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Modern Accounting: Adjusting Journal Entries

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This is a guest post from David Brightman at our partner BlackLine, explaining why it’s necessary to adjust journal entries. 

What Are Adjusting Journal Entries?

Adjusting journal entries are used to adjust a company’s financial statements and bring them into compliance with relevant accounting standards, such as generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). The activity of adjusting journal entries is routinely performed by accountants to allocate income and expenses to the actual period in which the income or expense occurred or earned—a feature of accrual accounting.

Five Common Types of Adjusting Journal Entries

There are many different types of adjusting journal entries, but the five most common types are:

1)    Accrued revenue is revenue that has been recognized by the business, but the customer has not yet been billed. This type of revenue is common in service-related businesses, as services can be performed several months before a customer is invoiced. Revenue must be accrued, otherwise revenue totals would be understated, especially compared to expenses for the period. 

2)    Accrued expenses are those that have been incurred before they have been paid. For example, a company purchases supplies from a vendor but has not yet received an invoice for the purchase. Other examples of accrued expenses include interest payments on loans, warranties on products or services, and taxes.

3)    Deferred revenues indicate when a company receives payment in advance of work that has not yet been completed. This is common for professional firms that work on a retainer—such as a law or CPA firm. A client may pay in advance for work that is to be done over a period of time. When the revenue is later earned, the journal entry is reversed.

4)    Prepaid expenses need to be recorded as an adjusting entry. Many companies prepay rent for an entire year. The company will record the expense each month for the next 12 months to account for the rental payment properly. Without this, financial statements will reflect an unusually high rental expense in one month, followed by no rental expenses at all for the following months.

5)    Depreciation expenses, including depreciation expense and accumulated depreciation, need to be posted to properly expense the useful life of a fixed asset. Depreciation is a fixed cost and does not negatively affect cash flow, but the balance sheet would show accumulated depreciation as a contra account under fixed assets.

Given the nature of adjusting entries, they often impact both the balance sheet and the income statement. Adjusting entries are also used to correct financial errors and must be completed before a company’s financial statements can be issued. For example, something is capitalized and booked to a Fixed Asset account that, under company policy, should be booked to an expense account like Supplies Expense, or vice versa.

Where Do Adjusting Journal Entries Fit into the Financial Close Process?

At the end of each financial period, accountants go through all the prepaid and accrued expenses as well as unearned and accrued revenue and identify necessary adjusting entries.

This is often a time-consuming process that involves spreadsheets to track expenses and payments made against those expenses as well as revenue earned and payments received against that revenue.

These adjustments are often a result of the account reconciliation process during the financial close. They may also be detected by doing variance analysis of account balances to detect any unusual balance fluctuations.

How to Record Adjusting Journal Entries

When the need for an adjusting journal entry is identified, accountants prepare the journal entry to credit and debit appropriate accounts. In theory, the process for recording an adjusting journal entry can be broken into 3 steps:

1)    Determine the current account balance

2)    Determine what the current balance should be

3)    Record an adjusting entry

This is likely oversimplifying, since companies may have hundreds or thousands of adjusting journal entries to make each period, but it gives an overview of the process needed for each entry. In addition, adjusting journal entries should include supporting documentation, links to applicable policies and procedures, and be properly reviewed and approved before being posted.

Examples of Adjusting Journal Entries

One example is to accrue for unpaid wages at month-end. A potentially more intricate example may be rebate accruals. Rebates are payments made back to you from a supplier (or from you to a customer) retrospectively, reducing the overall cost of a product or service.

In this case, you may have an arrangement with a supplier to earn a quarterly rebate based on your overall spend with that supplier. Imagine the supplier’s policy is to pay the rebate at the end of the year. Then, from an accounting perspective, this may need to be accrued for when the rebate is earned, not when it is received.

When preparing the entry, it’s helpful to reference your company’s policy and procedure to ensure compliance, and it is best practice to attach supporting documents to the journal entry, like the contract and terms. This will help speed up the approval process, as well as any audit work later.

This blog post was originally published on the BlackLine blog.

Read more about Modern Accounting:

Modern Accounting: Highlights from Beyond the Black 2022

Modern Accounting: Does Your Accounting Team Have SMART Goals?

Modern Accounting: The Impact of Investing in Accounts Receivable

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Modern Accounting: Highlights from Beyond the Black 2022

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Beyond the Black 2022, the premier event for Finance and Accounting leaders and innovators, took place last week in Las Vegas. The conference featured many sessions on hot topics for Finance and Accounting. These included Winning the War for Talent, 2023 Predictions for Finance and Accounting and Why AR Management Needs to be at the Top of Finance’s Agenda and ESG.

Several Revelwood team members attended the event. We met many people from the BlackLine team in person, learned about new features that have recently become available and gained an understanding of BlackLine’s vision for the future. BlackLine’s long-term goal is to be a single platform where all accounting tasks can be completed. They continue to execute on that goal by releasing new products like the cash application & accounts receivable module and intercompany transactions module.

Here are some highlights of the conference, courtesy of BlackLine’s blog:

How Aetna is Driving Continuous Innovation with Its Center of Excellence Model

To best serve the business, Aetna’s accounting and finance team established a Center of Excellence focused on transforming processes and reducing manual work. Since 2018, the Aetna COE has brought standardization, efficiency and leading practices to the organization. Attendees heard how Aetna is delivering measurable results, freeing up resources and improving controls with BlackLine and its COE model.

How a REIT Uses BlackLine Task Management to Close (While Having a Little Fun, Too)

LXP Industrial Trust understands that innovation and technology are essential to growth and continued success. The session provided insights into how LXP utilized BlackLine Task Management to help transform and modernize its journey to modern accounting. LXP talked about how they created the BlackLine Intergalactic Highway for a fun way to encourage staff interaction and facilitate an accounting transformation from the traditional way of working to optimize its accounting processes, thereby creating capacity for Accounting to focus on what matters most.

How Dun & Bradstreet Uses BlackLine in a Shared Service Environment

The Dun & Bradstreet (D&B) controller organization unleashed the power of transformation internally by enabling their global teams to share a common platform to improve transparency, standardization and automation. D&B shared their accounting journey and the strategies deployed to transition from life before BlackLine to their current best-in-class center of excellence.

There are many, many stories about how BlackLine helps companies to transform and modernize their accounting practices. We look forward to sharing more success stories.

Learn more about Modern Accounting with BlackLine

Modern Accounting: Does Your Accounting Team Have SMART Goals?

Modern Accounting: Streamlining the Month-End Close

Modern Accounting: The Impact of Investing in Accounts Receivable

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Modern Accounting: Does Your Accounting Team Have SMART Goals?

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This is a guest post from our partner BlackLine, explaining SMART goals and how they can help accounting managers.

One of the most widely used—and effective—approaches to goal setting is called SMART, which stands for Specific, Measurable, Attainable, Relevant, and Time-Bound. This helps you and your teams create clear goals with defined and attainable objectives.

Many accounting managers struggle with the annual goal-setting process. It can be hard to quantify the work of the folks who do the counting—which is ironic, but quite common outside of sales teams. Accountant routines can vary significantly and tend to be driven by outside factors.

But setting smart goals for accountants is a critical part of ensuring a successful year. They help you and your teams be intentional about what you want to focus on and accomplish and create alignment across the entire F&A organization.

How to Write SMART Goals for Accountants

Make Your Goals Specific

The more specific a goal is, the more attainable it will seem, and the more likely you’ll achieve it because you’ll know exactly what you need to accomplish in this area.

It’s okay to start with a larger goal, but then break it down into smaller goals that are more specific. Determine why this goal is important—for the individual, the team, and the broader F&A organization—and then talk about the short and long-term impact of achieving it.

To get even more specific, determine the exact outcome you want.

Make Your Goals Measurable & Attainable

Next, quantify your goals so you’ll know how to measure process and when they’ve been accomplished. This is often the most difficult part of setting SMART goals for accountants, and if a goal doesn’t seem quantifiable, try rephrasing it so it’s possible to measure.

It’s equally important to ensure the goal is attainable. Stretch goals are great, but impossible goals will only lead to overwhelm and frustration. Make sure the time frame is reasonable and identify anything that could get in the way of achieving the goal.

Removing those barriers should be the first step.

Make Your Goals Relevant & Time-Bound

Every goal must have importance to the broader organization as well as the individual. Uncover the why here, so the reason this is a priority is clear. This can also increase the individual or team’s motivation to achieve this goal.

Creating a reasonable deadline for each goal is also critical, along with regular check-ins to ensure you’re on track. It’s okay to have some flexibility in adjusting this deadline as needed, especially if things come up and get in the way.

This is, however, why it’s so important to identify and remove those barriers as the first steps toward the goal.

Strategies for Effective Goal Setting

Here are three strategies to incorporate into your goal-setting process that will make your accounting and finance teams far more effective in the future.

Take a Project-Based Approach

Most of us have down time here and there that we could utilize to work on a project. Talk to each of your team members about coming up with a project that contributes to their own development, helps them connect with others, and causes them to look at their job in a new way.

For example, a Senior Staff Accountant could conduct a skills training to help accountants keep up with changes in the industry. Or, maybe you believe your AR team could be more efficient but you’re not sure. Why not give them a goal to identify areas they can improve? You may be surprised at how many great ideas surface that could save the team some time.

Create Opportunities to Strategically Develop New Skills

With the rise of new tech like robotic process automation, artificial intelligence, and blockchain, strategically developing skills to prepare for the future of finance is more essential than ever.

The exceptional accountant of tomorrow needs to begin cultivating effective communication abilities, data analysis, business acumen, and creativity — today. These capabilities will equip teams to deliver predictive insights for leadership, drive data-based decisions, and provide expert counsel.

Developing opportunities for accounting and finance professionals to problem-solve more creatively, learn new technology, and build relationships with other departments can make a massive difference on an individual and team level.

Carefully Craft Your Culture

A carefully crafted culture creates competitive advantage. It improves quality of work, boosts productivity, engagement, and retention, and reduces stress and healthcare costs.

But if this isn’t a current focus at your company, where do you even start?

A team brainstorming session can be an excellent first step. Involving your people in culture discussions can make them feel invested and as important as they really are. They’re also the ones who will be able to quickly identify what needs to change, along with the most effective approaches.

Give your leaders the responsibility of planning regular team-building events. This can be anything from fun, off-site events to a team appreciation lunch at the office. The goal should always be to bring the team closer and help them maintain better relationships, generating understanding and a deeper respect for each other.

Put Your People First

Done right, setting smart goals for your accountants can create a shared vision that makes your teams feel inspired and connected. And when the strategies within that vision meaningfully contribute to the entire organization, you can count on a higher level of buy-in.

It all comes down to putting your people first and setting them up for success. If you continually look to the future of finance and equip your teams for the new digital landscape, your F&A organization will thrive.

Creating smart goals and creating a great culture can help F&A teams retain top talent, which is a challenge in today’s business environment.

This blog post was originally published on the BlackLine blog.

Read more about Modern Accounting:

Modern Accounting: Streamlining the Month-End Close

Modern Accounting: The Impact of Investing in Accounts Receivable

Modern Accounting: Driving Sustainability

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Modern Accounting: Streamlining the Month-End Close

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This is a guest post from our partner BlackLine, explaining how to streamline and optimize the month-end close procedss.

What Is the Month-End Close Process?

The month-end close process is the series of activities accounting teams must monitor, perform, and review, on a monthly basis, to produce timely, accurate, and complete financial statements and related reporting. While the most important closing period comes at the end of the financial year, most businesses use month-end procedures to accurately track performance—a monthly closing process as part of regular accounting ensures that the numbers are reliable, stable, and accurate.

Why Is Optimizing the Month-End Close Important?

Extra time spent on the month-end close means less time spent on adding value through analysis and business partnering. Optimizing the month-end close will get financial numbers into the hands of leadership sooner to assist with timely analyses and smarter decision-making. Other reasons to optimize include better discipline, more structure, improved controls, more visibility, and reduced risk.

Flowchart for Month-End Close Process

Here is a month-end close process flowchart to visualize some of the key steps and processes.

BlackLine month end flowchart

What Are Month-End Procedures?

While traditionally a lot of the heavy lifting is done during a few peak days, the month-end close process is ongoing throughout the month as transactions are recorded in various systems.

Before reporting, accounting must capture, review, and make adjustments to data from disparate sources, which often include a primary ERP, other ERPs, sub-ledgers, banks, point-of-sale systems, and many others. When results are solidified and reviewed, accounting then reports results to stakeholders including internal management, external shareholders, regulatory bodies, and others.

When accountants think about the month-end close, they’re likely referring to the activities in the middle of the figure above, like substantiating balance sheet accounts, reconciling transactions, recording recurring journal entries, analyzing variances, monitoring critical tasks and controls, and supporting audits. These are the processes that require the most effort. These activities are traditionally performed manually in spreadsheets and stored in difficult to access emails or on shared drives.

How Long Does a Month-End Close Take?

Each company is different, so it’s impossible to say how long your month-end close should take. Surveys and research over the years show the month-end process generally takes between 5-10 days.

However, over the past decade, with help from technology, the close has been getting faster. According to Ventana Research in 2019, “63% of participants indicated their organization completes its monthly close within six business days, up from 53% in 2014, with nearly half (46%) now closing within four business days (the previous rate was 29%).”

Accounting teams face a lot of pressure to close the books fast because executives use the previous month’s financials to make business decisions for the upcoming months and quarters. Ventana Research notes, “Closing faster has value: 62% of those that close within six days say that the information they provide is timely, while only 39% of those that take longer say that.”

However, closing faster can mean a tradeoff between speed and accuracy. For example, using estimates rather than actuals can shave hours or days off your close, but that means your numbers may not be exact, and when it’s time to close the fiscal year, the actuals will still need to be determined. This may end up adding days to your year-end close.

What Are the Steps in the Closing Process?

Again, because all companies are different, there is no perfect month-end close checklist. For example, businesses that sell physical products will have the extra steps of tracking inventory while companies that are service-focused will not. Smaller companies may have fewer accounts while multinationals will have hundreds or thousands. But there are some key items most accounting teams will need and steps they’ll need to follow.

Some of the information accounting teams need to have on hand in order to close the monthly books:

  • Total revenue numbers
  • Bank account information
  • Inventory levels (if applicable)
  • Petty cash total
  • Financial statements
  • Balance sheets
  • Total fixed assets
  • Income and expense accounts
  • General ledger

Common steps in closing the month-end books:

  • Record all incoming cash and accounts receivable
  • Review expenses and accounts payable records
  • Reconcile accounts
  • Review fixed assets
  • Inventory count (if necessary)
  • Collect and review financial documents
  • Prepare financial statements
  • Review all information for accuracy

Best Practices for a Month-End Close Process

When thinking about best practices for the month-end close, you may want to ask yourself these three questions about your month-end close process:

1.     Do I have sufficient visibility into the entire month-end close process?

2.     Have we done all we can to mitigate risk?

3.     Am I paying highly trained professionals to perform remedial tasks?

If you identify challenges based on those questions, you may want to implement some of these month-end close best practices.

Conduct Pre- and Post-close Team Meetings

During pre-close meetings, the team should discuss follow-up items from the previous month’s post-close meeting and determine the current month’s close schedule and timeline. This way everyone is clear on responsibilities and deadlines. You should also determine what staff should do if they run into barriers and how they should communicate any bottlenecks.

In post-close meetings, discuss what worked and what didn’t, and review assigned roles and responsibilities for the next month. Review any lessons learned, any variances or abnormalities, and entertain any proposed changes to the process.

Manage your Time, be Organized, and Communicate Efficiently

Understanding deadlines and schedules is critical so you can work toward an ideal close date. Being organized will help you stay on track. In addition, accountants must begin to cultivate strong written communication skills with the ability to think critically. They will also need strong oral communication skill and the ability to convey pertinent financial information to executive teams and stakeholders.

Build Relationships

Exceptional accountants know how to manage numbers and people. That requires cultivating a broader range of relationship skills today, such as how to work in a team and how to engage with other departments. If other departments are aware of what you are doing and what you’ll need for each month-end in advance, they may be more willing to contribute the financial data you need on time.

Take Advantage of Automation

Refocus your teams on analysis by replacing repetitive, spreadsheet-heavy work with leading-practice automation. Centralize data and close activities, automate journal entries and reconciliations, strengthen controls, and enhance visibility.

Common Challenges in a Month-End Close Process

Some challenges finance and accounting teams encounter when performing a manual close process include:

  • Team members don’t know what needs to be done and/or what is already completed
  • Inaccurate or incomplete data
  • Lack of standardization
  • Processes that are not clearly defined
  • Discrepancies between numbers
  • Delayed reconciliations due to errors, adjustments, and reclassifications
  • Lack of real-time data that results in little or no visibility and transparency

These challenges during the month-end close are likely why nearly 70% of CAOs recognize a need to change. The month-end close process relies on many people, technology, processes, and other inputs. As a result, accounting organizations are challenged by inconsistent data and processes and a lack of standardization across the enterprise—all while depending on spreadsheets, emails, phone calls, and in-person meetings to bring it all together.

As business leaders look for accounting to provide more real time insights, and while regulatory environments are increasingly complex, it becomes even more difficult for accounting to do it all on time without compromising compliance or control. Traditional manual accounting processes are simply not sustainable.

Transitioning away from manual workflows will give you access to one of the most efficient tools you’ll ever use: accounting automation.

How Financial Close Automation Technology Improves the Closing Process

In order to optimize the month-end close process, companies should embrace technology and innovation that enables transformation. Integrated solutions that address more than one aspect of the close process, and in particular, cloud solutions, are helping companies make the move to modern accounting—bit by bit. Let’s take a closer look at how automation technology improves the financial close process.

While there’s no one size fits all approach, many successful accounting organizations begin their optimization journey with close management by unifying data and processes and driving better accountability through visibility. Technology can be used to capture all tasks and embed workflow and segregation of duties. Leading solutions also help centralize supporting documents and provide dashboards for reporting on status and KPI’s.

Optimizing balance sheet substantiation and high-volume reconciliation processes is a natural next step, as preparing, reviewing, and retaining account reconciliations is a common pain point for accounting, and valuable resources spend a disproportionate amount of time on repetitive tasks like ticking and tying.

Technology not only standardizes account reconciliations using templates but improves continuity by embedding policies and procedures, reduces risk by importing general ledger account balances and other data directly from source systems, and drives efficiency by automating matching activities and up to 80% of certifications.

Another way to optimize the financial close is by addressing the journal entry process. Many organizations record hundreds, if not thousands of journal entries each month. Technology not only centralizes the journal entry process with workflow and integration to related balance sheet reconciliations but automates the creation, posting, and certification of a significant portion of a company’s entries. Harmonizing the process and supporting documentation in the cloud not only saves time during the close but also reduces audit testing and preparation.

Finally, intercompany accounting and governance is another area ripe for transformation, as it poses numerous challenges for accounting with complex regulatory requirements and cross-functional dependencies involving legal, tax, and other stakeholders. Accounting can use technology to proactively govern their intercompany process from transaction initiation through netting and settlement. End-to-end intercompany solutions facilitate the process with defined workflows, embedded controls, and automation.

This blog post was originally published on the BlackLine blog.

Read more about Modern Accounting:

Modern Accounting: The Impact of Investing in Accounts Receivable

Modern Accounting: Driving Sustainability

Modern Accounting: Why Does Intercompany Accounting Crash Your Close?


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Modern Accounting: Driving Sustainability

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As part of our series on ESG reporting, we are featuring guest blog posts from our partners. This post from BlackLine explains how the finance team can take the driver’s seat when it comes to sustainability. 

Consumers are increasingly looking to do business with sustainable organizations, elevating sustainability to a boardroom level. Organizations looking to compete effectively in a challenging and crowded marketplace must be able to demonstrate their environmental bona fides. However, creating sustainable practices is usually the domain of operational lines of business. Many larger enterprises may have a dedicated role for a sustainability officer, or even a team that works across environmental and social corporate responsibility.

Rarely does the finance team get involved in the early stages of sustainability discussions. If anything, the finance team is usually left to manage the implications of business decisions around changing suppliers, operating procedures, and so on.

However, there is an opportunity for the finance team to take the driver’s seat when it comes to sustainability.

The rise of environmental, social, and governance (ESG) reporting has led to an increased focus on these issues from a risk management perspective. Getting these elements right can also lead to increased turnover and an improved ability to attract and retain staff. For example, 90% of consumers prefer to buy sustainable products and 86% of employees prefer to work for companies that care about the same issues they do.

ESG reporting translates these otherwise potentially hard-to-measure areas into financial results, language, and metrics. This is where the finance team shines. Finance also has access to all of the data across the organization that can be affected by ESG practices, such as sales, supply chain, and cost of goods sold.

Where to Start

Developing environmentally sustainable practices and policies can seem overwhelming, especially given the already large workload that falls on the finance team’s shoulders. Managing existing financial management and reporting requirements while adding ESG strategy, measurement, and reporting may not seem feasible for some teams. However, the finance team’s background in risk assessment and mitigation, data analysis and reporting, and strategic direction makes it perfect for this task.

There are four key questions the finance team should start with on the journey towards driving sustainability:

  • What ESG components will affect the business, including stakeholders and customers?
  • What metrics and targets should be managed, monitored, and reported on?
  • How can financial and non-financial data be integrated into reporting?
  • Are specific reporting models required for ESG and, if so, what are they?

While it may seem overwhelming for finance teams to dive straight into ESG and driving sustainability, there are immediate steps that can be taken to improve sustainability. For example, finance teams can make their own practices more sustainable and lead by example.

It may also be worth investigating ways to streamline and automate existing processes to pave the way for increased responsibilities around ESG management and reporting. By automating processes that previously took days or weeks of manual work, finance teams can free up talented professionals to focus on innovation and sustainability. This will also improve the team’s access to real-time data, which can be used to drive sustainable decision-making and, eventually, accurate reporting around ESG activities.

Read more in our series on ESG Reporting:

FP&A Done Right: ESG Reporting Tools

FP&A Done Right: Finance’s Role in ESG Reporting

More from BlackLine:

How Finance & Accounting Can Champion Sustainability in Business

This blog post was originally published on the BlackLine blog.

https://www.blackline.com/blog/driving-sustainability-from-the-finance-seat/

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Modern Accounting: Why Does Intercompany Accounting Crash Your Close?

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This is a guest blog post from our partner BlackLine, explaining why intercompany accounting is killing your close.

It’s a fact of life that if you can’t reconcile your intercompany accounts, you can’t close your books. The goal of intercompany accounting is netting to zero across the entire company. However, as multinational companies know, that is easier said than done—especially when it comes to billing services.

Deficient processes anywhere in the intercompany chain cause delays in controllership and impact a company’s monthly, quarterly, or annual close.

The Challenges of Intercompany

Without standardized intercompany processes, the risk of problems and delays that “kill your close” is high.

Poorly executed intercompany agreements

Intercompany accounting starts with an agreement between parties acting as either a seller and/or buyer to other entities in the multinational corporation. An intercompany agreement specifies what type of products will be delivered or services will be billed. It will also include details such as who is to be invoiced, what indirect taxes apply, and may even note restrictions around getting money out of the country where the buyer entity operates. If no actual agreement is in place, or if the agreement is poorly executed, mistakes must be undone and disagreements resolved. This takes extra time.

Incorrectly booked invoices

Problems progress from there as some invoices are simply not booked correctly. Perhaps a lower-level employee new to their position inadvertently books an invoice incorrectly or in a way that is inconsistent with the intercompany agreement. When it comes time to roll up the accounting, there is a disconnect between how the entities involved in the transaction accounted for that invoice. Ultimately, late in the game, the accounting team discovers these inconsistencies and must investigate where the disconnect occurred and effect a correction. This problem is further compounded as a multitude of inconsistencies roll up through the organization increasing by both number and associated value. If these issues cannot be rectified by the end of the month or quarter, they will become costly to plug.

Lack of communication

A lack of communication and standardized processes creates problems on both sides of intercompany transactions. For example, if a seller sends an invoice to the wrong distribution list or responsible person, the invoice never gets booked. Without proof of a counterparty confirmation, of a person saying, “I agree to book this,” the risk of a delay is high.

Problems on the buyer’s side arise when invoices are not processed properly. The buyer needs to book whatever service or product they receive to the right function, to the right department. This must be done in a timely manner to minimize disruptions.

Inquiries and disputes

The expedient management of inquiries and disputes presents a final challenge. Even when intercompany invoice trafficking is efficient, the person receiving the invoice may disagree with the charges. In some cases, buyers don’t communicate that they have a dispute until an invoice is overdue, putting additional time pressure on the resolution process.

Considering how many invoice disputes happen throughout the year, it’s easy to see how a poorly executed inquiry and dispute management process can critically slow a company’s close. This is further frustrated when buyers or sellers are organized in silos managing their own entity’s books while working to keep their costs down. With this perspective, if they don’t agree to pay an invoice, it doesn’t affect their margins, targets, or KPIs. They are not concerned with how an outstanding intercompany invoice impacts the larger organization. 

Is a Shared Services Team the Answer?

These intercompany challenges often drive the creation of shared service centers or centers of excellence which are tapped to manage intercompany invoicing across the enterprise. When well-formulated, these organizations can streamline intercompany invoice management and, seeing the larger picture, should increase accuracy and timeliness. However, these teams must be more than dedicated personnel assigned to intercompany tasks. Without thoughtful process design and automation and separated from the sourcing decisions by continents and time zones, a shared services team may actually increase errors. A poorly run, poorly trained shared services team also suffers from staff turnover—exacerbating mistakes.

Pressure On the Accounting Team

For the accounting team, trying to tie up the intercompany accounts at the corporate level can be extra challenging. They must track down knowledgeable parties at the entity level that may be operating in different time zones and with different work rules and holiday schedules. They face additional stress when the accounting close deadline looms, often having to spend days and nights trying to source information and resolve issues. Often, they are forced to make unfortunate write downs when time is up. The pressure becomes worse at the end of the year when issues cannot be carried over to be resolved in the next quarter.

How to Address These Intercompany Challenges

It is important to get your intercompany process right from the start. Make it well-defined and executed so that you’re not wasting time, money, and resources. Intercompany should be a net-zero game so a good policy ensures that information is right on both sides of the transaction at every stage of the process.

To prevent intercompany from killing your close, you need to establish a global intercompany standard. It should:

  • Eliminate the silos and outline how to get things done
  • Make sure invoices are booked into the right accounts and in a timely manner
  • Specify timing—for example, dictate the last day in the month/quarter that intercompany charges must be billed
  • Improve training for the shared service center team, especially new members
  • Make entity-level staff or shared services teams tie up outstanding intercompany transactions early enough so that the business unit and corporation are completed in a timely manner
  • Give you time to reconcile

How BlackLine Can Help

BlackLine helps companies centralize the management of intercompany processes, technology, and master data to create improved tax and resource efficiency while reducing operating costs. Our solution automates intercompany accounting by translating relevant data into compliant invoices and documentation to support intercompany transactions, real-time audits, and improved transaction transparency while reducing operational costs.

The art of establishing company-wide process uniformity requires experienced intercompany pros. BlackLine has guided consistency across customer organizations improving compliance and reducing risk at some of the world’s largest corporations. Uniformity and consistency are important defense lines in any transfer pricing audit as they communicate a sense of control and defend against disorder.

Read more Modern Accounting blogs:

Modern Accounting: Four Key Ways AR Automations Propel Financial Operations

Modern Accounting: 6 Essential Qualities for Surviving the Robot Uprising in Accounting

Modern Accounting: How to Approach Intercompany Recharging

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Modern Accounting: Four Key Ways AR Automations Propel Financial Operations

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This is a guest blog post from our partner BlackLine, explaining four ways AR automation moves financial operations forward.

Due to challenges in recent years, there’s been a shift in the way companies approach people retention—with varying outcomes.

Many organizations now offer hybrid working policies, with employees enjoying more flexibility throughout their weeks, even if it’s just the ability to do laundry at lunchtime.  

On the flip side, the uncertainty and disruption has caused others to become fed up, leading them to move on to new pastures. We’re all aware of The Great Resignation—but what does this mean for AR and finance teams?

Time-consuming manual processes are a significant factor in this fight. With employees struggling to hit targets and respond to customers on time, plus battling siloed systems that don’t provide full visibility into business procedures, it’s easy to see why they’re cutting loose.

It’s clear that to retain staff and streamline operational processes, digital transformation is no longer a nice-to-have—it’s a must-have.

Banish Back-Office Blues with AR Automation

AR automation raises the bar in business performance.

By moving AR to a different beat, businesses can make small changes to their every day that triggers a big change their operational success. Not only that but automating AR can inform more strategic decision-making and drive better financial outcomes—a win-win for both people and business.   

It’s time to MOVE on from manual:

M—making better decisions

O—operational success

V—visibility into the future

E—employee satisfaction

And AR is for automating.

1. Making Better Decisions

Let’s be honest: most manual AR practices don’t lead to effective data utilization. And few companies have the necessary tools to make best use of their available data, or action the insights it gives them.

AR automation can fill this gap. By surfacing critical information that is typically difficult to obtain, finance leaders can improve strategic decision making across all areas of business.

This leads to better business outcomes all around, as well as helping you to identify potential growth areas within your existing customer base.

2. Operational Success

Unnecessary process errors. Duplicated effort. Customer disputes. These are just some of the AR challenges your staff are tasked with that can have a serious company-wide impact.

Automating repetitive tasks results in less complications to deal with. Teams can more promptly resolve customer disputes, building better relationships and elevating business reliability and reputation.

On top of this, teams are not only better placed to hit their targets but are also able to dedicate more of their time and energy into work that really makes a difference.

3. Visibility Into the Future

Senior board members are tasked with, among other things, keeping external shareholders happy. They’re (understandably) mostly concerned about revenue, and that is directly informed by a healthy cash flow.

AR automation gives you full insight into your cash position, providing you with everything you need to deliver detailed reporting to shareholders.

Not only could this help secure future investment, but it also contributes towards financial resilience. The more you know about your cash position, the more informed decisions you can make to protect your business.  

4. Employee Satisfaction

While WFH has generally gone down a storm, hybrid working can throw up just as many pitfalls as perks. With staff split between home and office, siloed teams may not have full visibility over entire processes, damaging collaboration and significantly hampering productivity.

By implementing AR automation that takes care of admin under one unified platform, staff can take care of adding value elsewhere, putting their expertise to best use: achieving financial goals.

Plus, with staff feeling happier and more supported, they’re less likely to become another ‘Great Resignation’ statistic—and you won’t lose out on all the best talent.

By moving to a different beat with BlackLine, you’re realizing the true potential of AR: as an integral back-office function that contributes significantly to business success.

This blog post was originally published on the BlackLine blog.

Read more Modern Accounting blogs:

Matching Records from Multiple Files in BlackLine

Modern Accounting: Improving Collaboration in Virtual Accounting

Managing your Month-End Checklist in BlackLine

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Modern Accounting: 6 Essential Qualities for Surviving the Robot Uprising in Accounting

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This is a guest blog post from our partner BlackLine, explaining how you could be more productive with fewer resources, less overtime, and also easily improve the quality of your work.

As accounting and finance professionals, you do so much more than just handle money matters—you’re also critical for creating strategy and driving process improvements across the entire organization.

But if the majority of your days are spent manually reconciling accounts and matching transactions, little time is left for these bigger picture activities.

What if you could be more productive with fewer resources, less overtime, and also easily improve the quality of your work? Not only would you be pleased with this improvement, but it would set you apart in the industry.

Optimizing Your F&A People

Your accounting and finance professionals are at the heart of your organization’s innovation, and crucial to driving strategy and future business growth. But according to a recent BlackLine survey conducted by Censuswide, many mid-sized and large company decision-makers are not fully leveraging this talent.

Manual processes and tedious tasks take up too much time and result in this invaluable skillset being widely underutilized. To unlock the value of your people, begin by automating the manual accounting work that consumes so much of accountants’ time and effort.

When manual processes are automated, accounting and finance teams spend fewer hours on transactional activities. The focus shifts to analyzing the data and reports, and addressing only the exceptions.

This enables everyday accountants to become exceptional accountants, providing high-value services in areas like fraud detection, compliance, data analytics, technology, and business advice.

What Is an Exceptional Accountant?

When you are only researching the anomalies, you can finally refocus on providing strategic guidance to the business, such as improving internal processes or finding cost-saving opportunities. In other words, the added time allows you to apply not just your knowledge and expertise, but your nuanced creativity and intelligence as well.

According to Helen Brand, chief executive of the Association of Chartered Certified Accountants (ACCA), “To succeed as a professional accountant…a vastly different set of skills is required than was necessary just 10 short years ago. And in the next decade, things are likely to change even faster and more dramatically as the global economy continues to evolve at an ever-quickening pace.”

So, what does the exceptional accountant of tomorrow need to cultivate today? Think mastering communication, not macros. Strategic aptitude, instead of being spreadsheet savvy.

In short, capabilities that enable you to deliver predictive insights to leadership, drive data-based decisions and provide expert counsel. 

6 Skills You Need to Become an Exceptional Accountant

These six skills needed for accounting work in unison to serve as building blocks to exceptional accountant status.

1. Analytical Skills

For the finance function, providing leadership with historical data used to be quite sufficient. Yet today, companies also expect to have access to predictive data.

For today’s accountants, this requires knowing how to turn Big Data into concise, decision-driving insights. Vanguard businesses are already hiring accountant/data scientists. Accountants looking toward the future must have both a theoretical and practical understanding of data and analytics.

2. Communication Skills

It’s said ad nauseam: it’s the Age of Information. Yet all this information is just noise if it’s not shared effectively. The exceptional accountant of tomorrow won’t just know why data looks like it does (analytical skills); she’ll also be able to skillfully convey those insights to others.

Accountants must begin to cultivate strong written communication skills: the ability to think critically and translate those thoughts into compelling documents. They will also need strong oral communication skills: the ability to convey pertinent financial information to executive teams and stakeholders.

3. Relationship Skills

During the “good ole days,” an accountant could hide in the back office, subsisting on a few basic greetings at the legendary water cooler.

Yet thriving in tomorrow’s business is going to take more than water cooler-level conversational skills. As automation streamlines transactional tasks, accountants won’t have the “millions of transactions to match” excuse to sidestep human interaction.

The exceptional accountant of the future will know how to manage numbers and people. That requires cultivating a broader range of relationship skills today, such as how to work in a team, how to motivate and engage employees, and how to deliver bad news — without making somebody cry.

4. Creativity

It used to be that nobody wanted a “creative” accountant. But in an era when businesses must quickly identify opportunities while simultaneously mitigating risk, a finance professional who can think outside of the proverbial box is a strategic asset.

Accountants who can combine creativity with a deep understanding of the company’s financial capabilities will be able to solve complex financial—and non-financial—problems faster and more cost-effectively.

5. Business Acumen

Contributing to the business on a strategic level requires more than just an understanding of the numbers. Accountants also need to understand the business as a whole. The ability to provide counsel to the C-suite requires seeing the big picture, from how each functional area works to the best way to acquire and retain talent.

When accountants have the opportunity for stretch assignments, cross-training, and job-sharing, it’s easier to understand—and make decisions based upon—the holistic interplay between a company’s services, employees, customers, and stakeholders.

6. Tech Savvy

Technology isn’t just changing every job function; technology itselfchanges rapidly. Instead of expecting to use the same tool for the next decade, accountants today must be ready to use new technology every year. This requires not just a basic understanding of technology itself, but the ongoing cultivation of flexibility andadaptability.

Benefits of Developing Your F&A Professionals

Today more than ever, companies need finance and accounting professionals who can transcend traditional number crunching. Yet for accountants, making the transition from spreadsheet jockey to strategic expert requires new skills.

Your people are the ones who redesign your processes, and therefore it is essential to encourage, help develop, and hire for a different set of skills needed for accounting. This is the most difficult hurdle to clear because there is so much inertia, with the biggest battle being the comfortable, fixed mindset of “this is the way it’s always been done.”

The tactic to overcoming this is to create buy-in for the Continuous Accounting approach and get your people on board with your vision. For this to be successful, your Continuous Accounting strategy must clearly point to your end goal as an organization, along with a blueprint of achievable milestones.

Fundamentally, Continuous Accounting is a story about unleashing the accounting and finance professionals who have unparalleled vision to experiment, push the limits, try and fail. When you allow your people to drive change, they deliver things that scale in a very exciting way.

And it all begins with empowering your teams with the skills needed for Accounting to propel the entire organization into the future.

Accountants who cultivate business acumen can begin to provide guidance relevant to the entire company, not just the finance department.

Nurturing creativity leads to innovative solutions for some of the biggest challenges in business today, from the unexpected corner of accounting.

Developing analytical capabilities ensures the accounting function can deliver true insight, not just historical information, while building communication and relationship skills guarantee those insights aren’t lost in translation.

Finally, because technology will continue to change at light speed, accountants who not only have basic IT skills but also flexibility and adaptability will always be ready to integrate new, more efficient tools into existing processes.

Read more Modern Accounting blogs:

Modern Accounting: Changing the Culture in Accounts Receivable

Auto-Certification Rules for Balance Sheet Reconciliations in BlackLine

Workflow Capabilities for Balance Sheet Reconciliations in BlackLine

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Modern Accounting: Achieving Finance Transformation

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This is a guest blog post from our partner BlackLine, explaining four essential steps for transformation success.

Making the Move to F&A Digital Transformation

For controllers, CFOs, CTOs, and business leaders in general, planning a move to digital finance transformation can be daunting—and it can raise some serious concerns. What if, for example, the transformation causes more problems than it solves in the intermediate term? What if it adds interim state technical complexities to an already challenging ecosystem further challenging the partnership between finance and IT?

Mike Polaha, BlackLine senior vice president finance solutions and technology, has seen these and other issues arise in his time working with global organizations. Digital transformation has been proven to deliver significant benefits, he notes, but the keys to success are in the preparation and being smart with the ways you organize and sequence the strategy and work plans.

4 Steps to Finance Transformation While Avoiding Common Pitfalls

Base Your Strategy on Diagnostics

Your strategy and corresponding business case should have a clear goal, and that goal should be informed by benchmarks of similar companies in the affected finance processes.

“You don’t want your strategy to be informed by hunches,” says Polaha. Instead, it’s good to use an outside consulting group—the Hackett Group, for example, or some other company with a benchmarking service—to see where you currently stand, then focus your strategy to gain the greatest competitive advantage at maximum efficiency.

Benchmarking can also be critical in selling the transformation to executive management.

“It can help you show executive leaders how, by making certain investments, you can not only improve your cost to serve, but likewise how the service can be differentiated in what it can now provide,” he says. “You’re more finitely tethering the functional investment to the overall business strategies.”

Adopt a Leading-Practice Orientation

Polaha notes, “every company is unique, of course, but all companies share certain fundamental characteristics. Once a company realizes this, it’s able to benefit by looking at, and emulating, industry leading practices.”

 Here is where a relationship with a top-end system integrator like Deloitte or EY can pay dividends.

“These companies have lots of experience with finance transformation,” he says. “They can show you a well-documented way of adopting best-practice processes for your specific areas of concentration.

“Also, BlackLine can help implement leading practice solutions based on our own experiences with customer installations and our regular participation in customer advisory boards. In essence, our application is crowdsourced by enabling best practice inherent in the composition of our solution design.”

Admit You’re Not a Software Company & Embrace the Cloud

According to Polaha, “too many companies think that they can develop their own applications. The problem is they first have to build the applications, and then they have to maintain and upgrade them. Then typically at some point they start to fall behind and can’t catch up.”

An example is one company that tried to upgrade their intercompany reconciliations by customizing their ERP software. “It then became very difficult, and costly, for them to implement vendor upgrades without the fear of breaking everything they’d developed.”

Using the cloud can help speed application deployments and allow companies to digitize rapidly at scale. The company also avails itself to a future proof architecture by allowing the SaaS provider to continually embed the latest evolutions in process and solution capability.

Polaha notes, “there are times when companies have too many applications with significant overlap. It’s better to partner with fewer vendors that can use the cloud to cover multiple applications.

“If you’re using one finance vendor for account reconciliations and another to do cash application for accounts receivable, it’s much more efficient to give those jobs to a single, cloud-based vendor to simplify the overall technological and contractual footprint.”

Harmonize Finance Data with the Enterprise

Here’s where finance can be an evangelist and a valuable partner to IT.

Data analytics are growing in popularity as a tool for business planning, but Polaha notes that analytics are only effective when they’re based on data that’s harmonized—unified—so that all data uses common, standardized naming and formatting conventions.

As an example, today’s finance groups are making increasing use of analytics-driven rolling forecasts that produce continuous predictions based on the previous time period’s data. Rolling forecasts can be very effective planning tools, says Polaha, but only if they are based on harmonized data.

“The problem is that without harmonized data, some people will be basing their planning instances on their unique views of the data. So, you end up with 50 instances of planning and forecasting software, and you can’t put Humpy Dumpty back together again.”

Once finance has harmonized its own data, it can then become an evangelist for data harmonization across the enterprise.

“Finance can then present a common view of finance data to IT,” says Polaha. “IT can use that for further harmonizing their own data and applications,” he says.

“That’s the ultimate prize for transformation, isn’t it? To get finance, IT, and the entire enterprise moving smoothly into a digital future.”

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