430.00
BALANCED $87,430.00

Reports

Fig 1 — Journal Entry Workbench: Create, Review & Post with Approval Workflow
Left nav sidebar with Journal Entries active; JE header, approval workflow, balanced DR/CR lines with cost centre coding

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Chart of Accounts

04
Structure, account types, and US GAAP numbering convention

The Chart of Accounts (COA) is the master index of every financial account in the general ledger. Every journal
entry posts to one or more COA accounts. The COA structure determines how transactions flow into the
financial statements — getting it right is foundational to accurate reporting.

Standard US GAAP Account Numbering

Account RangeType Normal BalanceAppears In Examples

1000–1999 Assets Debit Balance Sheet Cash, AR, Prepaid, Fixed Assets, Inventory

2000–2999 Liabilities Credit Balance Sheet AP, Accrued Liab., Long-term Debt, Deferred Rev.

3000–3999 Equity Credit Balance Sheet Share Capital, Retained Earnings, APIC, Dividends

4000–4999 Revenue Credit Income Statement Product Sales, Service Revenue, Interest Income

5000–5999 Cost of Goods Sold

Debit Income Statement Raw Materials, Direct Labour, Manufacturing OH

6000–6999 Operating Expenses

Debit Income Statement Salaries, Rent, Marketing, D&A, Software, Utilities

7000–7999 Other Income/Expense

Net Income Statement Gain on Sale, FX Gain/Loss, Interest Expense

8000–8999 Tax Debit Income Statement Income Tax Provision, Deferred Tax Expense

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Accounts Payable (AP)

05
Full AP lifecycle — invoice processing, 3-way match, and payments

What is AP?
Accounts Payable is the short-term obligation to pay vendors and suppliers for goods or services received but
not yet paid for. In the balance sheet, AP is a current liability. The AP process ensures that the right invoices are
paid at the right time for the right amount — protecting cash flow and vendor relationships while preventing
fraud.

The AP Lifecycle — Step by Step

1 Purchase Order (PO) Raised

The business raises a PO authorising the purchase of goods or services. The PO contains quantity, unit price,
agreed terms, and the authorising manager's approval. PO = commitment, not a journal entry yet.

2 Goods / Services Received

When goods arrive, the warehouse team creates a Goods Receipt (GR). This is the point at which the company
takes ownership. JE: Debit Inventory/Expense, Credit Goods Received Not Invoiced (GRNI).

3 Vendor Invoice Received

Vendor sends invoice. AP team captures it in the system — vendor, invoice number, amount, due date, line
items. The invoice is matched against the PO and GR.

4 3-Way Match
Three documents are compared: PO (what we agreed to pay), GR (what we received), Invoice (what vendor is
charging). All three quantities and prices must agree within tolerance. Mismatches create holds.

5 Invoice Approval
Invoices above a threshold go through an approval workflow — line manager, cost centre owner, controller.
Workflow ensures segregation of duties. Approved invoices clear for payment.

6 Payment Run
AP runs payment batches — typically weekly or bi-weekly. Payments are grouped by due date and vendor
payment terms (Net 30, Net 60). ACH, wire, or cheque payments are generated.

7 GL Posting
On payment: Debit Accounts Payable, Credit Cash. The AP sub-ledger is updated and the entry reconciles to the
GL AP control account.

8 Vendor Reconciliation
Monthly: reconcile vendor statements against the AP sub-ledger. Investigate and resolve differences — credits
not applied, invoices booked twice, or disputes.

3-Way Match — Explained

The 3-way match is the primary control in AP to prevent paying the wrong amount or paying for goods never
received:

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Document What It Confirms Who Creates It Common Issues

Purchase Order (PO)

Agreed quantity, price, and terms Procurement / Finance Price changes after PO issued

Goods Receipt (GR)Actual quantity received Warehouse / Operations Partial deliveries, damaged goods

Vendor Invoice Vendor's claim for payment Vendor Billing errors, quantity disputes

AP Ageing Analysis
The AP Ageing report buckets outstanding bills by how many days they have been outstanding. It is the primary
tool for managing cash outflows and avoiding late payment penalties or supply chain disruptions:

Age Bucket Action Required

0–30 days (Current) Normal — pay by due date to maintain terms

31–60 days Review — may be approaching due date

61–90 days Concern — likely past due, risk of late fees

> 90 days Critical — dispute or payment issue; contact vendor

SCREEN MOCKUP — AP Invoice Processing & 3-Way Match

RTR Suite — US GAAP AP Invoice Processing — 3-Way Match Workbench Period: Mar 2026

ACCOUNTS PAYABLE — INVOICE PROCESSING & 3-WAY MATCH

Dashboard 8 PENDING MATCH
3 OVERDUE
42 PAID

Journal Entri.
$284,600 $68,400 $22,800 $312,400
AP OUTSTANDING DUE THIS WEEK OVERDUE PAID MTD
14 invoices 5 invoices 3 vendors 42 payments
Accounts Paya.
Vendor Invoice # PO # GR # Inv Amt PO Amt GR Amt Match Due Status
Accounts Rece.
Dell Technologies INV-94821 PO-2841 GR-1042 $48,400 $48,400 $48,400 MATCHED15 Apr Approved

Reconciliation Microsoft Corp INV-94822 PO-2842 GR-1043 $12,800 $12,800 $12,800 MATCHED01 Apr Approved
Amazon Web Svc INV-94823 PO-2843 GR-1044 $4,420 $4,200 $4,420 PRICE VAR
31 Mar On Hold
Fin. Statemen.
Salesforce Inc INV-94824 PO-2844 — $28,400 $28,400 PENDING QTY OPEN20 Apr Pending

Month-End Clo. Cisco Systems INV-94825 PO-2845 GR-1046 $68,200 $68,200 $68,200 MATCHED10 Apr Approved
FedEx INV-94820 PO-2838 GR-1040 $22,800 $22,000 $22,800 PRICE VAR
28 Mar OVERDUE
Variance Anal.

Reports

Fig 2 — AP Workbench: 3-Way Match Status, AP Summary KPIs & Invoice Queue
Accounts Payable nav active; matched/pending/overdue AP summary; invoice table showing PO/GR/Invoice comparison with match status

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Procure to Pay (P2P)

06
The complete purchasing cycle from requisition to payment

P2P is the end-to-end process encompassing every step from identifying a business need through to the final
payment to the vendor. It bridges the Procurement and Finance functions and is a critical area for internal
controls and cost management.

The Full P2P Cycle — 10 Steps

1 Identify Need & Raise Requisition

Business user identifies a need and submits a Purchase Requisition (PR) in the ERP. Includes description,
estimated cost, required delivery date, and cost centre.

2 Approval of Requisition
PR is routed for approval based on spend thresholds — line manager, budget owner, procurement. Approved
PR triggers the RFQ/tendering process for large purchases.

3 Vendor Selection & PO Creation

Procurement selects vendor (or uses preferred vendor list). Purchase Order is created with agreed price,
quantity, payment terms (Net 30/60), and delivery date.

4 PO Approval
PO is approved by authorised signatories per the Delegation of Authority matrix. Approved PO is sent to vendor
confirming the order.

5 Goods / Services Receipt (GR)

On delivery, the receiving team confirms goods match the PO (quantity, specification, condition). GR is posted in
ERP. JE: Debit Inventory/Expense, Credit GRNI.

6 Invoice Receipt & 3-Way Match

Vendor invoice is matched against PO and GR. Price, quantity, and terms must agree. Tolerances are
configured in the ERP (e.g. ±2% on price variance).

7 Exception Handling
Unmatched invoices are routed to a hold queue. AP team investigates — contacts vendor for credit note or
procurement for PO amendment. SLA: resolve within 5 business days.

8 Invoice Approval
Matched invoices exceeding a threshold (e.g. $5,000) require additional approval from cost centre owners before
payment is authorised.

9 Payment Processing
Approved invoices are batched in weekly payment runs. Bank transfers, ACH, or cheques are generated. Dual
authorisation is required for high-value payments.

1 Vendor Account Reconciliation

0 Monthly: AP team reconciles the vendor's statement against the AP sub-ledger balance — confirming all
invoices and credits have been correctly captured.

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Key P2P Controls

■ Segregation of Duties: The person raising the PO must not be the same person approving payment. The
person receiving goods should not also process the invoice. Three separate people = three controls.

■ Delegation of Authority: A formal matrix defining who can approve what spend level. E.g. Line manager up
to $10K, VP up to $100K, CFO above $100K. Prevents unauthorised commitments.

■ Preferred Vendor List (PVL): Pre-approved vendors who have passed due diligence (financial stability,
compliance checks). Procurement must justify using off-PVL vendors.

■ Automated 3-Way Match: Configured in the ERP to automatically hold invoices that fail price or quantity
tolerance checks — reducing manual review burden and preventing erroneous payments.

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Accounts Receivable (AR)

07
Full AR lifecycle — invoicing, collections, and DSO management

Accounts Receivable represents money owed to the business by customers for goods or services delivered but
not yet paid for. AR management is critical to cash flow — a business can be profitable on paper while facing a
cash crisis if it fails to collect its receivables efficiently.

The AR Lifecycle — Step by Step

1 Credit Assessment
Before extending credit to a new customer, assess their creditworthiness — credit score, trade references,
financial statements. Set a credit limit based on risk.

2 Sales Order & Delivery

Customer places order. Sales team confirms, operations fulfills, and a delivery note or service completion
certificate is issued. Revenue recognition criteria are assessed.

3 Invoice Creation
Finance creates an invoice at the point of revenue recognition (when performance obligation is satisfied per ASC
606). Invoice states: amount, due date, payment instructions, bank details.

4 Invoice Delivery
Invoice sent by email (PDF) or EDI (electronic data interchange for large clients). Some clients require invoices
to be uploaded to their AP portal (e.g. Ariba, Coupa).

5 Cash Application
When payment arrives, AR team applies (posts) it to the correct open invoice in the sub-ledger. JE: Debit Cash,
Credit Accounts Receivable.

6 Collections Management
Unpaid invoices approaching or past their due date are actioned: automated payment reminders, calls from
collections team, escalation to senior relationship manager.

7 Dispute Management
Customers may dispute invoices — wrong amount, not received, already paid. Disputed invoices are placed on
hold and investigated. Credit notes issued where appropriate.

8 Bad Debt Assessment

Invoices > 90 days overdue are assessed for recoverability. A bad debt provision (allowance for doubtful
accounts) is raised. If uncollectable, the debt is written off.

Key AR Metrics
Metric Formula What It Tells You

DSO (Days Sales Outstanding)

Avg AR Balance ÷ (Revenue / DaysHow
in Period)
many days on average to collect payment. Lower DSO = faster collection

Collection Rate Cash Collected ÷ Invoices Issued (%)

% of invoiced revenue successfully collected. Target: >97%.

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Bad Debt Ratio Bad Debt Write-Offs ÷ Total Revenue

Measure
(%) of credit risk quality. Target: <0.5% for well-run AR.

AR Turnover Net Revenue ÷ Average AR Balance

How many times AR is collected and refreshed in a year. Higher = better.

SCREEN MOCKUP — AR Collections & Ageing Workbench

RTR Suite — US GAAP AR Collections & Ageing Workbench Period: Mar 2026

ACCOUNTS RECEIVABLE — AR AGEING & COLLECTIONS MANAGEMENT

Dashboard DSO: 42 days | Bad Debt Reserve: $24,800 | Collection Rate: 96.8%

Journal Entri. $184,200 $68,400 $28,800 $22,400 $303,800

CURRENT 31–60 DAYS 61–90 DAYS > 90 DAYS TOTAL AR
< 30 days 4 customers 3 customers 2 customers — escalate DSO: 42 days
Accounts Paya.

Customer Inv # Inv Date Due Date Amount Current 31-60 61-90 >90 Last Contact Action
Accounts Rece.
Apex Corp INV-0480 01 Mar 31 Mar $84,200 $84,200 01 Apr Current
Reconciliation TechStart Inc INV-0472 10 Feb 12 Mar $42,400 $42,400 28 Mar Reminder
Global Logistics INV-0460 15 Jan 14 Feb $28,800 $28,800 25 Mar 2nd Notice
Fin. Statemen.
MegaCorp Ltd INV-0441 01 Dec 31 Dec $22,400 $22,400 20 Mar Legal
Month-End Clo. Northridge INV-0481 15 Mar 14 Apr $68,000 $68,000 — Current
Delta Solutions INV-0474 28 Feb 30 Mar $26,000 $26,000 30 Mar Reminder
Variance Anal.

Reports
Fig 3 — AR Workbench: Ageing Buckets, Customer Balances & Collections Actions
AR nav active; AR ageing summary (Current/31-60/61-90/>90); customer invoice table with collection action buttons

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Order to Cash (O2C)

08
The complete revenue cycle from customer order to cash received

Order to Cash (O2C) is the mirror image of P2P — it is the end-to-end process covering everything from a
customer placing an order to the cash being banked and the transaction fully closed in the general ledger. O2C
spans Sales, Operations, Finance, and Treasury.

The Full O2C Cycle — 9 Steps

1 Customer Order Received

Customer submits a purchase order or contract. Sales team validates against agreed terms — pricing, delivery,
payment terms. Sales Order entered in the ERP.

2 Credit Check
Before fulfillment, AR team checks the customer's available credit. If they are within their credit limit and have no
significantly overdue invoices, the order is released.

3 Order Fulfillment
Operations team fulfills the order — picks inventory, manufactures, or delivers the service. Delivery note or
service completion certificate issued.

4 Shipping & Delivery

Goods are dispatched. Title passes to customer on delivery (FOB Destination) or on shipping (FOB Shipping
Point) — determines when revenue can be recognised.

5 Revenue Recognition
Per ASC 606, revenue is recognised when the performance obligation is satisfied. For product sales: delivery.
For services: over time or at completion per contract.

6 Invoice Generation
Finance generates the invoice with correct amount, VAT/tax, payment terms, and bank details. Invoice posted to
AR sub-ledger. JE: Debit AR, Credit Revenue.

7 Collections & Cash Application

Payment is received and cash-applied against the invoice in the AR ledger. JE: Debit Cash, Credit AR.
Unapplied cash in Unallocated Receipts until matched.

8 Dispute Resolution
If customer disputes — wrong quantity, pricing error, goods damaged — a credit note or replacement is issued.
Open disputes delay payment and inflate AR ageing.

9 Period Reporting
AR is reconciled to the GL at month-end. Bad debt provisions are reviewed. DSO and collection rate are
reported to management. Any write-offs are approved and posted.

Key O2C Controls

■ Credit Limit Management: Customers should not receive goods beyond their approved credit limit.
Automated blocks in the ERP prevent order fulfillment when the limit is exceeded.

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■ Billing Accuracy: Invoices must match the sales order exactly — price, quantity, and terms. Billing errors are
the #1 cause of payment disputes and delayed cash collection.

■ Revenue Recognition Controls: Finance must confirm the performance obligation has been satisfied before
revenue is posted. Premature recognition is a common area of audit challenge.

■ Unapplied Cash Resolution: Any cash received but not matched to an invoice must be resolved within 5
business days — not left sitting in a suspense account, which inflates cash but understates AR.

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Reconciliation — 4 Types

09
Bank, Balance Sheet, Intercompany & Sub-ledger reconciliation

Reconciliation is the process of confirming that two independent records of the same financial information agree.
It is the primary accounting control — catching errors, omissions, and fraud before financial statements are
finalised. Every balance sheet account should be reconciled at least monthly.

TYPE 1 — Bank Reconciliation

Compares the company's GL cash balance to the external bank statement to identify and explain any
differences. Must be done monthly for every bank account.

1 Obtain bank statement

Get the bank statement for the period — the authoritative external record of every cash transaction.

2 Compare to GL
Match each transaction on the bank statement to a corresponding entry in the cash GL account.

3 Identify differences
Timing differences (deposits in transit, outstanding cheques) are valid. Unexplained differences require
investigation.

4 Adjust GL if needed
If the bank is right and the GL is wrong, post an adjusting JE (e.g. bank charge not recorded). Never adjust the
bank statement.

5 Certify and sign off

Preparer signs the completed reconciliation. Reviewer (Controller) approves it. Evidence filed for audit.

Account Debit Credit Memo

GL Cash Balance $124,842 Opening GL balance as at month end

Add: Deposits in Transit $4,250 Sent but not yet on bank statement

Less: Outstanding Cheques ($1,420) Issued but not yet cleared by bank

Adjusted GL Balance $127,672 Should equal bank balance below

Bank Statement Balance $127,672 External confirmation — must agree

TYPE 2 — Balance Sheet (Account) Reconciliation

Verifies that every balance sheet account balance is valid and supported by underlying documentation.
Required for all balance sheet accounts monthly as part of the RTR close.

1 Identify the account balance

Pull the GL account balance from the trial balance at period end.

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2 Gather supporting evidence

For each account type, gather the relevant support: bank statement (cash), aged listing (AR/AP), asset register
(fixed assets), amortisation schedule (prepaid/intangible).

3 Reconcile balance to support

Confirm the GL balance equals the total from the supporting schedule. Example: GL AR balance $303,800 =
sum of all open invoices in the AR sub-ledger $303,800.

4 Explain and resolve variances

Any difference between GL and support must be explained with a valid reason (timing, pending entry) or an
adjusting JE must be posted.

5 Document and retain

Complete a reconciliation template with account name, balance, support, difference, and explanation. Sign and
date. Retain for audit evidence.

TYPE 3 — Intercompany Reconciliation

For companies with multiple legal entities: intercompany transactions (loans, services, dividends between
subsidiaries and the parent) must be recorded identically by both parties and reconcile to zero before
consolidation.

■ The Problem: Entity A records an intercompany receivable of $500,000 from Entity B. Entity B should record
an intercompany payable of $500,000. If they disagree, there is a break — and the consolidated balance sheet
will not balance.

■ Common Causes: Timing differences (Entity A posted in March, Entity B posted in April), FX differences
(different rates used), missing transactions, or incorrect entity coding.

■ Monthly Process: Each entity submits its interco balances into a central reconciliation tool (e.g. HFM,
Blackline). The system automatically identifies mismatches. Both entities must agree and resolve before the
consolidation can be run.

■ Elimination Journal: In the consolidated FS, the matching interco receivable and payable are eliminated —
they net to zero so group revenue and assets are not inflated by intra-group transactions.

TYPE 4 — Sub-ledger to GL Reconciliation

Confirms that the sum of all detailed records in the sub-ledger (AP ledger, AR ledger, fixed asset register,
inventory ledger) equals the corresponding control account in the general ledger.

Sub-ledger GL Control Account Reconciliation Check

AP Ledger (sum of all open vendor balances)

2000 · Accounts Payable Must agree exactly

AR Ledger (sum of all open customer invoices)

1200 · Accounts Receivable Must agree exactly

Fixed Asset Register (net book value total)1600 · Fixed Assets — Net Must agree exactly

Inventory Ledger (all SKU balances at cost)1300 · Inventory Must agree exactly

Payroll Ledger (accrued salaries) 2200 · Accrued Salaries Payable Must agree exactly

SCREEN MOCKUP — Reconciliation Workbench (All 4 Types)

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RTR Suite — US GAAP Account Reconciliation Workbench — Mar 2026 All Entities | USD

RECONCILIATION WORKBENCH — BALANCE SHEET ACCOUNTS

Dashboard 6 OPEN BREAKS
18 RECONCILED
4 IN REVIEW

Journal Entri.
28 18 4 6
TOTAL ACCOUNTS RECONCILED IN REVIEW OPEN BREAKS
Require recon 64.3% complete Pending sign-off Require resolution
Accounts Paya.
Account Acct Type GL Balance Sub-ledger Difference Recon Type Status Preparer Due
Accounts Rece.
1100 · Bank — Chase Bank $62,480 $62,480 $0 Bank Recon RECONCILED
Amer A. 01 Apr

Reconciliation 1110 · Petty Cash Bank $500 $480 $20 Bank Recon BREAK Amer A. 01 Apr
1200 · Accounts Receivable
AR $303,800 $303,800 $0 Sub-ledger RECONCILED
Sarah M. 01 Apr
Fin. Statemen.
2000 · Accounts Payable AP $284,600 $284,600 $0 Sub-ledger IN REVIEW James K. 02 Apr

Month-End Clo. 1300 · Prepaid Expenses Asset $48,200 $44,800 $3,400 BS Recon BREAK Amer A. 01 Apr
2100 · Accrued Liabilities Liability $124,800 $128,400 $3,600 BS Recon BREAK Sarah M. 01 Apr
Variance Anal.
2410 · Interco Payable Interco $284,000 $284,000 $0 Interco RECONCILED
Amer A. 01 Apr

Reports 1600 · Fixed Assets (Net) Asset $2,840,200 $2,840,200 $0 BS Recon RECONCILED
James K. 01 Apr

Fig 4 — Reconciliation Workbench: Account Status, Break Identification & Ownership

Reconciliation nav active; KPI tiles; account recon table showing GL vs sub-ledger comparison, break flags, and preparer assignments

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Financial Statements

10
P&L, Balance Sheet, Cash Flow & Statement of Changes in Equity

The four financial statements produced at the end of each RTR cycle are the primary output of the accounting
function. Together they provide a complete picture of financial performance, financial position, cash generation,
and changes in ownership equity.

Statement 1 — Income Statement (Profit & Loss)

Shows revenues and expenses for the period. Measures profitability. The 'movie' of financial performance over
time.

Line Item Description

Revenue (Net Sales) Total income from all operating activities — product sales, service fees, royalties

Less: COGS Direct costs of producing goods/services — materials, direct labour, manufacturing overhead

= GROSS PROFIT Revenue − COGS. Measures production efficiency. Gross Margin % = Gross Profit ÷ Reven

Less: Operating Expenses Indirect costs: salaries, rent, marketing, R&D, depreciation, admin

= EBITDA Earnings Before Interest, Tax, Depreciation & Amortisation — operational cash earnings proxy

Less: D&A Depreciation of fixed assets + amortisation of intangibles

= EBIT / Operating Income Core operating profit before financing costs

Less: Interest Expense Cost of debt financing

= EBT Earnings Before Tax

Less: Income Tax (21% US federal) Provision for corporate income tax

= NET INCOME The bottom line — profit available to shareholders

Statement 2 — Balance Sheet (Statement of Financial Position)

Snapshot of what the company owns (assets), owes (liabilities), and is worth (equity) at a specific date. The
'photograph' of financial position. Must always balance: Assets = Liabilities + Equity.

Section Key Line Items

ASSETS

Current Assets (<12 months) Cash, Accounts Receivable, Inventory, Prepaid Expenses, Short-term Investments

Non-Current Assets (>12 months)

Property/Plant/Equipment (net of depreciation), Goodwill, Intangibles, Deferred Tax Assets

LIABILITIES

Current Liabilities (<12 months)Accounts Payable, Accrued Expenses, Short-term Debt, Deferred Revenue, Current Portion of LT Debt

Non-Current Liabilities Long-term Debt, Lease Obligations, Deferred Tax Liabilities, Pension Obligations

EQUITY

Shareholders' Equity Common Stock, Additional Paid-in Capital (APIC), Retained Earnings, Other Comprehensive Income (O

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Statement 3 — Cash Flow Statement

Reconciles Net Income (accrual) to actual cash generated. Splits cash movements into three categories. A
company can show net income while having negative cash flow — which is why this statement is critical.

Section What It Shows

Operating Activities Cash from core business — adjusts net income for non-cash items (D&A) and working capital changes (AR

Investing Activities Cash spent on or received from long-term assets — capex (PP&E purchases), asset disposals, acquisitions

Financing Activities Cash from or to capital providers — debt issuance/repayment, equity issuance, dividends paid, share buyba

Net Change in Cash Sum of all three sections = change in cash during the period. Opening + Net Change = Closing cash (must

Statement 4 — Statement of Changes in Equity

Shows the movement in every equity component during the period: opening balance, additions (share
issuances, net income), deductions (dividends, share buybacks), and closing balance. Links the P&L; (via Net
Income → Retained Earnings) to the Balance Sheet.

SCREEN MOCKUP — Financial Statements Dashboard

RTR Suite — US GAAP Financial Statements — Q1 2026 Meridian Corp | Consolidated | USD

FINANCIAL STATEMENTS DASHBOARD — Q1 2026 (JAN–MAR)

Dashboard DRAFT — PENDING AUDIT

P&L Statement Balance Sheet Cash Flow Equity Statement Notes

Journal Entri.
INCOME STATEMENT (P&L) — Q1 2026 BALANCE SHEET — 31 MAR 2026
Accounts Paya.
REVENUES ASSETS
Accounts Rece.
Product Revenue $842,400 $780,200 Current Assets $842,400
Fixed Assets (Net)$2,840,200
Service Revenue $284,800 $248,600
Reconciliation Other Assets $284,600
TOTAL REVENUE $1,127,200 $1,028,800
TOTAL ASSETS $3,967,200
Fin. Statemen. Cost of Goods Sold ($484,200) ($462,400)
LIABILITIES
GROSS PROFIT $643,000 $566,400 Current Liabilities $484,200
Month-End Clo. Operating Expenses ($384,600) ($348,200)Long-term Debt $1,200,000
TOTAL LIAB. $1,684,200
EBITDA $258,400 $218,200
EQUITY
Variance Anal. D&A ($42,800) ($38,400) Share Capital $1,284,000
EBIT / Op. Income $215,600 $179,800 Retained Earnings $999,000
Reports Interest Expense ($18,400) ($16,200)TOTAL EQUITY $2,283,000
Tax Provision (21%) ($41,600) ($34,400)LIAB. + EQUITY $3,967,200
NET INCOME $155,600 $129,200
Fig 5 — Financial Statements Dashboard: P&L + Balance Sheet side by side
Fin. Statements nav active; P&L with revenue, gross profit, EBITDA, net income; BS with assets/liabilities/equity summary

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STATEMENTS
GAAP | Record to Report | Fund Services

Month-End Close

11
Close timeline, checklist, hard vs soft close

The month-end close is the controlled process of finalising all accounting activity for a period, reconciling all
accounts, and producing the financial statements. Most companies close in 3–5 business days after month-end.
Large listed companies often aim for 3 days ('Fast Close').

Hard Close vs Soft Close

Feature Hard Close Soft Close

Period Status Fully locked — no further posting allowed Open for limited adjustments with approval

When Used Month-end, quarter-end, year-end Mid-period or preliminary close

Subledgers All sub-ledgers closed Some sub-ledgers may remain open

Use Case Audited financial statements, reporting Flash reports, early management estimates

Risk Errors require prior-period restatement Easier correction but less finality

The Month-End Close Checklist — 5-Day Timeline

Day 1 (01st Sub-ledger Cutoff — Amer A.
working day) Close AP, AR, inventory, and payroll sub-ledgers. No transactions can be backdated into the closed
period without Controller approval.

Day 1 Bank Reconciliation — Amer A.

Reconcile all bank and credit card accounts to the statements. Investigate and clear all breaks.
Obtain bank confirmations for large balances.

Day 1–2 AP & AR Review — Sarah M.

Review AP ageing — ensure all invoices are matched and booked. Review AR ageing — bad debt
provision is updated. Open items are escalated.

Day 2 Payroll Journal Entry — James K.

Post the payroll JE for the month — salaries, employer taxes, benefits. Reconcile to the payroll
register. Accrue any unpaid holiday pay.

Day 2 Fixed Asset Depreciation — Amer A.

Run the depreciation calculation in the asset register. Post the monthly depreciation JE. Review for
any asset disposals or impairments.

Day 2–3 Accruals & Prepayments — Sarah M.

Post accruals for expenses incurred but not invoiced (utilities, consulting, etc.). Release
prepayments for the period per amortisation schedules.

Day 3 Intercompany Elimination — James K.

Post intercompany eliminations for all intra-group transactions. Confirm all IC balances match
between entities before consolidation.

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Day 3 Balance Sheet Reconciliations — Amer A.

Complete reconciliations for all balance sheet accounts. Every account must have a supporting
schedule signed by the preparer.

Day 4 Trial Balance Review — Controller

Controller reviews the trial balance — checks for unusual items, large variances vs prior month and
budget. Queries are resolved with the team.

Day 4 Deferred Revenue & Tax — Tax Team

Update deferred revenue schedules. Calculate the income tax provision per ASC 740. Review
deferred tax asset/liability balances.

Day 5 Financial Statements Draft — Controller

Compile P&L;, Balance Sheet, and Cash Flow Statement. Prepare variance commentary. Package
for CFO review.

Day 5 CFO Review & Sign-Off — CFO

CFO reviews the draft financial statements. Raises queries, approves adjustments, and formally
signs off. Period is locked in the ERP.

SCREEN MOCKUP — Month-End Close Tracker & Variance Analysis Dashboard

RTR Suite — US GAAP Month-End Close Tracker — Mar 2026 Status: Day 3 of 5 | Due: 05 Apr

MONTH-END CLOSE CHECKLIST — MARCH 2026 | VARIANCE ANALYSIS DASHBOARD

Dashboard Close Day: 3/5 | Open Tasks: 8 | Completed: 24 | Blocked: 2 ON TRACK

CLOSE CHECKLIST — PROGRESS P&L VARIANCE — ACTUAL vs BUDGET Q1

Journal Entri.
Line Item Actual Budget Var $
Sub-ledger cutoff Amer A.
Accounts Paya. DONE Revenue $1,127.2K $1,050.0K +$77.2K
Bank reconciliation Amer A.
DONE COGS ($484.2K) ($462.0K) ($22.2K)
Accounts Rece. AP accruals posted Sarah M.
DONE Gross Profit $643.0K $588.0K +$55.0K
AR ageing reviewed Sarah M.
Reconciliation DONE OpEx ($384.6K) ($360.0K) ($24.6K)
Payroll JE posted James K.
DONE EBITDA $258.4K $228.0K +$30.4K
Fin. Statemen. Fixed asset depreciation Amer A.
DONE Net Income $155.6K $130.0K +$25.6K
Prepaid amortisation Amer A.
IN PROG
Month-End Clo. Interco eliminations James K.
Close Progress: 75% (24/32 tasks)IN PROG
Deferred revenue schedules Sarah M.
Variance Anal. OPEN
Tax provision calc Controller
OPEN
Reports Balance sheet recons Amer A.
BLOCKED
CFO review & sign-off CFO
OPEN
Fig 6 — Close Tracker: Task Status, Ownership & P&L Variance vs Budget
Month-End Close nav active; colour-coded task checklist (DONE/IN PROG/BLOCKED); variance table with FAV/UNF flags and % changes

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Variance Analysis

12
Budget vs Actual, Price-Volume, Rate-Volume, and trend analysis

Variance analysis is the process of quantifying the difference between planned (budget) and actual financial
results, and explaining why those differences exist. It is a core management accounting tool — used monthly to
hold managers accountable, identify trends, and support forecasting.

Type 1 — Budget vs Actual Variance

The most common variance analysis. Every P&L; line is compared to the approved annual budget for the same
period.

Metric Formula What It Means

Revenue Variance Actual Revenue − Budget Revenue

Favourable (+) = over-performed. Unfavourable (−) = shortfall.

Cost Variance Budget Cost − Actual Cost Favourable (+) = spent less than planned. Unfavourable (−) = overspend.

EBITDA Variance Actual EBITDA − Budget EBITDANet profit performance vs plan — the key management metric.

Variance % (Actual − Budget) ÷ Budget × 100Expresses the size of the gap as a percentage — helps prioritise investigation.

Type 2 — Price-Volume Variance (Revenue Analysis)

When revenue differs from budget, the variance is decomposed into two root causes: selling price and sales
volume.

Price Variance = (Actual Price − Budget

Price) × Actual Volume Volume Variance =
Total Revenue Variance = Price Variance (Actual Volume − Budget Volume) × Budget
+ Volume Variance Price

Actual Price $105/unit Budget Price $100/unit

Actual Volume 11,000 units Budget Volume 10,000 units

Price Variance (105−100)×11,000 = +$55,000 Favourable

Volume Variance (11,000−10,000)×$100 = +$100,000 Favourable

Total Revenue Var Actual $1.155M − Budget $1.0M

= +$155,000 Favourable

Type 3 — Rate-Volume Variance (Cost Analysis)

When costs differ from budget, the variance is decomposed into rate (price paid per unit of resource) and
volume (quantity consumed):

Rate Variance = (Actual Rate − Standard Rate) × Actual Quantity used. Favourable if actual rate < standard
rate.

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Efficiency / Volume Variance = (Actual Quantity − Standard Quantity allowed for actual output) × Standard
Rate.

Type 4 — Prior Period Comparison (Trend Analysis)

Compares current period actuals to the equivalent prior period (Month vs Prior Month, Quarter vs Prior Year
Quarter). Identifies structural changes in the business:

■ Month-on-Month (MoM): Compares to the immediately preceding month — highlights short-term operational
changes, seasonal effects, one-off items.

■ Year-on-Year (YoY): Compares to the same period in the prior year — removes seasonality and shows
underlying growth or decline trends.

■ Rolling 12-Month: LTM (Last Twelve Months) comparison — smooths seasonal effects and gives a picture of
annualised performance at any point.

■ Commentary Requirement: For every material variance (typically > 5% or > a defined dollar threshold), a
written explanation is required in the management pack — e.g. 'Revenue +$77K vs budget driven by new
enterprise contract with XYZ Corp signed in Q1.'

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Accruals & Prepayments

13
Matching principle in practice — timing adjustments

Accruals and prepayments are the two adjusting journal entry types that make accrual accounting work — they
ensure expenses and revenues are recognised in the period they relate to, not just when cash moves.

Accruals — Expense Incurred, Not Yet Invoiced

An accrual recognises an expense before the invoice arrives. It is recorded as: Debit Expense, Credit Accrued
Liability. At the start of the next period, it is reversed (or the actual invoice is matched to it).

Account Debit Credit Memo

Utilities Expense $4,200 Mar electricity — invoice expected Apr 10

Accrued Liabilities $4,200 Liability until invoice received

Prepayments — Cash Paid, Expense Not Yet Incurred

A prepayment (deferred expense) is when cash is paid upfront for a future benefit. Recorded as an asset
initially, then amortised over the benefit period: Debit Prepaid Asset, Credit Cash on payment. Then monthly:
Debit Expense, Credit Prepaid.

Account Debit Credit Memo

Pay annual premium in Jan — asset

Prepaid Insurance $12,000 created

Cash / Bank $12,000 Cash out to insurer

Insurance Expense (monthly) $1,000 Release 1/12 each month

Prepaid Insurance $1,000 Reduce prepaid asset balance

Accrued Revenue (Unbilled AR)

Revenue earned but not yet invoiced — common in long-term contracts, subscription services billed in arrears,
or milestone-based projects. Record as: Debit Accrued Revenue (Asset), Credit Revenue.

Account Debit Credit Memo

Accrued Revenue / Unbilled AR $28,000 Mar services delivered — invoice in Apr

Service Revenue $28,000 Recognised per ASC 606

Deferred Revenue (Unearned Revenue)

Cash received before the performance obligation is satisfied — common in SaaS subscriptions, annual service
contracts, and advance deposits. Record as liability until earned: Debit Cash, Credit Deferred Revenue.
Recognise monthly: Debit Deferred Revenue, Credit Revenue.

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Fixed Assets & Depreciation

14
Asset lifecycle, depreciation methods, and impairment testing

Fixed assets (Property, Plant & Equipment — PP&E;) are long-lived tangible assets used in operations. They
are initially recorded at cost and then systematically depreciated over their useful life to match the expense to
the periods they benefit.

Asset Lifecycle

1 Acquisition
Asset is purchased — recorded at full cost including purchase price, installation, shipping, and all costs to bring it
to working condition. JE: Debit Fixed Asset, Credit Cash/AP.

2 Capitalisation
For large purchases meeting the capitalisation threshold (e.g. > $5,000 and useful life > 1 year), the cost is
capitalised as an asset rather than expensed immediately.

3 Depreciation
The asset's cost is systematically allocated as expense over its useful life. Monthly JE: Debit Depreciation
Expense, Credit Accumulated Depreciation.

4 Impairment Testing
If events suggest an asset's recoverable value < carrying value, an impairment test is performed. If impaired,
write down to recoverable amount — JE: Debit Impairment Loss, Credit Asset.

5 Disposal
When retired or sold: remove the asset and accumulated depreciation from the books, record any sale proceeds
as cash, and book the gain or loss on disposal.

Depreciation Methods
Method Formula Best For Pattern

Straight-Line (SLM) (Cost − Salvage) ÷ Useful Life Buildings, furniture, mostEqual

assets
expense each year

Double-Declining Balance
2 × (1/Useful Life) × NBV Tech equipment, vehicles
Front-loaded (higher early)

Units of Production (Cost − Salvage) ÷ Total Units × Machinery,

Units Used mining Varies with usage

(Cost −losing
Sum-of-Years Digits Remaining Life ÷ Sum of Years ×Assets Salvage)
value fast Front-loaded

Example — Straight-Line Depreciation

Account Debit Credit Memo

Depreciation Expense (monthly) $8,333 ($500K − $0 salvage) ÷ 5yr ÷ 12 months

Contra-asset reduces NBV on balance

Accumulated Depreciation — Equipment $8,333 sheet

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Intercompany Accounting

15
Interco transactions, reconciliation, and consolidation eliminations

Intercompany (IC) accounting covers all financial transactions between entities within the same corporate group
— loans, services, product sales, cost allocations, and dividends. These must be meticulously tracked because
they cancel out at the group level but can misstate individual entity financials if incorrectly recorded.

Common Intercompany Transaction Types

■ Interco Loans: Parent lends cash to a subsidiary. Parent: DR Interco Receivable, CR Cash. Subsidiary: DR
Cash, CR Interco Payable. Interest charged creates: DR Interest Income (Parent), CR Interest Expense (Sub).

■ Interco Services: Management fees or shared services charged from parent to subsidiaries. DR
Management Fee Expense (Sub), CR Management Fee Revenue (Parent). Both must agree; eliminated in
consolidation.

■ Interco Product Sales: One group entity sells goods to another. Revenue and COGS are recognised in each
entity's standalone FS. Eliminated in group consolidation along with any unrealised profit in inventory.

■ Cost Allocations: Group overheads (IT, HR, Legal) allocated to subsidiaries via a pre-agreed allocation
methodology. DR Overhead Expense (Sub), CR Overhead Recharged (Parent).

Consolidation Eliminations
When preparing consolidated group financial statements, all intercompany balances and transactions must be
eliminated — otherwise group revenue, expenses, assets, and liabilities will be overstated by intra-group
activity. Eliminating journal entries are posted in the consolidation tool (e.g. HFM, Hyperion, Tagetik) and do not
appear in the individual entity ledgers.

■ Interco Revenue Elimination: Parent invoiced Sub $500K for management services. Elimination: DR
Management Fee Revenue $500K, CR Management Fee Expense $500K. Both disappear from consolidated
P&L.;

■ Interco Balance Elimination: Parent has IC Receivable $1M, Sub has IC Payable $1M. Elimination: DR IC
Payable $1M, CR IC Receivable $1M. Both disappear from consolidated balance sheet.

■ Unrealised Profit Elimination: Parent sold goods to Sub at a 20% markup, and Sub still holds the goods in
inventory. Elimination: DR Revenue $100K, CR Inventory $100K — removes unrealised profit from group
inventory.

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Tax Provisions & Deferred Tax

16
Current tax, deferred tax, and ASC 740 overview

The income tax provision (per ASC 740) is one of the most complex areas of US GAAP. It requires estimating
the company's income tax obligation for the current period and recognising deferred tax assets and liabilities for
temporary differences between GAAP accounting and the tax return.

Current Tax vs Deferred Tax

■ Current Tax Provision: Tax owed on this year's taxable income — based on the actual tax return filing, using
tax rates (US federal: 21%) and applying all deductions and credits. JE: DR Income Tax Expense, CR Income
Tax Payable.

■ Deferred Tax Asset (DTA): Arises when taxable income > GAAP income — you've paid more tax than
you've expensed. A future tax benefit. E.g. accelerated tax depreciation, net operating losses (NOLs), revenue
recognised later for tax.

■ Deferred Tax Liability (DTL): Arises when GAAP income > taxable income — you've recognised more profit
than you've been taxed on yet. A future tax obligation. E.g. accelerated GAAP revenue recognition, lower tax
depreciation.

■ Valuation Allowance: If it is 'more likely than not' that a DTA will not be realised (e.g. company has
consistent losses), a valuation allowance must be recorded to reduce the DTA — a conservative treatment.

Tax Provision Journal Entry Example

Account Debit Credit Memo

Income Tax Expense — Current $41,600 21% × $198,095 taxable income

Income Tax Expense — Deferred $8,400 Temporary difference × 21% tax rate

Income Tax Payable — Current $41,600 Owed to IRS — cash paid on filing

Deferred Tax Liability $8,400 Future tax obligation recognised now

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Interview Q&A

17
15 fully written model answers across all US accounting processes

RTR What is Record to Report (RTR) and what does it include?

RTR — Record to Report — is the complete financial close and reporting cycle, starting with recording
individual transactions and ending with audited financial statements and management reporting. It includes
transaction capture, sub-ledger management, period-end accruals, account reconciliation, intercompany
eliminations, trial balance review, financial statement preparation, and management variance analysis. In a
fund services context, the RTR process underpins the NAV calculation cycle — every trade, fee accrual, and
investor transaction must flow through the RTR framework before NAV can be signed off.

Journal
Explain double-entry accounting and give me three examples of journal entries.
Entry

Double-entry accounting requires every financial transaction to be recorded with a debit entry and a credit
entry of equal amounts. This maintains the accounting equation: Assets = Liabilities + Equity. Three examples:
(1) Recognising a sale on credit — Debit Accounts Receivable $50,000, Credit Revenue $50,000. The asset
increases and equity (through revenue) increases. (2) Paying a vendor bill — Debit Accounts Payable
$12,000, Credit Cash $12,000. The liability decreases and the asset decreases. (3) Recording depreciation —
Debit Depreciation Expense $8,333, Credit Accumulated Depreciation $8,333. An expense is recognised and
the asset's book value is reduced via the contra account.

AP/P2P What is a 3-way match in accounts payable and why is it important?

A 3-way match compares three documents before approving an invoice for payment: the Purchase Order
(what we agreed to pay), the Goods Receipt (what we actually received), and the Vendor Invoice (what the
vendor is charging). All three must agree on quantity and price within a configured tolerance, typically ±2–3%.
It is the primary AP control against fraud and error — it prevents paying for goods never received, overpaying
due to billing errors, and duplicate payments. When a mismatch occurs, the invoice is placed on hold and the
discrepancy is investigated before any payment is made.

AR/O2C How do you calculate DSO and what does it tell you?
DSO — Days Sales Outstanding — is calculated as: Average Accounts Receivable Balance ÷ (Revenue ÷
Number of Days in the Period). For example, if AR is $300,000 and quarterly revenue is $1.2M, DSO = $300K
÷ ($1.2M ÷ 90) = 22.5 days. DSO measures how many days on average it takes to collect payment from
customers. A low DSO indicates efficient collections and healthy cash flow. A rising DSO is a warning signal
— it may indicate customers are experiencing financial stress, collections processes have weakened, or there
are billing disputes creating delays. Most businesses target a DSO below 45 days.

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GAAP | Record to Report | Fund Services

Reconciliatio
Walk me through how you would perform a bank reconciliation.
n

First, I'd obtain the bank statement for the period and pull the GL cash account balance from the trial balance.
I'd then go through every transaction on the bank statement and tick off the matching entry in the GL.
Differences fall into two categories: timing differences (deposits in transit that are in the GL but not yet on the
statement, and outstanding cheques that are in the GL but not yet cleared by the bank) — these are valid and
expected. Any unexplained difference after accounting for timing items requires investigation — it could be a
bank charge not recorded in the GL, a duplicate transaction, or in rare cases, fraud. Once all differences are
explained and any necessary adjusting JEs are posted, the GL balance should equal the bank statement
balance. I'd then sign the reconciliation and submit it to the Controller for sign-off.

Reconciliatio
What are the four types of account reconciliation and when is each used?
n

Bank reconciliation compares the GL cash balance to the external bank statement — done monthly to detect
errors, unrecorded transactions, and fraud. Balance sheet reconciliation verifies every BS account balance
against supporting documentation (schedules, sub-ledgers, contracts) — done monthly for every account as
part of the RTR close. Intercompany reconciliation matches IC balances between group entities before
consolidation — done monthly; IC balances must agree exactly between the two entities before the
consolidated FS can be produced. Sub-ledger to GL reconciliation confirms that the total of the detailed
sub-ledger (e.g. all open AP invoices) equals the GL control account balance — done monthly; any difference
indicates a posting error that must be corrected.

Financial
Explain the relationship between the three financial statements.
Stmts

The three financial statements are deeply interconnected. The Profit & Loss Statement shows revenue and
expenses for the period, producing Net Income at the bottom. Net Income flows directly into the Balance
Sheet via Retained Earnings — it either increases equity (profit) or decreases it (loss). The Cash Flow
Statement reconciles Net Income (accrual) to actual cash generated by starting with Net Income, adjusting for
non-cash items like depreciation (add back), and then adjusting for working capital changes — an increase in
AR is a cash outflow because you earned revenue but haven't been paid yet. The ending cash balance on the
Cash Flow Statement must equal the cash balance on the Balance Sheet. If any of the three statements is
wrong, it will be inconsistent with the other two — this is the auditor's primary cross-check.

Financial
What is the difference between accrual and cash basis accounting?
Stmts

In accrual accounting, revenue is recognised when earned and expenses when incurred, regardless of when
cash changes hands. In cash basis, transactions are only recorded when cash is actually received or paid. US
GAAP requires accrual basis for financial statements of public companies. The key difference in practice:
under accrual, if I deliver $100K of services in March but the client pays in April, I record $100K revenue in
March. Under cash basis, I record it in April. Accrual gives a more accurate picture of profitability and financial
position, which is why it is required for GAAP reporting. Cash basis is simpler but can be misleading — a
business can show large profits while having a cash crisis if its receivables are high.

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Close Describe the month-end close process from start to finish.

The month-end close typically runs over 3–5 business days. On Day 1, I'd cut off all sub-ledgers — locking
AP, AR, inventory, and payroll so no transactions can be backdated into the closed period. Then I'd run bank
reconciliations for all accounts. Days 1–2 involve posting all period-end JEs: payroll, depreciation, prepaid
releases, accruals for expenses incurred but not yet invoiced, and deferred revenue recognition. Day 2–3
covers the balance sheet reconciliations — every account from cash to deferred tax must have a signed
reconciliation. Intercompany balances are agreed between entities and elimination entries are posted. Day 4,
the Controller reviews the trial balance — investigates large variances vs prior month and budget, raises
queries with the team. Day 5, the financial statements are compiled, variance commentary is written, and the
CFO signs off. The period is then locked in the ERP.

Variance What is price-volume variance and how do you calculate it?

Price-volume variance breaks down a total revenue variance into two root causes. The price variance shows
how much of the revenue difference was due to selling at a different price than budgeted: it equals (Actual
Price minus Budget Price) multiplied by Actual Volume. The volume variance shows how much was due to
selling a different quantity than budgeted: it equals (Actual Volume minus Budget Volume) multiplied by the
Budget Price. For example, if I budgeted to sell 10,000 units at $100 each but actually sold 11,000 units at
$105, my total favourable revenue variance of $155,000 splits into a $55,000 favourable price variance (the
extra $5/unit on 11,000 units) and a $100,000 favourable volume variance (the extra 1,000 units at $100
each). This decomposition tells management whether the outperformance was a pricing win, a sales volume
win, or both.

Accounting What is the difference between a deferred tax asset and a deferred tax liability?
A deferred tax asset (DTA) arises when a company pays more tax currently than it recognises as tax expense
under GAAP — because taxable income is higher than accounting income. It represents a future tax benefit.
Common causes include net operating losses that can be carried forward, warranty provisions expensed
under GAAP but deductible only when paid, and revenue deferred under GAAP but taxed upfront. A deferred
tax liability (DTL) is the opposite — it arises when accounting income exceeds taxable income, meaning
you've been taxed less than you've recognised in the P&L.; Common causes include accelerated tax
depreciation (deducting more for tax than for GAAP) and revenue recognised faster under GAAP than under
tax rules. Both are temporary differences — they reverse over time as the timing differences unwind.

Accounting What does working capital mean and how is it calculated?

Working capital measures a company's short-term liquidity — its ability to meet obligations due within 12
months. It is calculated as Current Assets minus Current Liabilities. Current assets include cash, accounts
receivable, inventory, and prepaid expenses. Current liabilities include accounts payable, accrued liabilities,
short-term debt, and the current portion of long-term debt. Positive working capital means the company has
more short-term assets than obligations, which is healthy. Negative working capital is a red flag — it may
indicate the company is struggling to meet near-term obligations. In fund services or PE contexts, working
capital management also refers to the ongoing cycle of managing AR collections, AP payments, and cash flow
to optimise the cash conversion cycle.

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GAAP | Record to Report | Fund Services

AP/P2P What controls would you put in place in the P2P process to prevent fraud?
Three foundational controls: Segregation of duties — the person raising the PO should not be the same
person approving it, and neither should be the same person processing payment. This three-way separation
prevents a single employee from creating a fictitious vendor and approving payment to themselves.
Delegation of authority matrix — all purchase commitments and invoice approvals must be authorised by the
appropriate level (line manager for small purchases, VP or CFO for larger amounts). This prevents
unauthorised commitments. Automated 3-way match — the ERP should be configured to automatically hold
any invoice where the price or quantity doesn't match the PO and GR within tolerance. This prevents
overpayment and payment for unreceived goods. Additional controls include: mandatory vendor due diligence
before adding new vendors to the master file, dual authorisation on all bank payments above a threshold, and
regular AP ageing review to detect unusual items.

RTR What is the difference between an accrual and a prepayment?

An accrual recognises an expense or revenue that has been incurred or earned but where no cash has yet
moved and no invoice has been received. For example, if December electricity is used but the bill arrives in
January, I accrue it in December: Debit Utility Expense, Credit Accrued Liabilities. A prepayment is the
opposite — cash has been paid upfront for a future benefit. The entire cash payment is first recorded as an
asset, then amortised as an expense over the period it benefits. For example, a 12-month insurance premium
of $12,000 paid in January is booked as Debit Prepaid Insurance $12,000, Credit Cash $12,000. Each month,
$1,000 is released: Debit Insurance Expense, Credit Prepaid Insurance. The key distinction: accruals deal
with incurred costs awaiting invoices; prepayments deal with cash already paid for future costs.

Close What is the difference between a hard close and a soft close?
A hard close fully locks the accounting period — no further journal entries, sub-ledger postings, or adjustments
can be made without specific Controller override approval. It produces final, auditable financial statements and
is performed at month-end, quarter-end, and year-end. A soft close (or preliminary close) is less restrictive —
the period is closed for routine transactions but Finance retains the ability to post adjustments within a defined
window. Soft closes are used for producing early management estimates, flash P&L; reports for the executive
team, or interim consolidations. The risk of a soft close is reduced finality — since adjustments remain
possible, the numbers are provisional. For external reporting, only hard-close figures are used.

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GAAP | Record to Report | Fund Services

Glossary

18
40+ must-know US accounting & RTR terms

RTR Journal Entry (JE)

Record to Report — the end-to-end financial close cycle The mechanism for recording any financial transaction
from transaction recording to financial statement — requires equal debits and credits in the GL.
production.
General Ledger (GL) Trial Balance
Master record of all financial transactions, organised by A list of all GL accounts and their balances — debits
account code. The source of truth for financial must equal credits. Run before producing financial
statements. statements.
Accrual Prepayment
An expense recognised before the invoice is received Cash paid in advance for a future benefit — recorded
(e.g. accruing December rent payable in January). as an asset and amortised over the benefit period.
Deferred Revenue Accrued Revenue
Cash received before the performance obligation is Revenue earned but not yet invoiced — recorded as
satisfied — recorded as a liability until earned. an asset (unbilled AR).
Accounts Payable (AP) Accounts Receivable (AR)
Amounts owed to vendors for goods/services received Amounts owed by customers for goods/services
but not yet paid. Current liability on balance sheet. delivered but not yet paid. Current asset on balance
sheet.
3-Way Match GRNI
AP control comparing PO, Goods Receipt, and Vendor Goods Received Not Invoiced — transitional liability
Invoice before approving payment. account between GR and invoice receipt.
DSO DPO
Days Sales Outstanding — average days to collect AR. Days Payable Outstanding — average days to pay AP.
Formula: Avg AR ÷ (Revenue ÷ Days). Formula: Avg AP ÷ (COGS ÷ Days).
P2P O2C
Procure to Pay — end-to-end purchasing process from Order to Cash — end-to-end revenue process from
requisition to vendor payment. customer order to cash collection.
Variance Analysis Price Variance
Quantifying and explaining differences between actual Revenue variance component due to difference
and budgeted financial results. between actual and budgeted selling price.
Volume Variance Gross Profit
Revenue variance component due to difference between Revenue minus Cost of Goods Sold. Measures
actual and budgeted sales quantity. production/service delivery efficiency.
EBITDA Net Income
Earnings Before Interest, Tax, Depreciation & Revenue minus all expenses including COGS, OpEx,
Amortisation — operational cash earnings proxy. interest, and tax. The 'bottom line'.
Working Capital Cash Flow from Operations
Current Assets minus Current Liabilities. Measures Net income adjusted for non-cash items and working
short-term liquidity. capital changes.
Capex Depreciation
Capital Expenditure — cash spent on acquiring or Systematic allocation of a fixed asset's cost as
improving long-term assets (PP&E;). expense over its useful life.

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GAAP | Record to Report | Fund Services

Accumulated Depreciation Impairment

Contra-asset account representing total depreciation Write-down of an asset when its carrying value
charged since acquisition. exceeds its recoverable amount.
Intercompany (IC) Consolidation
Transactions between entities within the same corporate Process of combining subsidiary financial statements
group — eliminated in consolidation. into a single group FS, with IC eliminations.
Deferred Tax Asset (DTA) Deferred Tax Liability (DTL)
Future tax benefit arising when taxable income exceeds Future tax obligation arising when GAAP income
GAAP income in the current period. exceeds taxable income in the current period.
ASC 606 ASC 740
US GAAP revenue recognition standard — 5-step model US GAAP accounting for income taxes — governs
for when and how to recognise revenue. current tax and deferred tax recognition.
ASC 842 Cost of Goods Sold (COGS)
US GAAP lease accounting standard — requires Direct costs attributable to producing goods/services
recognition of most leases on the balance sheet. sold — feeds into gross profit calculation.
Retained Earnings APIC
Cumulative net income retained in the business — Additional Paid-In Capital — amount shareholders
increased by profits, decreased by dividends. paid above par value for shares issued.
OCI Hard Close
Other Comprehensive Income — gains/losses Fully locked accounting period — no further postings
recognised in equity but not in the P&L; (e.g. FX without Controller approval.
translation).
Soft Close Bad Debt Provision
Preliminary close allowing limited adjustments — used for Allowance for Doubtful Accounts — estimated portion
early management reporting. of AR unlikely to be collected.
SOD
Segregation of Duties — key internal control requiring
different people to authorise, execute, and record
transactions.

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