Offshore oil rigs have revolutionized the oil and gas industry, but this innovation has its limitations. One of the most significant challenges faced by professionals working on offshore what is a topside entry oil rigs is the process of topside entry. While it remains one of the most commonly used methods to access the undersides of platforms, it is also beset with several limitations.
Advantages and Disadvantages of Pushdown Accounting
It is important to have contingency plans in place to respond to potential environmental hazards such as oil spills, and to promptly notify relevant authorities for necessary actions. Regular drills and training exercises should also be conducted to test the effectiveness of the contingency plans and ensure the readiness of the response team. Without proper communication systems, divers risk getting lost or stranded during their dives.
Create written policies on topside entries
The Association of Certified Fraud Examiners, along with other professional accounting organizations, have flagged topside entries as potential fraud risks. This recognition stems from several cases where companies have misused topside entries to manipulate or present incorrect financial data. Manual systems, especially those using handwritten ledgers or unrestricted data entry methods, pose the greatest risk. The intricate world of accounting is full of nuances and specific methods to ensure accuracy in the financial records of a company. One such method that often piques the curiosity of accounting professionals is the topside journal entry.
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- Auditors also examine and endorse the supporting documents for economic backing and make sure the entry is entered appropriately within the consolidated financial statements.
- Make sure you have senior management approval before posting any topside entry adjustments.
- Scientific and research diving involves studying marine life and ecosystems, as well as conducting underwater experiments.
- Auditing companies advise personnel to seek out the manual entries, especially those done after a fiscal reporting period closes.
Types of Adjusting Journal Entries
Because they don’t hit the lower-level books, the subsidiary is often not aware of these transactions, and cannot validate them or provide input even if the transactions are specific to the subsidiary. While the underwater world is breathtakingly beautiful, it can also be treacherous and unforgiving. It is important to recognize the risks involved and take every precaution to ensure the safety of divers and the marine environment. A delayed expense, also known as a deferred charge, is a cost you’ve previously paid but haven’t yet received the products or services you requested. Deferred costs are classified as long-term assets in accounting because you typically get the products or services over a lengthy period of time, usually twelve months or more. An insurance premium paid in advance for the next insurance period is an example of a postponed expenditure.
Accrued expenses
The most common purpose for a parent company to employ topside entry adjustments is to appropriately portray the firm’s overall business activity in its financial statements. If the subsidiary firms’ balance sheets, for example, reflect deferred income or accumulated costs, the main business’ month-to-month financial status may be distorted. To better represent their genuine economic activity, the parent company might assign its own expenditures or profits to the subsidiary firms on their balance sheets. If you’re not familiar with the term, topside entry refers to an accounting adjustment that is used to reflect the activity of the entire organization.
If you are a CFO, you should be thinking about what controls you have in place to protect your firm from such risk. Many businesses run as a holding company (or parent company) with numerous subsidiaries. When preparing the consolidated financial statements in such companies, adjustments are made by the parent company to the accounting sheets of its subsidiaries. The Generally Accepted Accounting Principles (GAAP) permit this practice, known as top-sided journal entry. Allocating some of the parent company’s income or expense to its subsidiaries in order to more accurately reflect business activity is a perfectly acceptable practice. However, it can also be employed inadvertently to lower liability accounts, boost revenue, or cut costs.
During the exploratory phase of an offshore oil rig’s life, the topside is often a bare structure sitting atop a submerged tower known as a jacket. A drill is fed to the seafloor through the jacket to determine if the drilling site will produce sufficient oil or gas to move forward with further drilling operations. Even though it is ABC that borrows the money, the debt is recognized on XYZ’s balance sheet under the liabilities account.
A deferred expense, also known as a deferred charge, is a cost you’ve already paid for but haven’t yet received the goods or services you ordered. Deferred expenses are viewed as long-term assets for accounting purposes because you typically receive the goods or services over a long period of time, typically twelve months or more. An insurance premium that you pay in advance for the following insurance period is an example of a deferred expense. An expense that you have incurred and recorded but have not yet paid is known as an accrued expense. Since you probably hadn’t received an invoice when the expense occurred, it’s possible that this expense is based on the supplier’s estimate. Supplies ordered from a vendor, loan interest payments, and taxes are examples of accrued expenses.
Top-side entries are re-entered to reflect actual changes to a debit and credit account. Top-side entries may be recorded after consolidation of journals or ledgers and before the company prepares its financial statements. Top-side entries made in automatic systems usually require overriding the system to allow a nonroutine, manual journal entry. An adjusting journal entry involves an income statement account (revenue or expense) along with a balance sheet account (asset or liability). It typically relates to the balance sheet accounts for accumulated depreciation, allowance for doubtful accounts, accrued expenses, accrued income, prepaid expenses, deferred revenue, and unearned revenue.
Topside entry is essential for maintenance and repair work, emergency response, and inspection activities. Since offshore structures are often located in hostile environments, including high winds, rough seas, and extreme temperatures, topside entry plays a significant role in the safety of offshore workers. In the accrual mode of accounting, payments for future costs have to be deferred to an asset placement until the costs expire. The fourth type is deferred revenues, where the money was attained in advance of the service delivery.
Before you deliver the product or provide the service, you earn income known as deferred revenue. Due to the fact that you have already been paid for work that you have not yet finished, this adjustment may also be known as unearned income. Given that you might provide the goods or services over an extended period of time, you might record these as an adjustment. The IMCA is a global trade association for offshore, marine, and underwater engineering companies. They have developed guidelines for topside diving operations, including recommendations for training, equipment, and emergency procedures.
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