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.
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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.
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.
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...
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.
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
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.
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.
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...
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.
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.
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.