Management Accounting help, please!

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I help a company keep its financial accounts on Xero. They want to do internal monthly reporting and requested a full lock on Xero soon after the month end (and every future month end) . That simply wont work as there will be bills each month coming through after that lock but dated for the earlier month.

So, what technique, or add on, do management accountants use to enable timely and accurate internal monthly reporting whilst ensuring the financial books accurately show bill dates.

Is this where raising purchase orders might be useful  (which they dont do currently)? Any guidance much appreciated.  

 

Replies (20)

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David Ballantyne - Director at Ballantyne Accountants Ltd
By djballantyne
24th Oct 2018 07:37

Hi Kaylee,

You need some means of tracking what purchases have been made. A purchase order tracking system of some kind would solve the problem. This could be as simple as asking those individuals responsible for purchasing to record orders in a spreadsheet. You would then need to track which invoices had been received against which orders, and which orders had goods received against them but had not been invoiced. Your expense accrual for the monthly reporting period should consist of those orders which are goods received but not invoiced.

Kind regards,

David.

Thanks (2)
ALISK
By atleastisoundknowledgable...
24th Oct 2018 07:39

If you know that the cost is coming in, accrue for it (or an estimate). When it does arrive, post it dated 01st of the new month and put the actual date in the invoice reference e.g. “28/09 SIN12345”. That’ll mean that you can easily see the actual date of all invoices at a glance.

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By WhichTyler
24th Oct 2018 07:42

As Xero doesn't have accounting periods (I believe) but relies entirely on transaction dates, you may not be able to achieve it within the package. You could simply redate any invoices received after the close to the first of the following period. But you don't think that is acceptable.

For management accounts, the other approach is to extract a TB at the chosen date and run the management accounts from that. Then if you want monthly figuyres, just look at the difference between this month's TB and last month's. But that moves reporting outside Xero, which might not be acceptable too.

So it looks like something has got to give: choose another package, accept different bill dates, or move reporting out of Xero. Your call...

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By Kaylee100
24th Oct 2018 07:58

I dont think putting bill dates in as 1st following month rather than bill date simply due to my training (Im tax based really). Indeed its happened perhaps for one bill a year before, after year end close (three months after year end). Im concerned with that practice now - especially with it being a 12x issue and a bigger issue due to fast cut off, that many bills will be recorded in the financial statements with a work around date and, in their own way, cause questions if their records are investigated or if they want to sell the business. Is dating 1st with a reference showing the accurate date is an acceptable practice now technology is becoming so prevalant?

Thanks everyone for your comments.

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Replying to Kaylee100:
ALISK
By atleastisoundknowledgable...
24th Oct 2018 08:08

That’s the way we do it. Unfortunately, if you want some way of showing the real invoice date having locked off the period, there’s going to be a workaround one way or another. Unfortunately if it’s locked, you can’t enter the real date.

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Replying to atleastisoundknowledgable...:
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By WhichTyler
24th Oct 2018 08:28

Sage 200 has periods that are independent of date (so you can back date an invoice but it will post in whatever the open period is) but that can cause other problems and anomalies

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Replying to Kaylee100:
By Moonbeam
24th Oct 2018 08:43

I never use the whatever the accounting package is for management accounts. I always take the TB out and do the MA on Excel. That's what a lot of accountants do. Then you can input whatever the correct date is for each supplier invoice into the accounting package.
However, as others have said there is nothing wrong with inputting late supplier invoices as 1st of the following month, as long as you're doing accruals properly. This practice has been going on almost since the world began and I am surprised you would dismiss it "simply due to my training". You should anyway have a good filing system so that you can quickly find the invoice concerned either physically or via your accounts package.

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By Kaylee100
24th Oct 2018 08:42

Thanks all.

Yes, of course, we definitely do have a compromise to reach. I am just wary (perhaps overly-so) of causing a larger, or future, separate problem with any route they take.

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By Kaylee100
24th Oct 2018 08:59

Simply because my major experience is small business tax based. I am, honestly, not dismissing it but looking for the right way forward. That's why I am here and am very grateful for everyones input and your confirmation that it is an acceptable compromise for the larger business looking to prepare monthly figures.

I appreciate my initial wording "that simply won't work" will have given that impression - it wasn't what I really meant in retrospect - it was more "that won't work if we continue to put bill dates in as they are shown on supplier invoices".

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By paulwakefield1
24th Oct 2018 09:00

There is no real problem booking late invoices to the 1st of the following month and making suitable accruals in the management/year end accounts.

There are a couple of issues to be aware of: Where the following month is a new VAT quarter, you will be claiming the VAT in the wrong period; given it is in HMRC's favour, I wouldn't envisage a problem but with an increasing compliance based approach that might not always be the case. The second related issue is that you will be recovering VAT a quarter later which will not aid cashflow.

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Replying to paulwakefield1:
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By Kaylee100
24th Oct 2018 09:31

Yes, of course. Luckily they are cash rich! The expectation on compliance is, of course, a possible moving target now as we start the process of the move to digital compliance.

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Replying to Kaylee100:
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By WhichTyler
24th Oct 2018 16:55

Some organisations do a very fast PL close (plus accruals) to get the MI out, then do a sweep of 'after date' invoices posted in the following period but dated in the previous one to include them on the VAT return (which has a longer deadline)

Not sure if this will survive MTDfV though...

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Glenn Martin
By Glenn Martin
24th Oct 2018 10:02

How late are late bills coming in?

In order for the MI to be effective you need to work to cut off dates.

So say all data entry is complete by 15th of the month after the period end, with the view to the MI been ready 7 days later.

Any bills for that month not in by the 15th will be accrued then entered on the 1st of the following period.

Unless your cut off is a lot tighter you shouldn't be receiving bills for the period beyond 15 days after the month end.

If suppliers are sending you information late, get them to start emailing them in as they are issued or simply start paying them a month later until they up their game.

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By tom123
24th Oct 2018 12:54

Whatever system you use for recording the data, the chances are you are going to want to have management accounts elsewhere.

Having said that, I always include a 'system' P&L and balance sheet in the report so users can satisfy themselves as to the correctness of the other info.

I really would not enjoy producing monthly reports for 'serious' users (ie to discuss at board meetings etc) without actually having period based software.

If you are stuck with date based stuff, then users are going to have to take on board the possibility of figures moving a little over time as the final invoices come in.

I have several laggard suppliers who struggle to get all their invoices in within 60 days. Luckily, I have purchase order processing and period based software to try and track it - but you still get the odd really late invoices (typically for services rather than goods) that you were not expecting.

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Replying to tom123:
David Ballantyne - Director at Ballantyne Accountants Ltd
By djballantyne
24th Oct 2018 21:48

Could I ask what your period based software is please?

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Replying to djballantyne:
Routemaster image
By tom123
25th Oct 2018 09:15

Sage 200

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By Kaylee100
24th Oct 2018 12:59

Unfortunately there are quite a few suppliers that are very late in arriving and they are much bigger concerns than my client but they are, when we break it down, where the problem lies really.

Thanks for your input as building that into our process going forward may indeed help.

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By Kaylee100
24th Oct 2018 15:25

This has all been extremely helpful. I have put some options together and am in a position to discuss it with my client.

Cheers!

K

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By Klandrews
25th Oct 2018 09:59

I've never really understood why software suppliers think that open period accounting is a good thing! E.g. you are closing the accounts and know that an invoice hasn't been received yet - so you do an accrual. Then the invoice arrives, dated in the prior month so you enter it and suddenly you have duplicated that cost as you now have an accrual and the invoice. Whenever I'm looking for an accounting system now my first question is whether or not you can close the periods! I'm really not a fan of the approach of dating the invoices the 1st of the next month as invoice date in my book, should be the invoice date.

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Replying to Klandrews:
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By Kaylee100
25th Oct 2018 11:49

I am pleased you feel that way but there is a definite compromise I am going to have to make to share information from one package with the new formalised management information reporting function.

Currently at year end I leave the package unlocked until about 8 weeks post. Then I lock and create accruals (well the client does) and then, if a late bill comes in, I get an error message so unlock and add it with the correct date and ensure the cost is knocked off accruals. Then I lock balances again. After 8 weeks its really very few invoices that come in that late - maybe 2 or 3, so its not as much hassle as it sounds, then we fully close and complete the accounts for the year at about week 12 and lock balances "forever"

It works for year end but that just wont work if they want monthly figures that agree and, to be fair, they are of a size it makes perfect sense that they want to start to see proper management information.

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