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Being Smart With General Ledger



Being Smart with General LedgerTo become smart with general ledger a controller [or CFO] should be able to simplify the general ledger processes in order to achieve an enhanced level of efficiency. Though there are best approaches that can streamline the general ledger in a similar manner, this is one of the rare cases where pursuing a higher degree of complexity will sometimes achieve a greater overall benefit for the entire company. To adopt these approaches, sure there are significant start-up costs and much more work for the accounting staff, but the level of information that approaches I am going to reveal in this post provide to the rest of the organization is greatly enhanced. Thus, there are a few situations where greater cost and complexity can be beneficial. In addition, there are the usual streamlining actions to reduce the work needed to maintain the general ledger.  And, a final caution before going to the main course:

Except you are on the top management level, you would need to get an official approval from the top decision maker in your company [i.e. CEO or President Director].




Restrict Use of Journal Entries [On General Ledger]

Many general ledger accountants spend a large part of their time researching why journal entries have been made. This is an especially galling problem if journal entries were made by someone else, because there may be no record of why they were entered or even of who made the entry. Also, if the computer system has a ‘‘drill-down” capability for researching general ledger information in detail, an information search may end at the journal entry, with no explanation for why the entry was made. This is an uncomfortable state of affairs for a general ledger accountant, who must report back to anyone requesting information from the general ledger saying that he or she does not know the nature of an account balance. Besides being embarrassing, it also takes time to research.

An easy solution is to totally restrict the use of journal entries to the general ledger accountant. By doing so, this person can research each request for a journal entry to verify that it is valid, make sure that the correct accounts are debited and credited, and include a description with the journal entry. This approach virtually eliminates all stray or undocumented journal entries from the system. Though it should not cause any problems, it may be dif?cult to implement if the computer system does not allow the journal entry feature to be restricted to one person—this depends on the type of computer security system included in the software.

Restricting the use of journal entries leads to cleaner and more fully documented general ledger information that is maintained much more easily.



Avoid General Ledger Posting Bottlenecks

If a company has a number of subsidiaries that forward journal entries to it for posting, this can create a bottleneck in the general ledger area, and can be a particular problem during the monthly closing process, since this could become the prime bottleneck interfering with a timely close.

The potential range of solutions stretches from increasing the corporate general ledger staff to pushing these transactions down onto the accounting staffs of the subsidiaries. Here are some thoughts on how to deal with the issue:

[1]. Normally, it makes sense to centralize journal entries with the smallest number of general ledger accountants, since they are experts in making such entries, and can therefore minimize journal entry errors and duplications.

[2]. Since general ledger entries have become a bottleneck operation, there are two choices: beef up the corporate general ledger data entry capacity, or push some or all of it back onto the divisions.

Here are the ramifications of each:

[a]. Adding more corporate general ledger staff requires a greater expense, and since accounting is a cost center, this approach will not go over well with the CFO if there are any viable alternatives that do not increase costs. However, this will result in greater control over the accuracy of the entries being made.

[b]. If the journal entry volume only somewhat exceeds the capacity of the general ledger staff to handle it, then consider shifting smaller, less consequential entries back onto the divisions while retaining responsibility for all remaining entries. This will require the company to open access its accounting software journal entry capability, so more people will have the ability to make entries, which will probably increase the error rate. However, by restricting the divisions to only the easier and smaller dollar-volume entries, it will be less likely for them to make erroneous entries.

This is probably the best option in most situations: If there is a general desire by the corporate accounting staff to unload the whole general ledger data entry function onto the divisions, be aware that error rates will increase, which will call for the use of more training at the division level, as well as procedures, error checking, and probably an occasional internal audit. Because of all these factors, this is a less viable option.


Have Subsidiaries Update Their Own Data in the Central General Ledger

A lengthy task for any general ledger accountant who must consolidate the results of subsidiaries is to input the general ledger of each one into the general ledger of the corporate parent. This can be a lengthy and arduous task, as well as one that is easily subject to error. The typical consolidation requires a very large journal entry for each subsidiary, possibly requiring over a hundred accounts. If there is any problem with the data entry, the entire entry must be reviewed to find the mistake. If there are many subsidiaries, there are many entries to make; if there is a time crunch associated with producing financial statements, it is extremely likely that all of the data-entry work required of the general ledger accountant will be a bottleneck for the timely production of those statements.

A solution is to hand the data-entry chore over to the subsidiaries. They can be given access to the computer system of the corporate parent, as well as password access to the general ledger, and then enter their financial results directly into the computer system. The general ledger accountant thereby avoids all data-entry work related to the subsidiaries and only has to analyze his or her own data inputs to see if there are any unusual items. By having each subsidiary enter its own information, the data can be entered much more quickly, resulting in the elimination of the workflow bottleneck associated with this task. In short, a relatively simple system change can improve the efficiency of periodic corporate consolidations.

There are a few issues to consider before attempting this approach, however. First, there must be password protection for anyone accessing the main computer system, since there is always a risk of someone hacking into the computer and destroying or accessing sensitive data. Another issue is that, by giving access to many people, the number of users accessing the system at one time may rise, which may require the purchase of additional user licenses (if the system is a third-party package that uses a licensing fee arrangement). Finally, all the new users must be trained in how to make a journal entry in the corporate computer system, which may require nothing more than an instruction sheet, but which may require travel to all locations to conduct a short training class. If all of these issues can be dealt with at minimal cost, then having subsidiaries enter their own data into the corporate general ledger can improve the efficiency of that function.


Prescreen Construction-in-Progress [CIP] Entries

A great many entries are made to construction-in-progress (CIP) accounts, because a vast number of expense items are required as part of the standard construction progress. However, the sheer volume of entries makes it an opportune area in which to park expenses that should instead be charged to the current period, rather than to a CIP account that may not commence depreciation for over a year.

To avoid this problem, pre-screen CIP-related entries when they are first entered into the system. This screening process can take on one of two roles. First, it can result in items being shifted away from the CIP account and charged to expense at once, because they do not qualify under GAAP rules to be included in CIP. Second, the screening process can be used as a tracking mechanism for the entire CIP, but it shunts items to be charged to current period expenses into one subaccount, while quali?ed CIP expenses are stored in a separate subaccount. This latter approach has the dual advantages of ensuring that the correct costs are charged to expense within the current period, while still accumulating all costs related to a CIP.

There should be only one or a few people assigned to this gatekeeper role, because it needs to be occupied by a person with an extensive knowledge of GAAP CIP rules. If cost constraints do not allow for a person in the prescreening role, then at least have the internal audit staff conduct the same sort of examination on a spot-check basis.


Construct Automated Interfaces That Summarizes into the General Ledger

A large number of transactions must be moved from subsidiary ledgers to the general ledger at the end of each accounting period. In most cases, there is some reasonable degree of integration so that this transfer of information occurs automatically. However, the majority of organizations have a few outlying ledgers that are not directly connected to the general ledger; for example, the ?xed assets register or payroll. In these instances, the general ledger accountant must wade through a considerable pile of information to determine the correct amounts to shift into the general ledger. This is a time-consuming process and subject to error.

It may be possible to construct an automated interface between these outlying ledgers and the general ledger. By doing so, there is a considerable advantage in eliminating the time required to move data to the general ledger manually, particularly important if an accounting department is committed to reducing the time needed to issue financial statements. Unfortunately, because of the programming required, this can be both a difficult and expensive best practice to implement.

The company’s programming staff must analyze the interface requirements, design the interface, program it, and test it, all of which can add up to a cost that greatly exceeds the benefit of having the automation. The best cases in which this is still a viable option are for a large company that can afford the cost, an organization facing a very difficult manual transfer of information, or (best of all) where a third-party interface is already on the market, which can be quickly layered on top of the existing software to make the interface a reality. If any of these cases are present, then the automated interface best practice should be completed.



  1. May 24, 2010 at 9:58 am

    i am new to accounting. would you please describe with example what is two way posting.
    thanks siby

  2. Aug 12, 2010 at 1:17 pm

    Hi. I am a business analyst supporting the PeopleSoft Financial system. An audit manager brought up a rather odd question. He is asking if we can configure the system to disallow accounting users to enter a journal entry where any journal lines are coded to the same GL account and GL department and the journal line amount offsets to $0. There are many resasons an user may enter such an entry. For example, correcting the journal line descriptions (references) or enter a journal to record a liability and the payment in the same journal. I am not sure why he thinks it is a risk. Has anyone heard of this. If so, are there ERP system that actually have this function? I really doubt it. Thanks. Patrick.

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