Steps to Clean Up the GR IR Account

Sometimes goods are received before the invoice for those goods, and sometimes an invoice is received before the goods are received. Such timing differences create the need for the GR IR clearing account to record and temporarily account for the asset or liability while the timing difference exists. Periodically, this account is cleared of items where timing differences no longer exist. Cleaning up the GR IR account is a relatively easy and straightforward process.
Step 1
Review items in the account at the end of the period (i.e., month and/or quarter) and identify items where timing differences no longer exist. These are the items that need to be cleared from the account. For items that have been in the account for longer than 30 days, determine if both the invoice and the receiving documentation have been received in accounting. If any of the documentation is not yet available, follow up with the receiving department and the business unit that ordered the goods. If necessary, the business unit that ordered the goods can follow up with the vendor.
Step 2
Prepare appropriate accounting entries for items being cleared from the account. Items being cleared from the account must net to zero--that is debits must equal credits. Assuming goods are received first (before the invoice), the following accounting entries are needed.

Goods received:

Debit Inventory
Credit GR/IR account

Invoiced received:

Debit GR/IR account
Credit accounts payable

If the invoice is received first, then the invoice received entry is made first and the goods received entry is made second. It makes no difference which occurs first, when the account is cleaned up the result is the same. By netting to zero the accounting entries prove that goods received equals amount invoiced.
Step 3
Investigate variances where items identified to be cleared from the account do not net to zero. First, make sure that the correct amounts were entered. Second,, follow-up with the receiving department and the business unit that ordered the goods to verify the amount of goods received. If an incorrect amount of goods received was reported to accounting a correcting entry should be made to goods received. When the entire order was received and the correct amount was entered the problem is with the invoice and an adjustment to the invoice will be needed from the vendor. If the entire order was not received and more is expected at a later date then the item will not be cleared until the remainder of the order is received. If the entire order was not received and the remainder of the order will not be delivered then an adjustment to the invoice must be made by the vendor. The item(s) in question cannot be cleared until the revised invoice is received.