Reconciling across a period boundary

Money does not respect your month end. Sales made in the last week of a period settle in the next one, refunds arrive against orders from two months ago, and a chargeback can land against a quarter you have reported on.

Most reconciliation processes handle this by either reopening the period or ignoring the timing. Both are avoidable, and the alternative is a small amount of structure applied consistently.

The two things always in flight at a cut-off

Sales made and not yet settled. Orders paid before the period end whose payout arrives after it. The revenue belongs to the old period; the cash arrives in the new one.

Reserve withheld and not yet released. Money earned in this period or earlier, held by the provider, releasing on its own schedule — see payment gateway holds and reserves.

Both are entirely normal and both need to be on the balance sheet rather than resolved. A period end with nothing in flight would be the anomaly.

The figure worth naming: settled and unsettled sales awaiting cash, plus amounts in reserve. That total is real, it is usually larger than expected, and it explains a profitable month with an uncomfortable bank balance — see settlement timing and your cash forecast.

Where the revenue belongs

The rule is simple and applying it consistently is what people find hard.

Revenue belongs to the period in which the sale occurred. Not when the payment settled, not when the payout arrived. A sale on the last day of the month is that month's revenue even though the cash appears later.

The fee belongs to the same period as the sale it relates to. This is the part that gets separated. A fee deducted from a payout that arrives next month still belongs to this month's sale, and recording it when the payout lands moves cost away from the revenue it was incurred to earn. Margin then looks better in one period and worse in the next, for no operational reason.

That means accruing the fee on unsettled sales at period end. Estimated from the known rate per method, and trued up when the actual settlement arrives. It is a small entry and it is what keeps margin meaningful month to month — see decomposing a payout line by line.

Events that arrive against closed periods

Four kinds, each with a defensible treatment. What matters is deciding once and applying it consistently rather than case by case.

A refund on a prior-period sale. Generally recorded in the current period as a reduction of revenue. The original sale was correct when made; the return is a current event. Only a material amount justifies restating.

A chargeback on an old order. Same treatment, in the period the dispute is decided rather than the period the sale occurred — see chargebacks on your own store.

A reserve release. Cash movement in the current period. The revenue it relates to was recognised long ago; only the cash timing changes.

A provider correction. An adjustment to a fee or a settlement from an earlier period. Current period unless material, and worth a note either way because these are the ones auditors ask about.

The common thread: the event lands where it was known, and the original period stays closed. What makes this defensible rather than arbitrary is that both dates are held — when it happened and when you learned of it — so any question about the old period can still be answered exactly — see building the reconciliation data model.

The cut-off procedure that works

Six steps, and the order matters.

Fix the cut-off by event date, not by data availability. The period contains the sales that occurred in it, whether or not their settlement data has arrived.

List everything in flight. Sales not settled, settlements not paid out, payouts not allocated, reserve held. Four figures, and they should each be explicable.

Accrue the fees on unsettled sales at the known rate per method.

Age the exception queue and decide the old items rather than carrying them across. An unresolved exception carried into a new period is one that will be harder to resolve, not easier — see the exception queue and how to size it.

Reconcile the in-flight figures to the provider's own position where the provider reports a balance. This is the check that catches a payout that was never sent.

Close, and record what was in flight. Next period's opening position is this period's in-flight list, and comparing the two is how you confirm nothing was lost at the boundary.

The measure of whether it is working

At the close, one question: can you state exactly how much money has been earned and not yet received, and where each part of it sits?

If yes, the boundary is under control and the close is a confirmation. If the answer is a single figure with no composition, the boundary is being crossed by approximation, and approximations at period ends are where reconciliation problems become reporting problems — see month-end without the scramble.

Common questions

Which period does revenue belong to when settlement arrives later?

The period in which the sale occurred. A sale on the last day of a month is that month's revenue even though the payout arrives in the following one. The cash timing affects the balance sheet rather than the revenue, and the difference is represented as sales awaiting settlement.

When should payment processing fees be recorded?

In the same period as the sale that incurred them, which means accruing them on unsettled sales at period end using the known rate per method and truing up when the settlement arrives. Recording the fee when the payout lands moves cost away from its revenue, which makes margin look better in one period and worse in the next for no operational reason.

How should a refund on a prior-period sale be recorded?

Generally in the current period as a reduction of revenue, since the original sale was correct when made and the return is a current event. Restating the earlier period is warranted only when the amount is material. The same reasoning applies to chargebacks decided later and to provider corrections.

What should be listed as in flight at a period end?

Four figures: sales not yet settled, settlements not yet paid out, payouts received but not yet allocated, and amounts held in reserve. Each should be individually explicable, and the total is money earned but not yet available — usually larger than expected, and the reason a profitable month can show an uncomfortable bank balance.

Related: month-end without the scramble · settlement timing and your cash forecast · building the reconciliation data model