Account Receivables in ERP Accounting System
ERP Accounting Modules
The finance or accounting module of the ERP system provides financialinformation, analysis reports for ledgers, trial balance data, overall balancesheets and periodic financial statements.The main objective of this module is to provide better control over thefinances of the company where confidential financial data is secured andcentralized stored in the cloud or local server. If the company have branchesoverseas you are able to keep track on your financial accounting data withinan international framework of multiple companies, languages, currencies andcharts of accounts where it improves in the efficiency, communications andcollaboration between all areas of your business.
General Ledger in ERP Accounting System
General Ledger is the main frame of the accounting system where it containsinformation on financial and no-financial data of your organization. Itcontains essential on the recording of transactions relating to a company’sassets, liabilities, owners’ equity, revenue and expenses which is thensupported by sub-modules like accounts payable, accounts receivable, fixedassets accounting, cash flow management and legal consolidation.
Account Payable in ERP Accounting System
Accounts Payable Module (AP) provides recorded information in the AccountPayable sub-ledger during the time an invoice approved for payment. It enablesassigned user to enter, maintain, monitor and process invoices for payment andcredit notes received from vendors.
Account Receivables in ERP Accounting System
Accounts Receivable Module (AR) track the invoices that is due for payment,outstanding advances, deposit, and process the payment from the customers onthe sale of products or services on credit. Any outstanding in the payment canbe presented in the Debtors Book.
Asset Accounting in ERP Accounting System
Asset Accounting (AA) module is used in the management and monitoring of fixedassets. It serves as a subsidiary ledger to the general ledger in providingmore detailed information on transactions involving the fixed asset likeacquisition, depreciation, retirement etc
The Design of Accounting Systems
The accounting system is essentially a database of information about businesstransactions. The primary use of a database is as a source of information, sothe accounting system needs to be designed in a manner that is cost-effectivein providing the needed information. The key factors in accounting systemdesign are as follows: * Single or double entry. A very small business operates simply by recording cash receipts and payments in its checkbook. This is known as a single entry system, and is only adequate when a business owner has no interest in learning about the amount of the assets and liabilities held by a business. The single entry system is extremely simplistic, but can be adequate. The double entry system is designed to record not only sales and expenses, but also assets, liabilities, and shareholders’ equity, and so provides considerably more information. The double entry system requires more skill in recording transactions, and is used by all larger organizations. * Cash or accrual basis. The cash basis of accounting only records transactions as cash is received or spent, while the accrual basis records transactions when they should be recognized, irrespective of changes in cash. The accrual basis is needed to be compliant with any of the accounting frameworks, such as Generally Accepted Accounting Principles or International Financial Reporting Standards. If you expect to need audited financial statements in the future, use the accrual basis of accounting. * Account code structure. The account code structure is the numeric or alphanumeric designation given to each account in which information is stored. A lengthy account code, such as one with seven or more digits, allows for a great deal of specific record keeping. However, it also requires more work to maintain, and there is a higher risk that information will be incorrectly coded into the wrong accounts. Thus, it is generally best to keep the complexity (i.e., length) of the account code structure to a minimum. Smaller organizations may find that as little as a three-digit account code structure is sufficient for recording information, while larger, multi-division entities may require considerably more complex code structures. * Accounts used. You must decide which accounts to create. At a minimum (for a double entry accrual system) you will need accounts for cash, accounts receivable, inventory, fixed assets, accounts payable, accrued liabilities, equity, revenue, cost of goods sold, and administrative expenses. However, even a smaller business needs several times this number of accounts in order to keep adequate track of its operations. In particular, it will likely be necessary to maintain a number of different expense accounts, in order to more closely examine expenses. * Divisional representation. A larger business may adopt a standard set of accounts and replicate them for each of its subsidiaries. This may also be necessary for individual product lines or facilities. This level of fine-grained detail is especially common when a business operates an activity-based costing system. * Reports. The information stored in the accounting system must be aggregated into a system of reports that are used either to present the financial results and position of a business, or to provide more specific reports of financial results. Many of these reports are prepackaged with accounting software packages, though a business may have special needs that call for custom-designed reports. * Procedures. An accounting system is not operational until there are a set of procedures in place that show users how the system is to be operated. The more common of these procedures are usually documented in some detail and imparted to employees through formal training sessions. * Controls. A number of accounting controls are needed to ensure that an accounting system operates in the manner intended. These controls will be specific to the company, and may call for the participation of the company’s auditors or an outside consultant to ensure that the set of controls installed are appropriate for the operations of the business.Many of the issues just noted are so fundamental that you must get them rightfrom the start, or be in danger of having to rebuild the entire accountingsystem at a later date to accommodate whatever changes are needed. Inparticular, it is best to immediately adopt a double entry bookkeeping systemand accrual accounting.
Cash Accounting Method
Cash accounting records income and expenses as they are received and paid(when the money trades hands).
Accrual Accounting Method
Accrual accounting records the dollar amounts when a transaction (a bill goingout or an invoice coming in) occurs, not when the cash is actually exchanged.An accrual accounting method is required by law when a business exceeds 5million in sales. It is believed that this method of accounting gives a moreaccurate picture of a company’s finances.These are the two main types of accounting methods, although sometimescompanies are allowed to use a hybrid of the two, if certain conditions aremet.
Setting Up & Maintaining a Compliant Accounting System
—A compliant accounting system requires much more than tracking receipts andentering transactions into a box software or spreadsheet. With goodintentions, new businesses generally implement basic accounting processes astheir activity develops and the need arises. Too often however, the accountingprocesses quickly get pushed aside in favor of other activities as thebusiness becomes busier and busier. While basic accounting may include keepingreceipts and sales journals, a compliant accounting system requires much more.—
Setting Up a Compliant Accounting System
Keeping receipts, invoices, journals, detailed transaction logs, and othersource documents are a necessary foundation for a compliant accounting system.Complete record keeping should be done throughout the business’s life and fromday one. Even if all records are “thrown in box”, generally a CPA can helpdecipher the records into useful information. Many small businesses followthis practice. Providing records to a CPA on a predetermined schedule, withthe goal of receiving reports or tax returns back in return is common.For some start ups, categorizing revenues and expenses into a few basic typesand tracking in spreadsheets works well. However as activity increases,transactions may need to be categorized in greater volume and detail. An outof the box accounting software may provide general account categories or abasic chart of accounts. Simply using these basic tools alone however is notenough to ensure a compliant accounting system.A business operating in a regulated or highly specific industry like thecannabis industry has unique laws and processes that must be followed. Theselaws and processes trickle down to the business’s accounting systemfoundational needs as well. Basic tools, accounting software and keepingreceipts may be a start, but are certainly not enough to be compliant.
Compliant Accounting System for a Cannabis Business
A compliant accounting system for a cannabis business requires as part of itsfoundation a detailed, often highly customized chart of accounts. A chart ofaccounts contains detailed accounts based on specific products, expenses andinventory types. A cannabis cultivator requires a different chart of accountsfrom a cannabis processor, just as one cultivator’s accounts are oftendifferent than another cultivator’s, based on their individual processes. Acompliant chart of accounts should be designed from the beginning of thebusiness’s life cycle. This ensures transactions are recorded to the properdetail accounts and the correct methodology is in place from the start.For a cannabis business, a compliant accounting system also requiresconsidering the effects of federal and state laws and regulations. Foremost,this includes cost accounting and details required for compliance withInternal Revenue Code Section 280E, enacted by congress in 1982. IRC §280Estates that businesses operating in controlled substances, which currentlyincludes marijuana, may not deduct business expenses. This was later amendedto allow for “cost of goods sold” to be deducted from revenues received ineffectively determining federal taxable income.
Compliant Accounting System Maintenance & Management
Once set up, a complaint account system needs to be consistently maintainedand its processes followed. When a business owner can not confidently committo maintaining the accounting process on their own, they should ensure properalternatives are in place. This often involves hiring a bookkeeping service,or regularly engaging your CPA to maintain your business’s accounting processinstead.Proper accounting processes should be followed for every transaction as eachis recorded into the accounting system. In order for a cannabis business toshow consistent compliance with IRS and state financial regulations, recordkeeping, cost allocations, detailed journal entries, 280E considerations, andaudit trail management are all part of their day to day process. Cashbusinesses require additional reporting, manual filings, and other accountingpeculiarities as well.—