This content provides a comprehensive overview of the Record-to-Report (R2R) process through a mock interview format, covering its fundamental concepts, key subprocesses, common journal entries, and essential accounting principles like accrual accounting.
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Today we are covering most important 21
record to report interview questions and
answers. We are covering them in a mock
interview format so you get the flavor
of actual interview. So let's not waste
any more time and get started with it.
Thank you for coming in today. I'm
excited to discuss your experience with
recordto-report processes. Let's start
with the basics. What is recordto-report
process in simple words?
>> Thank you for having me. So record to
report or R2R as we commonly call it is
essentially the entire accounting cycle
that starts from recording business
transactions and ends with generating
financial reports. Think of it as the
journey of financial data from the
moment a transaction happens like a sale
or purchase all the way to when it
appears in our financial statements that
management and stakeholders use to make
decisions. It's basically how we
capture, process and report all the
financial activities of a company.
>> That's a good overview. Now, what are
the main subprocesses under R2R?
>> Right. So, R2R has several key
subprocesses. The main ones include
first we have data collection and
journal entry posting. Then there's
account reconciliations which is huge in
R2R. We also have the period end closing
activities, financial reporting
preparation and compliance reporting and
intercompany eliminations. If you're
dealing with multiple entities, each of
these has its own set of activities. For
example, in my previous role, account
reconciliations alone would take us
about 3 to 4 days every month because we
had to reconcile bank accounts, fixed
assets, payables, receivables, pretty
much every balance sheet account.
>> What are the types of journal entries
you have passed in your experience?
>> I've worked with quite a variety
actually. The most common ones are
standard journal entries for regular
business transactions. Then there are
adjusting entries. These are really
important at month end for things like
acured expenses, prepaid adjustments or
depreciation. I have also posted
correcting entries when we found errors
in previous postings. Reversal entries
are another type I use frequently
especially for acrals that need to be
reversed in the following period. And
then there are reclassification entries
to move amounts between accounts when
something was posted to the wrong
account initially. In my last company, I
remember posting a lot of intercomp
entries to eliminate transactions
between our subsidiaries.
>> Let's talk about acrual accounting. What
is acrual accounting and why is it
important in R2R? Acural accounting is
the method where we record transactions
when they occur, not when cash changes
hands. So if we provide a service in
December but get paid in January, we
still record the revenue in December.
This is really important in R2R because
it gives us a more accurate picture of
the company's financial performance for
a specific period. Without acrals, our
financial statements would be well
pretty misleading. Like imagine if we
only recorded revenue when we received
cash. Our December numbers might look
terrible even if we had a great month in
terms of actual business activity. In
R2R we rely heavily on acrals to ensure
our reports reflect the true economic
reality of the business.
>> Good explanation. Now what's the
difference between acral and provision?
That's a good question and honestly
people sometimes use these terms
interchangeably but there is a
difference and acral is typically for
expenses or revenues that we know have
occurred and we can measure pretty
accurately like acured salaries we know
exactly how much we owe employees for
work done. A provision on the other hand
is more for uncertain amounts or timing.
Like we might create a provision for
potential legal costs if we're involved
in a lawsuit, but we're not sure exactly
how much it will cost or when. So
provisions involve more estimation and
uncertainty compared to acrals. Both
appear on the balance sheet as
liabilities, but provisions usually
require more judgment in determining the amount.
amount.
>> That makes sense. Can you explain the
month- end closing process in R2R?
>> Sure. Monthend closing is always
intense. It typically starts a few days
before month end with us preparing cutff
procedures to ensure transactions are
recorded in the right period. Then once
the month ends, we post all our acral
entries things like acred expenses,
prepaid adjustments, depreciation. After
that comes the reconciliation phase
which is probably the most time
consuming part. We reconcile all major
accounts, bank accounts, fixed assets,
payables, receivables. Any differences
need to be investigated and resolved.
Then we prepare trial balance, review it
for any unusual balances and make
correcting entries if needed. Finally,
we generate the financial statements and
supporting schedules. In my experience,
a typical month in close takes about 5
to seven working days, though we have
been trying to shorten it.
>> How do you ensure accuracy while passing
journal entries?
>> That's crucial in R2. I have a few
practices I always follow. First, I make
sure I understand the business
transaction before posting anything. I
review all supporting documentation,
invoices, contracts, approvals. I also
use a standard format for journal entry
descriptions so they are clear and
consistent. Before posting, I always
check that my debits equal credits.
Sounds basic, but you'd be surprised how
often people miss this. I also review
the account codes to make sure I'm
posting to the right accounts. And
whenever possible, I have someone else
review my entries, especially for
significant amounts. We also maintain a
journal entry log to track all postings
which helps with audit trails. In my
last role, we had a policy that any
entry over $10,000 needed supervisor
approval before posting.
>> What are intercomp transactions and how
are they handled in R2R?
>> Intercomp transactions are transactions
between different entities within the
same corporate group. For example, if
company A sells goods to company B and
both are subsidiaries of the same parent
company in our twoar these need special
handling because when we prepare
consolidated financial statements we
need to eliminate these transactions to
avoid double counting. So we track all
intercomp transactions separately
usually using specific account codes.
During consolidation, we create
elimination entries to remove both the
intercomp revenue and the corresponding
intercomp expense. The tricky part is
ensuring both entities record their side
of the transaction consistently. I
remember in my previous role, we had
monthly intercomp reconciliations to
make sure both sides matched before we
could proceed with elimination entries.
>> Let's discuss fixed assets. What are
fixed assets and how are they accounted
for in R2R?
>> Fixed assets are long-term tangible
assets that a company uses in its
operations to generate revenue. Things
like buildings, machinery, computers,
vehicles. In R2R, we account for them at
their cost when acquired and then we
depreciate them over their useful life.
So every month we post depreciation
entries to reduce the asset value and
recognize the expense. We maintain
detailed fixed asset registers that
track each asset's cost, accumulated
depreciation, and netbook value. We also
handle additions, disposals, and
impairments. For example, if we buy a
new computer for $2,000 with a 4year
useful life, we depreciate $500 per year
or about $42 per month. During month
end, posting depreciation entries is
always part of our closing checklist. We
also perform periodic physical
verification to ensure our records match
what's actually there.
>> What's the difference between balance
sheet and P and L account?
>> The balance sheet shows the company's
financial position at a specific point
in time like a snapshot. It has assets,
liabilities, and equity. And it always
balances because assets equals
liabilities plus equity. The PNL or
income statement shows the company's
performance over a period of time like a
movie. It shows revenues, expenses, and
the resulting profit or loss. In R2R,
we're constantly working with both. For
instance, when we record a sale, it
increases revenue on the P and L and
increases accounts receivable on the
balance sheet. The key difference is
timing. Balance sheet is as of a date. P
and L is for a period and at year end
the P and L gets reset to zero but
balance sheet accounts carry forward to
the next year.
>> What are adjusting entries and why are
they needed?
>> Adjusting entries are journal entries we
make at the end of an accounting period
to ensure our financial statements are
accurate under acral accounting. They
needed because not all transactions are
recorded during the period or some need
to be allocated across periods. The main
types are acred expenses like utilities
we've used but haven't been build for
yet. Acured revenues for services we've
provided but haven't invoiced. Prepaid
adjustments like insurance we paid for
but covers future periods and
depreciation expenses. Without these
adjusting entries, our financial
statements would be incomplete or
incorrect. For example, if we don't
acrue December's electricity bill, our
December expenses would be understated
and our liabilities would be understated too.
too.
>> How do you perform GL to subleddger reconciliation?
reconciliation?
>> GL to subleddger reconciliation is
basically making sure the detailed
records in our subleddgers match the
summary amounts in our general ledger.
For example, our accounts receivable
subleddger shows individual customer
balances and this total should match our
AR control account in the GL. I start by
extracting the subleddger detail and the
GL balance as of the same date. Then I
compare the totals. If they don't match,
I investigate the differences. Common
reasons include timing differences.
Maybe a transaction was posted to the GL
but not yet updated in the subleddger or
vice versa. Sometimes there are posting
errors or reclassifications that weren't
properly reflected. I document all
differences and their explanations. We
typically do this monthly for major
accounts like AR, AP and inventory. It's
time consuming but essential for
ensuring data integrity.
>> What are some common errors in R2R and
how do you avoid them?
>> Oh, there are quite a few common ones
I've seen. Posting to wrong accounts is
probably the most frequent like posting
an expense to an asset account or vice
versa. Cut off errors are also common
where transactions get recorded in the
wrong period. Mathematical errors in
calculations especially for complex
acrals and duplicate entries. Sometimes
people post the same transaction twice
by mistake. To avoid this, I always
double check account codes before
posting. Use standardized journal entry
templates when possible and maintain
proper documentation. We also have
review procedures where someone else
looks at significant entries for cutoff.
We have specific procedures around month
end to ensure transactions are recorded
in the right period and we run regular
reports to identify unusual balances or duplicates.
