Clearing Account Reconciliation

What are the Clearing Accounts?

The clearing accounts are the accounts that your revenue and expenses will post to when entered.

A credit will be posted to the revenue clearing account whenever well revenue is entered.

A debit will be posted to the expense clearing account whenever well expenses are entered.

The balance of these accounts will continue to accumulate until you process a run closing. When a run is closed the amounts that had been accumulating in these accounts will be allocated to the interest holders in the wells as either a check or a receivable. After closing the runs, if no revenue or expenses are in the allocation file or on the new run then the balance of both clearing accounts should be zero.

Auditing the Clearing Accounts

Auditing the clearing account ensures that you have accurate account balances, that the software was setup properly, and that all revenue and expenses are being processed and allocated correctly.
The best time to audit the clearing accounts is immediately after closing a run.

To reconcile the clearing account, you are verifying that the balance in the clearing accounts is the same as the balance of revenue/expenses that has not processed on a run closing yet. The balance after closing a run should be zero as long as all revenue and expenses that have been entered are processed.

The balance of any unprocessed activity will remain in the clearing accounts.

If you do have any discrepancies you will first want to try and pinpoint a range of time where the discrepancy took place. The quickest way to do this is to go back one run at a time and compare the balances as of the date each run was closed. If everything was processed, then the balance of the clearing account on that date will be zero. Keep in mind that you may have entered activity with the same date after the run was closed which would result in a balance in the account.

G/L Clearing Account Reconciliation Report

This report compares the debits and credits made to the clearing accounts for a given run or date range. It also allows you to quickly recognize any differences and if any wells did not clear out.

Select the options to display:
Report Type
Detail Listing: Shows each debit and credit made.
Summary Listing: Only shows the total debits and credits for each well.

Type
Expense Clearing: Run for the expense clearing account.
Revenue Clearing: Run for the revenue clearing account.
Both Clearing Accounts: Run for both expense and revenue clearing.

Report By
Run No.: Reports all entries processed during the given run.
Date Range: Reports all transactions between the given date range regardless of whether they were
processed in a revenue run.

Run No.The run for which the report is to be produced.

Date Range The beginning and ending date to use in choosing transactions to include on the report.

Reconciling with the G/L Clearing Account Reconciliation Report

After a run is closed run a "Summary Listing" of "Both Clearing Accounts" for the run that was closed. Go to the end of each clearing account and verify that the total debits are the same as the total Credits. If they are the same then the posting for this run was correct.

If you have differences on the summary report then you can run the report again as a "Detail Listing" to try and determine specifically what is causing the difference.

If you are not able to determine what is causing the difference from this report then you can compare the G/L Account Activity Report, Revenue Expense Detail Report for the new run, and the Allocation File reports to further investigate.

Running the G/L Clearing Account Reconciliation by date range

Running the report by date range will allow you to run the report for a broader time period than just a specific run closing. Anything that has not been processed on a run closing will show as a difference on the report.

Revenue Clearing Account Reconciliation

The balance of the revenue clearing account at any time should be equal to the total of revenue that has not been processed on a revenue run closing. This includes any revenue in the new run and in the allocation file. Any revenue that has been processed on a run closing should have offsetting entries in the clearing account.

G/L Account Activity Report = Revenue Expense Detail Report for the new run + Allocation File.

G/L Account Activity Report

View for a fiscal period range for a range that includes all revenue and expenses on the run.

Positive revenue will credit when entered

Taxes and negative revenue will be debited when entered.

If the range includes information from multiple runs you will also need to factor those in.

Debits will be posted when the run for the amounts allocated to the owners. A debit will be posted for each owner for the amount of the check sent them.

Revenue/Expense Detail Report

Positive revenue amounts in the "Net Total" column will be credits on the G/L Account Activity Report.

Negative revenue amounts in the "Net Total" column will be debits on the G/L Account Activity Report.

If the range you viewed the G/L Account Activity Report included multiple runs you will have to view the Revenue/Expense Detail Report for each run that had revenue that was included in the range.

Be sure to view this report for the New Run also.

Unallocated/Unprocessed Revenue and Expenses / Allocation File

Positive revenue will be credits on the G/L Account Activity Report.

Taxes and negative revenue will be debits on the G/L Account Activity Report.

Disbursements by Well Report

Shows the check amount for each owner. These will be Debits for the amount of each owners check when the run is closed.

Expense Clearing Account Reconciliation

The balance of the expense clearing account should be the total of expenses that have not been processed on a run closing. This includes any expenses in the new run and in the allocation file.
Any expenses that have been processed on a run closing should have offsetting entries in the clearing account.

G/L Account Activity Report = Revenue Expense Detail Report for the new run + JIB Expense Detail report for the new run + Allocation File.

G/L Account Activity Report

View for a fiscal period range for a range that includes all and expenses on the run.

Expenses will debit the expense clearing account when entered.

If the range includes information from multiple runs you will also need to factor those in.

Credits will be posted when the run is processed for the amounts allocated to the owners. A credit will be posted for each owner for the amount of the check sent them. Revenue/Expense Detail Report (Expenses for Net Owners)

Positive expense amounts in the "Net Total" column will be debits on the G/L Account Activity Report.

Negative expense amounts in the "Net Total" column will be credits on the G/L Account Activity Report.

If the range you viewed the G/L Account Activity Report included multiple runs you will have to view the Revenue/Expense Detail Report for each run that had revenue that was included in the range.

Be sure to view this report for the New Run also.

Well JIB Expense Detail Report (Expenses for JIB Owners)

Positive expense amounts in the "Net Total" column will be debits on the G/L Account Activity Report.

Negative expense amounts in the "Net Total" column will be credits on the G/L Account Activity Report.

If the range you viewed the G/L Account Activity Report included multiple runs you will have to view the Revenue/Expense Detail Report for each run that had revenue that was included in the range.

Be sure to view this report for the New Run also.

Unallocated/Unprocessed Revenue and Expenses / Allocation File

Positive expense will be debits on the G/L Account Activity Report.

Disbursements by Well Report

Shows the check amount for each owner. These will be Debits for the amount of each owners check when the run is closed.

Common Problems

Division of interest problems

Difference may be for a portion of a revenue/expense entry.

Deletion from the allocation file

If an entry is deleted from the allocation file it will not be processed on a run closing. Deleting the entry does not post anything. So you will have the original entry that posted to the clearing account but no entry to remove it from the clearing account. You will have to make a manual adjustment to the clearing account to account for this.

Rounding

Difference will be for a few pennies.

Held in the allocation file

The original entry would have posted but the clearing entry would not have because the entry has not processed on a run closing yet. You would have a balance in the clearing account equal to the entry that was made and deleted.

Not included on a run closing yet

If the entry was dated after the date you used to process revenue/expenses through the original entry would have posted but the clearing entry would not have because the entry has not processed on a run closing yet.

Manual journal entry to the clearing account

Manual entries do not process on a run closing so the software would not know to clear it out.

Entry was allocated all to an owner that no longer has an interest in the well.

A dummy or direct paid owner's interest was changed in a well after the entry was made.

How to Correct A Difference

Make a journal entry.

Change whatever caused it to not clear out correctly.

If you have not reconciled the clearing accounts before we recommend doing this as soon as you can. If you do have a difference you can look into it with the above procedures. If you do not want to or have time to research the past difference at least make a journal entry so that it is correct as of right now.

You can then do a quick reconciliation after each run and if the account does not clear out it will be
easier to determine what is causing the problem since you have a more set time period that you are
looking at.