Accounting in a business is an essential part with the help of which owners record, summarize and report financial transactions of a business. Income statement and cash flow statements make accounting performance better, while rollforward in accounting is a Key process for maintaining accurate financial tracking. Here in this blog, we have discussed roll forward accounting, its benefits, and the difference between roll forward accounting and account reconciliation.
What is Roll Forward Accounting?
Roll forward accounting is the technique by which you can track changes in your accounting balance over time. You can view expenses and revenue over an accounting period, from start to end, in your roll forward report. Roll forward accounting involves examining the starting balance, additions, subtractions and arriving at the ending balance from one reporting period to the next.
Using Rollforward, you can ensure financial reporting accuracy by updating the account balance from one period to the next.
Roll Forward Accounting Example
You own a company, and you have $20000 in your company’s cash account. After some time, you receive $10000 from your clients’ payments. After that, you want machinery for your company, so you bought a brand new machine for $5000. Now, when you analyse your company’s cash account, it will look like this:
- Beginning Balance: $20000
- Addition: $10000
- Subtracted: $5000
- Ending Balance: $25000
Benefits of the Roll Forward Accounting
Roll forward accounting offers numerous advantages while dealing with more complex financial data. Here are some advantages given to you:
- Improves Accuracy: Using rollforward in accounting improves your financial reports accuracy by maintaining its accuracy. It reduces and catches errors, and the chances of misstatement risk are reduced.
- Enhance Transparency: Roll forward accounting enhances transparency for stakeholders by providing clear financial reporting, which helps build the trust of the stakeholders.
- Easy Auditor Verification: These reports help auditors verify transactions, catch any errors and make it easier for auditors to assess your financial health.
- Improves Account Reconciliation: It shows exactly which transactions caused changes in the balance, which makes reconciling accounts faster.
- Compare Financial Periods: Roll forward accounting helps you to compare actual and prior periods’ financial reports efficiently.
What are the Basic Elements of the Roll Forward Report?
Roll forward report ensures transparency and accuracy in financial reporting. Using some elements that are considered the building blocks of the Roll forward in accounting:
- Starting Balance: It represents the initial value of the account.
- Additions: The additional cost that is added during the reporting year.
- Substractions: The amount which is deducted from the accounts for any reason for example, machinery purchase, pending payment, etc.
- Adjustments: Verifies the account and ensures corrections or reclassifications.
- Ending Balance: The balance that is concluded after removing or adding all the transactions.
For which Accounts is Roll Forward Accounting Useful?
Here are provided the Accounts types for which roll forward accounting is majorly useful:
- Fixed Assets and Intangible Assets: A roll forward report for the Fixed assets like property and equipment, starts with the beginning balance. After that, it adds and subtracts disposals or depreciation to arrive at the ending balance. Using Roll forward report, you can have easy access to this detailed tracking of the report, which will help you to maintain accurate records.
- Inventory and accounts receivable: For inventory and accounts receivable roll forward is also used. But it is considered less effective for inventory and accounts receivable than the direct reconciliation method.
- Other financial accounts: Roll forward accounting is used for investments, prepaid expenses, leases, income tax, and debt. Tracking these accounts with a roll forward approach gives you a complete view of balance changes.
Difference between Roll Forward and Account Reconciliation
Roll forward
- A roll forward is the technique by which you can view the movement of an account balance over time.
- The main work is to show how an account balance changed during a period.
- Focuses on the assets, liabilities and equity accounts.
- It is used monthly, quarterly, and yearly according to the needs.
Account Reconciliation
- Account reconciliation is used for the comparison of two sets of records to match them.
- The main purpose is to detect errors, omissions or discrepancies.
- Focuses on the accuracy of the balance.
- It is used when there a periodic checks, auditing or the month-end.
Conclusion
Roll forward accounting is a key process for maintaining accurate and consistent financial tracking across periods. It delivers error reduction and focuses on the asset, liability and equity accounts. Used for examining the beginning balance and the ending balance, arriving at the ending balance from one reporting period to the next.