How a simple setting in your General Ledger can have a big impact on the way you view your data
An average person working in the accounting or finance department of any size company or industry will encounter more than one accounting software or ERP solution in their career. As such, they will be exposed to more than one general ledger (GL).
As consultants in the areas of finance and accounting we see many GLs of all complexities, capabilities and functionalities. I must admit that I do not always remember which GL some of my clients have until I am back at their office or review prior engagements.
I also don’t remember how each GL is set up and how each implementation makes use of the great features found in even lower end software.
One of the most important setup characteristics of any GL is whether sub-ledgers (inventory, AR, AP, etc.) post to it in summary or detail and whether these postings occur automatically (e.g., when an inventory item is received into inventory from a vendor PO) or batched (daily, weekly, etc.) to allow designated managers to perform reviews before these batches are manually posted to the GL.
Whether you batch post to the GL or let the sub-ledger post automatically in real-time, it is important to decide on whether you want your transactions to post in detail or in summary. Many believe that posting in summary is sufficient because all the detail is contained in all the subsidiary ledger reports. This may be true in some cases but consider the following:
- When GL postings occur in summary you are not able to perform analytics functions in detail. For example: Your telephone expense account balance is extremely high compared to the expected amount and you want to get to the causes of this variance. If the account balance is shown only in summary, you cannot drill down or through to the source (at least not in the analytics application) to be able to understand the root cause of the variance.
- When posting in detail, much of the subsidiary ledger data, such as vendor purchase order numbers, check numbers, customer invoice numbers, inventory item codes, etc. will appear in the reference and comment columns of the detail GL transactions, as queried from the ERP database. This makes it extremely convenient to get to the data you need, troubleshoot certain GL accounts and resolve issues within the accounting system.
I remember a few years ago when one of our clients was under an IRS field audit. The requested data and reports were staggering. However, the auditors commented that if the GL data could be produced in detail, many of the subsidiary ledger reports were not needed.
I remember how delighted the IRS analyst was when he reviewed the GL detail file and confirmed that most everything he was looking for was in that file. That alone made the audit not just tolerable but quite pleasant. The Auditors kept saying how easy it was for them to perform the audit and how well organized this company was.
The result of this audit confirmed that being organized and having the needed data in a meaningful format is a good way to run any accounting system. Of course, following solid accounting principles and maintaining a robust control environment had a lot to do with the success of this audit and should never be overlooked.
People who use detail GL data to perform analytics know how useful it is to have all that data. Gone are the days where storage capacity was limited and expensive. Character based data from your GL, however detailed it is, will never put a dent in your network storage capacity. If your GL is web based, I don’t know of any vendor that will limit the amount of GL data stored on their servers.
Let modern technology and thoughtful software and system settings work hard for you to deliver results your organization will benefit from all year long.
Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software. In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.
Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.