Taking the Guesswork out of Accounting





Taking the Guesswork out of Accounting

 

By:  Erin Mahan

I don’t know if any of my numbers are correct!  I feel like I’m guessing at all of my figures!  How am I supposed to come up with an accurate financial statement if I don’t know how much anything costs for sure?  I’m the CFO of a major converting company, yet how am I supposed to do my job when I don’t have any sure means of calculating my expenses?  I am getting really fed up with this….

Does this sound familiar at all?  Are you fed up with not knowing for sure how much money you are actually making?  Are you tired of not being able to know for certain how much inventory you have on hand?  Are you unable to accurately calculate profit because there is no sure way to know exactly how much material, overhead, labor, supplies, and waste are costing the company?  You’re not alone.  Many accountants within the converting industry struggle to calculate accurate numbers and inventory figures because of the way they track the information, such as matching inventory receipts to the invoices.

A Scenario:

Part of this frustration is due to errors that can occur within the Accounts Payable department.  Let’s say, for example, that Megan works in the AP department.  She’s in charge of entering invoices in the AP system for ABC converting.  It’s a Friday afternoon and she’s furiously typing away at her computer entering the invoices that are piling up on her desk that she has to get done by the end of the day.  She’s in the middle of entering an invoice when Kara, the girl from the AR department, walks in and asks Megan about her weekend plans.  They talk for a bit, and when Kara leaves, Megan goes right back to entering invoices into the system, except she kind of lost her place and ends up typing in the wrong amount for an invoice.  She doesn’t notice and keeps on manually entering in all of the invoices hoping she gets them all done by 5:00.

Here is an example of the type of error that can occur in the AP department.  What at first seems like an insignificant mistake has a big effect on ABC’s figures.  It throws off cost of goods sold, and so when the CFO is calculating profit, his numbers won’t be accurate.  ABC could be making more or less money than the CFO is calculating, but the point is that he doesn’t know for sure.  He doesn’t have complete trust in his numbers because there is frankly too much room for error in the way the company’s current accounting system tracks information.  In the above example, Megan doesn’t have a way to double check the invoice figures she enters against the original purchase order other than visual inspection, and still she might make a mistake during data entry.  Since the purchase order system is separate from the accounting system the figures may or may not reflect what the company actually has in Cost of Goods Sold, or COGS, especially in material and bill of material costs and expenses, due to potential data entry errors on the part of clerical staff.

Clerical errors and incorrect numbers within an AP department can add up to big frustration for any CFO.  So how do you eliminate these problems?  The key to having confidence in your numbers is to eliminate manual entry by combining purchase orders with the actual accounting system.  By having a tool that matches vendor invoices with their purchase orders, you can regulate how your COGS are tracked.  Otherwise with manual data entry, like Megan’s job in the AP department, clerical errors and accounting mistakes are bound to happen.  A fully integrated software system automatically generates purchase orders and processes invoices and receipts all in one package, therefore, eliminating the middleman and wiping out clerical errors.  And most important, it takes the guesswork out of calculating expenses and costs, and gives the CFO total confidence that net profit is a true reflection of the company’s status.

About PaperSoft

PaperSoft Inc. is a global provider of ERP software applications developed exclusively for the converting industry. PaperSoft helps converting companies reduce waste, labor costs, downtime, and allows revenue growth without adding personnel. These improvements are achieved through integrating functions into one system that are typically maintained in multiple systems, i.e., Microsoft Excel and other third party generic accounting packages.