The General Ledger (GL) is the backbone of any organization’s accounting system used to compile two key financial statements: Balance Sheet (assets & liabilities accumulated at a specific point in time); and, Income Statement (the profit or loss generated in a specific time period). The GL contains user-defined account codes and the listing of the account names is called the chart of accounts (or COA). Posting is the process of recording amounts as credits and debits in the GL. Properly structured COA’s and accurate Posting, typically managed by accounting experts, are vital. Prior to Posting, the process to properly classify a transaction is sometimes referred to as GL Coding.
GL Coding Issues (focus on Accounts Payable)
Organizations processing large volumes of invoices (say > 1,000/month) realize the following issues;
1. Due to complexity, many organizations rely on non-accounting personnel for GL Coding support.
2. GL Coding requires a lot of time to get the invoice to the right people responsible for GL Coding who spend additional time to properly apply established rules.
3. Manual GL Coding errors caused by: simple typing/writing errors (on the stamped invoice or during ERP entry); not following established rules; and/or, not having established rules.
Ranges of Accounts Payable (AP) Automation Support of GL Coding
AP Automation solutions help automate the AP process, including support of GL Coding, with different levels of solutions;
1. Basic – Provide a field (or fields) where GL Codes may be: manually entered; or, entered via selection from a drop-down list originating from the ERP or accounting system.
2. Intermediate – In addition to item 1 above, Intermediate provides; default GL Code (or Codes) based on vendor, invoice category, or other classifications; intelligent management of possible GL Code overlaps; and, exception management for cases requiring non-default GL Codes.
3. Advanced – In addition to the items 1 & 2 above, Advanced auto populates amounts against the GL Codes (Auto-Allocate) by establishing certain cases where: a single invoice amount is Auto-Allocated to the single default GL Code (this is popular for utilities); Auto-Allocating standard invoice items (such as tax, shipping, & handling); incorporating configurable filters that are compared with line item detail to Auto-Allocate (including auto-summing line items with the same filter hit); and, Auto-Allocating based on other invoice classifications.
Quantifying Efficiency Gains (a simple calculation)
For brevity, let’s only focus on the difference between “Intermediate” and “Advanced” as the difference between “Basic” and “Advanced” is much greater. If an organization processes 2,000 non-PO invoices monthly, each with an average of 3 line items, each GL Coding taking 15 seconds, then each month the GL Coding task would require 12.5 hours. If the “Advanced” features above could lower the GL Coding time from 15 to 10 seconds, it would save 100 hours per year.
Orienge offers an APA solution called Conterra FIM (Financial Information Management) with “Advanced” GL Coding features and more. Feel free to comment, contact me, or contact the Orienge team for more information.