Correct Misclassified Accounts

When you create a value for a segment that's assigned the Natural Account segment label, you must select an account type, such as Asset, Liability, Expense, Revenue, and Owner's Equity.

Account combinations subsequently created with that segment value inherit the assigned account type.

For example, you assign segment value 1000 the account type of Asset, and then create account combination 01-000-1000-000-000. The account combination is classified as an asset.

Misclassified accounts occur when the inherited account type of the corresponding natural account segment value is set incorrectly. If you assign an incorrect account type to a natural account segment value, accounting entries are recorded incorrectly and financial statements are inaccurate. Misclassified accounts are also potentially handled incorrectly at year end, with actual balances either getting zeroed out to retained earnings, or accumulating into the next year.

Caution: Be sure to assign the correct account type to natural account segment values before account combinations are created. Having to correct misclassified accounts isn't standard practice.

You can use the Correct Misclassified Accounts process to correct account types for account combinations. Running the process though is only one aspect of correcting misclassified accounts. The overall procedure to correct misclassified accounts depends on:

• The account type correction being made

• Whether the impacted account combinations ever had activities posted to them

• The impact of the correction across accounting years

• Whether balances have been translated

Account Type Correction

Account types can be grouped into income statement accounts and balance sheet accounts. Income statement accounts consist of the Revenue and Expense account types, and balance sheet accounts consist of the Asset, Liability, and Owner's Equity account types. At the end of an accounting year, income statement accounts are zeroed out to retained earnings, and balance sheet accounts accumulate into the next year.

Account type corrections within the income statement group or within the balance sheet group don't affect the retained earnings calculation or beginning balances across accounting years. The following table lists the specific account type corrections that can be made without requiring manual journal entries as part of the correction process.

Incorrect Account Type	Correct Account Type
Revenue	Expense
Expense	Revenue
Asset	Liability or Owner's Equity
Liability	Asset or Owner's Equity
Owner's Equity	Asset or Liability

Account type corrections that cross from the income statement group to the balance sheet group, or from the balance sheet group to the income statement group, can affect the retained earnings calculation and beginning year balances if the corrections cross accounting years. The following table lists the specific account type corrections that may require manual journal entry adjustments as part of the correction process.

Incorrect Account Type	Correct Account Type
Revenue	Asset, Liability, or Owner's Equity
Expense	Asset, Liability, or Owner's Equity
Asset	Revenue or Expense
Liability	Revenue or Expense
Owner's Equity	Revenue or Expense

Procedure

Follow these recommended steps to correct misclassified accounts.

1. On the Manage Values page, correct the account type for the value set value.

2. Before submitting the Correct Misclassified Accounts process, it's recommended that you:

   • Ensure journals aren't being posted when the process is run in reclassification mode.

   • Disable the Dynamic combination creation allowed option for the chart of accounts.

3. On the Scheduled Processes page, run the Correct Misclassified Accounts process with the following parameters:

   • Value Set: Select the value set for the natural account segment.

   • Value Set Value: Select the value from which account combinations must inherit the account type.

   • Mode: Select Preview mode.

4. Review the report output.

   The report lists actual balances for the affected account combinations by ledger, currency, and fiscal year that must be zeroed out in cases where corrections cross from the balance sheet group to the income statement group, or from the income statement group to the balance sheet group. Use this information to facilitate the journal entry that you must create for fiscal year cross-over scenarios. The report also lists periods with translated balances. If the report doesn't display balances to zero out, skip to step 9.

5. Open the last period of the prior fiscal year for each primary ledger with balances that must be zeroed out.

6. Create the respective journal entries using the information in the report to bring the misclassified account balances to zero and post the journals. Use a temporary account, such as a suspense account, for the offsetting amount.

   Note: The journal entries should zero out balances in every entered currency.

7. Rerun the Correct Misclassified Account process in Preview mode.

   Check whether any balances should be zeroed out. If so, repeat steps 5 and 6 until all balances are zeroed out. If the only balances listed are for secondary ledgers and reporting currencies, the journal entries should be created and posted in those ledgers directly.

8. Run the Correct Misclassified Accounts process in Reclassify Account Type mode.

   The process first validates that the affected account combinations have zero actual balances if the misclassification affects multiple fiscal years. This validation ensures that the account type reclassification doesn't cause errors in the calculation of retained earnings and beginning balances. The process then corrects the account type on the misclassified account combinations to match the account type of the selected segment value.

9. Review the report output for the list of reclassified account combinations for each chart of accounts.

10. Update the Account dimension by running the Publish Chart of Account Dimension Members and Hierarchies to Balances Cubes process:

    1. Select the value set for the Account dimension.

    2. Set the Publish Detail Values Only parameter to Yes.

11. Starting from the earliest fiscal year, reverse and post the journals that you created to zero out the balances in each ledger. The reversal journal must be in the same period as the journal being reversed.

    Note: The recommended reversal method for the journals is Change Sign.

12. If there are misclassified account corrections, and if a translation currency has balances, you must:

    1. Run the Delete Translated Balances process and after the process completes, rebuild the balances cube.

    2. Rerun the translation process after the misclassification has been addressed.