Most companies incorporate recurring journal entries into every monthly close. These entries generally involve the gradual charge-off to expense of a variety of prepaid expenses, or (conversely) a gain from an accrued liability. For example, a company might prepay a full year of advertising in a trade magazine, or a year of directors and officers liability insurance, and gradually charge it to expense over the entire year. Or, to view matters from the liability side, a customer may pay in advance for multiple months of services, which the company recognizes as revenue in the appropriate periods.
In these cases, the accountant generally creates a recurring journal entry for each transaction, with the accounting software set to make the same entry for a pre-determined number of months, after which the software automatically terminates the entry.
The trouble is that there may be dozens of these recurring entries, which can be difficult to keep track of. In many cases, this is of no concern to the accountant, who assumes that the underlying transaction will be flushed out of the system at the end of the last period specified in the recurring entry. However, it is possible for a recurring entry to be inadvertently cancelled for a number of reasons (usually by a staff person, not the accounting software). This will result in an incomplete transaction that will probably be discovered at year-end, when an embarrassingly large catch-up entry must be made. Also, the sheer volume of recurring entries can be overwhelming.
To avoid the risk of lost journal entries and to make the number of recurring entries more manageable, consider clustering all recurring entries into a small number of consolidated entries. This approach works best when journal entries having the same termination date are clustered together in a single entry (since all of the entries will logically terminate at the same time). By doing so, the accounting staff can more easily spot an inadvertently cancelled entry, because there will be a large number of missing entries whose absence will be more noticeable. Also, it is easier to reconcile grouped entries back to the asset or liability accounts that are being reduced by these entries, since the accountant can potentially conduct an entire reconciliation by accessing as little as a single journal entry.