Overview

This report can be used to reconcile your accounting with Denim.

It can be used independently to create consolidated entries representing the net impact of Denim activities for a given time period or as a reconciliation tool to supplement whichever accounting system you use.

To use this report effectively, an accounting professional should understand how a typical factoring transaction flows in our system. An example is described here.

Prerequisites / Assumptions

This ledger report is flexible enough to accommodate multiple accounting methods for your Accounts Receivable. However, all Denim accounting integrations and reports assume that when you factor a receivable with Denim, this is a “true sale,” and the asset is now on Denim’s book.

This “true sale” is reflected via a Due to Denim contra asset account that will reduce your net Accounts Receivable. This way, you can retain the Gross A/R on your books for record-keeping and revenue recognition.

Similarly, if you are managing your payables through Denim, we provide a “To Be Paid By Denim” contra liability account to offset your Accounts Payable that Denim will pay.

You can choose to manage your A/R and A/P with two methods; each method will entail a slightly different reconciliation process.

Method 1: Create your own entries to represent A/R and A/P

This method is more flexible but may require more data entry since you must account for payables, receivables, and payments individually. You may want to use this method if:

You have an existing method of tracking bills, invoices, and payments in your accounting system.
You have a TMS integration creating bills, invoices, and payments
You want to be able to track bills, invoices, and payments individually in your accounting system.

Method 2: Rely on Denim Reporting to make consolidated A/R and A/P entries

This method allows you to book consolidated entries for A/R, A/P, Revenue, and Expenses that perfectly match Denim’s system. You may want to use this method if:

You don’t need individual invoices and bills in your accounting system because you can use Denim as the system of record.
You are comfortable timing your revenue to coincide with when Jobs are Approved in Denim.

With either method, you must do your own reconciliation to ensure you fully understand the journal entries and resolve any potential issues.

Reconciliation Process

You can reconcile daily, weekly, or monthly. We recommend reconciling more often as your transaction volume increases, especially if you are using Method 1.

When you perform a reconciliation, three categories of accounts will require action on your end. These accounts are all marked as the “Clearing” Account Type because you are responsible for clearing out the balances.

Reconciliation Item 1: Your cash receipts and disbursement to and from Denim directly.

When you receive cash from Denim or if you send funds to Denim, we will reflect this in your Denim Clearing Account.

For example: Denim sends you $100 as an Advance. We will debit (increase) Denim Clearing by $100 and credit (decrease) Advance Receivable from Denim by $100.

Action Required: To reconcile your bank account, when you see the $100 from Denim in the bank, you should debit your cash account by $100 and credit Denim Clearing by $100.

Your Denim Clearing balance should go to zero after each reconciliation cycle. This is how you know the funds you received match those Denim recorded as being sent.

Reconciliation Item 2: Funds Denim received or disbursed on your behalf.

Because you have Gross A/R and A/P accounts on your books, you will need to know when these invoices and bills have been paid. This is where the Denim Receivables and Payables Settlement accounts come in. These accounts represent cash directly received from your customers or paid to your contractors.

Using Method 1

If you manage your own A/R and A/P as described in Method 1, you can use the debits and credits in the settlement account to close out your AR and AP. You can download the reconciliation details from Denim to support this process.

There are situations (we call it A/R Adjustments) where Due to Denim is offset by reducing your Denim Cash rather than a payment from your customer (i.e chargebacks). You should offset the A/R Adjustment balance with an entry to: bad debt, expense, or cash (if you can collect directly from the customer).

As a check, at the end of the reconciliation cycle, the sum of open A/R and A/P that you process through Denim should match the ending balances of the Due to Denim and To Be Paid By Denim accounts, respectively.

Using Method 2

If you are using Method 2 as described above and matching your A/R and A/P directly with Denim, there is a faster and more consolidated way to reconcile these accounts. You can click the toggle at the top of the report to show the pro forma results for this method.

You record an A/R entry that is the inverse of the Due To Denim entry.
Your Revenue credit entry is equal to the debit entry for A/R.
Your A/R Adjustments is the difference between the credit entry for A/R and Denims Receivable Settlement.

Similarly, you can do the same with your A/P, Expenses, To Be Paid By Denim, and your A/P Adjustment.

In either reconciliation method, the Denim Settlement accounts should be offset by the AR and AP reduction at the end of each reconciliation cycle.

Reconciliation Item 3: Denim External Transactions with other companies in the Denim Network

In cases where you are receiving or sending funds to another Company that is not directly related to your own Jobs, Denim will group these transactions in this account. Typically, these entries should be offset these entries with a revenue or expense.

At the end of each reconciliation cycle, this account should go to zero to properly categorize these transactions.

Example Reconciliation Workflow

Set the Reconciliation Date Range equal to the period you want to account for. For example the starting date could be first day of the month and the end day the last day of the month.
Confirm Starting Balances. Confirm that the starting balances for each account make sense. Note that if you’ve recorded entries to these since accounts last reconciling with Denim, the starting balances will differ. If starting balances differ from expectations, download the account’s reconciliation file to see each entry Denim recorded for that account in the selected time period.
Create Account Entries. Create one manual journal entry in your accounting system corresponding to each account's debit and credit amounts in Denim. Manage your AR and AP accounts using either Method 1 or Method 2 as described above.
Reconcile the Clearing Accounts. Offset the Denim Clearing, Denim Receivable Settlement, Denim Payable Settlement, and Denim External transaction accounts as described above.
Double-check ending balances. All Clearing account ending balances should go to zero. You can use the Jobs and Bills Reconciliation reports to prove the ending balances of your other accounts.

Account Definitions

The General Ledger Report contains the following accounts. Accounts with $0 values can be hidden with a toggle at the top of the page.

Due to Denim

Contra Asset account to your Accounts Receivable account. This account offsets your Accounts Receivable account for each invoice factored. This represents invoices factored and are now payable to Denim. This account increases with credits.

Advance Receivable From Denim

Advances that Denim will be paying you. This account is debited when Denim approves a factored job and agrees to purchase your invoice. This account is credited when Denim pays you your advance. This account increases with debits.

Escrow Receivable From Denim

Rebates or non-factored jobs where we will pay you after we have been paid by the customer. This account is debited when jobs are approved and credited when Denim collects and applies funds on your behalf. This account increases with debits.

To Be Paid By Denim

Contra Liability account to your Accounts Payable account. Represents the contractor payments we will make on your behalf. This account increases with debits.

Denim Prefunding

A liability account that represents funding required to pay Denim Cash-funded payables. This account's ending balance represents the Denim Cash amount needed to pay all Denim Cash-funded payables submitted but not yet paid. Denim credits this account when jobs are approved. Denim debits this account when Denim Cash is deducted and the payable is scheduled for payment. This account increases with credits.

Denim Factoring Expense

Factoring fees associated with Denim. This account is debited when Denim approves a factored job and assesses a factoring fee. This account increases with debits.

Denim Servicing Expense

Servicing fees associated with Denim. This account is debited when Denim approves a job that is subject to fees other than factoring fees.This account increases with debits.

Special Reconciliation Accounts

The following accounts serve as a way for you to reconcile your books. It is important that you understand the transactions in these accounts as they require you to take action.

Denim Clearing

A clearing account where you will post your bank transactions from Denim. This is used to help reconcile cash. Credits in this account should correspond to debits in your bank account. This account increases with credits.

Denim Receivable Settlement

Represents funds received from your Customers. You can use this to settle your Account Receivable. This account increases with debits.

Denim Payable Settlement

Represents funds paid to your contracts. You can use this to settle your Account Payables. This account increases with debits.

Denim External Transactions

Transactions from external companies that were applied to your Denim account. This account increases with debits.