Accruals reporting done right: Using automation to supercharge reporting & save time

AP Automation Best Practices
  • December 2, 2019
  • Steve Iannarone

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Accruals reporting done right: Using automation to supercharge reporting & save time

Accruals reporting done right: Using automation to supercharge reporting & save time

A key decision all businesses must make is whether to adopt cash-based or accrual accounting methodologies. With cash accounting, your records are based upon actual cash flows, meaning reporting occurs when money comes in and when money leaves. While this method may be easier for smaller businesses and individuals, one of the downsides to the cash accounting method is it lacks a matching principle. This means your revenue isn’t compared against your expenses in real-time over a given month, making it difficult to gauge actual profit.

Accrual accounting is a method that measures expenses when they’re incurred and earned. This means you book transactions as they occur, which allows you to track revenues and expenses within a specific time period. When compared with expected cash inflows and outflows, an accrual report provides a more accurate picture of a company’s current financial position.

Types of accrual accounting include:

  • Prepaid expenses: expenses paid out in advance (e.g. liability insurance for an entire year)
  • Unearned revenue: revenue you receive in advance of a product or service you’re expected to provide in the future
  • Accrued expenses: expenses you pay after incurring them (e.g. utility bills)
  • Accrued revenue: earnings you book before getting paid, usually through accounts receivable
  • Depreciation: a non-cash expense resulting from the deducted cost of an asset (e.g. factory equipment or a company car)

Accrual accounting is a practice everyone within the organization should be managing. Your accruals will help create a clear and transparent view of the health of your business. Accrual information provides key insights into the revenue, costs, and the net value of a company over a given time period.

Also, CFOs reported their highest priority in 2019 is to improve AP reporting and data analytics. Data capture is a key benefit of the accrual process and companies can leverage that data to make more strategic decisions. This data is also required by potential investors and lenders and gives company stakeholders information they can use to make future plans for the organization.

Looking at “as-is” accruals accounting

Accrual accounting responsibility falls mainly on the account payable (AP) and accounting teams. And when AP teams are processing invoices by hand, this creates a more complex accrual process.

A manual accrual process begins when a paper invoice is received and then checked and coded by a member of the AP team. The invoice is then sent out for manual approval. When the approved invoice is returned, it’s manually entered into an accounting system and manually entered again into a secondary data system, typically an Excel spreadsheet. At the end of the month, this data needs to be manually calculated for reporting purposes; if there are errors or missing data this, information needs to be tracked down and corrected, often a time-consuming process. Once corrected, a month-end journal entry is manually logged into the primary accounting system.

A manual accrual process is inefficient and has many downsides, such as a high potential for errors, data duplication, no tools for estimates, inconsistent and unenforced policies, as well as too many people touching the data. This process also means there’s no central repository of data for the company.

AP can be accrual world

Automated accrual accounting

AP automation allows companies to automate various invoices and payment processing tasks that are typically done manually. AP automation platforms begin by capturing digital or scanned invoice information then automatically inputting and storing the data in the AP software system, removing the need to enter information by hand. The data is validated by a team of experts and the invoice is then coded and routed to approvers through a digital workflow specifically tailored to your company’s needs.

Using an automated process, data becomes immediately available for accrual reports and can be sent directly to your ERP (enterprise resource planning) software. Additionally, you can use these more accurate digital accrual reports to compare costs against prior months and years immediately to ensure the most accurate analysis before finalizing your report.

Automation is an extremely efficient way to track all your individual company accounts and costs, all within a defined period of time. This process eliminates the need for manual accrual tracking.

A few accrual automation benefits include:

Central repository for month-end accruals

AP teams can say goodbye to spreadsheets! AP automation software provides vendors with one single tool that requests, collects, and pushes accrual estimates directly into your ERP system. When everyone works from a single source of truth, CFOs and their teams can deliver accurate reports more frequently, complete a financial close quickly, and dive deeper into company data to deliver strategic insights to other leaders within the organization.

Invoice matching and error reduction

AP teams can use AP automation software to link fragmented transactions by automatically matching invoices to your company’s accrual estimates. Rather than simply scanning and uploading a document, AP automation extracts digital and handwritten data and automatically captures it. This ensures that the entire process remains automated and reduces input errors, saving accounts payable managers hours of time and money previously spent on correcting mistakes or finding new vendors if relationships sour.

More accurate accrual estimates

You can generate accrual estimates based on open purchase orders and historical data for each vendor. You can also approve or adjust these automated accrual estimates as needed, helping your company generate the most accurate accrual estimates possible. Fully automated data capture and sophisticated analytics allow you to forecast a truer picture of costs and better control P&L, giving you more confidence in your financial predictions and reporting.

Beyond accruals

The case for automation extends beyond accrual reporting. Digital AP platforms cut labor-intensive, error-prone tasks like invoice entry, scanning, receipt and purchase order matching, coding, correcting errors, and data migration. Cloud-based automation cuts invoice processing time by 50%, refocuses manpower time previously spent on manual data input, eliminates mistakes, ensures on-time payment, improves working capital management, and optimizes performance. With AP automation, your company will experience greater collaboration and accountability as well as improved security and reporting, all of which results in a dramatic increase in ROI.

A Complete Guide to AP Automation

The average AP workflow is full of manual, time-consuming, hands-on tasks. Imagine how much easier tracking and amplifying AP performance would be with automated workflows & processes. To learn more about how automated AP processes can save your company both time and money, download our complete guide to AP automation.

Rethink what AP can be

Steve Iannarone

Steve joined Goby as a senior implementation manager in 2019. He's experienced in business analysis and project management of large complex system implementations in the Procure-to-Pay and AP Automation landscape, and is a leader in change management processes and controls.

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