Roll forwards are a critical part of accounting consistency and integrity. You may have discovered roll forwards whilst reviewing general ledger transactions, or while exploring methods of accounting reconciliation.
A roll forward is a simple concept. However, it has become an umbrella term that’s used to describe different accounting activities. In this article, we’ll clearly define accounting roll forwards, examine 3 different types, and show an example of how roll forwards are used in bank reconciliation.
Definition of Accounting Roll Forward
A roll forward is a ledger account’s ending balance that becomes its starting balance in the subsequent period. They are often part of so called “roll forward reports,” which include a breakdown of the current period starting balance and all debit and credit activity — the sum of which is the roll forward value (aka ending balance).
“Rollforward” vs “Roll Forward”
It’s important to remember that the term in accounting should be written as two separate words, i.e “roll forward” or with a hyphen, i.e “roll-forward.” The difference between “roll forward” and “rollforward” is that the former is a term used to define ending balances in accounting, whereas the later is used to restore a backup copy of a database — two completely unrelated scopes and concepts.
Roll forward in Accounting vs Investing Options
Accounting roll forwards are not the same as roll forwards used in the world of investing. Accounting roll forwards are account ending balances, whereas investing roll forwards are a formality involving the closure of options, futures, or forwards contracts and subsequent re-opening to prolong the life of the contract
Roll Forwards on the Balance Sheet vs Income Statement
Importantly, while each account on the balance sheet has a roll forward value that becomes its subsequent starting balance, there is only one roll forward value for all P&L accounts.
This roll forward is the sum of credits and debits on the P&L, also known as net profit, which is moved to retained earnings on the balance sheet (equity). Together with the retained earnings starting balance, current net profit become the retained earnings starting balance in the subsequent period, and all P&L accounts are set to zero. Take a look at this visualization, which should make the concept easier to understand:
As you can see, the period 1 net profit from the income statement is moved to retained earnings in the same period, which then rolls forward into the next period on the balance sheet only. The income statement accounts are then netted to zero. This “zeroing out” of the P&L is a fundamental principle of accounting that allows companies to track performance in one period alone on the P&L.
Roll Forward Reports
Roll forward reports are non-ledger reports that show the debit and credit activity for one ledger account along with supporting documents that show the calculations behind those activities.
On the P&L
Most P&L accounts do not require elaborate supporting documents because they consist of simple transactions. One sale, for example, requires only the supporting documentation of an invoice.
However, if the company works in an environment where the recognition of revenue is based on more than just an invoice, such as businesses in which digital transactions are aggregated in an IT database that computes exchanges among different currencies, then the roll forward report would include an expanded breakdown of the logic behind the revenue recognition methodology used by the database.
On the Balance Sheet
Transactions involving working capital accounts may be aligned to complexity on the P&L accounts, or left as simple debits and credits. Since accounts like payables and receivables are the direct results of activities in the operations of the company, it is usually sufficient to show the credits and debits on these accounts. However, they should be broken down to the most granular level of detail.
Accounts Payable Roll Forward Example
For example, imagine you have 190 in expenses accrued in a given period. They all get recorded as AP. You then pay 90 of them throughout the period. You can represent this as a trial balance view, which is the sum of all credits and debits on the account. Then you can show a list of the entries made in. This is the accounts payable report you see below.
Fixed Asset Roll Forward
Fixed assets and liabilities, on the other hand, require complete supporting schedules. Fixed assets should have what we call corkscrew calculation documentation, which shows the starting balance, additions, disposals, and ending balances of all fixed assets. It also shows the depreciation starting balance, additions, reversals upon disposal, and ending balances for all of the fixed assets.
You can see this more clearly in the long term asset roll forward template below.
Roll Forward as a form of Reconciliation
In many cases we hear the term roll forward as a form of reconciliation. While unfortunately common in practice, roll forwards without supporting documentation are not a true form of reconciliation.
There is no record of the term “reconciliation” in the FASB‘s glossary of accounting terms, but in practice it is well understood to consist of matching internal records with those of external sources, in most cases bank statements.
In order for roll forwards to be considered a form of reconciliation, they must be accompanies by supporting documentation such as bank statements.
Bank Reconciliation in Roll Forward Reports
Roll forward reports on cash accounts are the basis for the reconciliation to bank statements. Other than bank statements, there are few external sources on which to compare internal records, so “banks” as they’re called are the default.
In the case of roll forward reconciliation, an accountant matches all transactions touching the cash ledger accounts with transactions on bank statements. If the financial statements balance at the end of the period and all of the cash accounts’ roll forward reports match bank statements, then the accounts are considered reconciled.
Roll Forward in Audit
Roll forwards in the context of audit are very similar to those in accounting, with one catch. Roll forwards in audit can refer to either the use of debit and credit activity to reconcile a ledger account with bank statements, or to the use of a client’s documents from the previous year in the current year (the “rolling forward”) by simply changing the dates so as to avoid duplicate work.
Accounting Roll Forward Template (Balance Sheet & Income Statement)
Depending on the account, your roll forward report may require more or less detail. Whatever the case, you should use the following structures.
Single account roll forward report template
Long term assets roll forward template
Long term loans roll forward template
Download These Templates
Save yourself some time an frustration–download these templates for free by filling out the form below.
Conclusion
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