How general accounting is set up in finance and ERP systems

In most ERP systems, general accounting sits on a ledger built from a chart of accounts and a set of segments. Subledgers feed it automatically, manual journals fill the gaps, and a calendar of open and closed periods controls when anything can post. Reconciliation and consolidation tools sit on top.

The chart of accounts and its segments

The account code is rarely just a natural account. It is usually a string of segments: entity, natural account, cost centre, and often project, product or intercompany partner. Each segment has its own value list and its own hierarchy for reporting.

Maintaining this structure is a controlled task. New values are requested, approved and loaded by a small group, because a badly placed account can break reports for years. Cross-validation rules stop combinations that make no sense, such as a balance sheet account charged to a sales cost centre. Many organisations also keep attributes on each account that drive statutory mapping, tax treatment and management reporting separately.

In the public sector the same design carries budgetary accounts alongside proprietary ones, plus fund and programme segments that support funds control. Those controls block or warn when spending would exceed an authorised amount.

Where journals come from

Most postings never touch a person. Payables, receivables, fixed assets, payroll and inventory each create accounting entries through posting rules, and those flow to the ledger in summary or in detail depending on how the integration was configured.

Manual journals cover what the subledgers cannot. They are typically keyed or uploaded from a spreadsheet template, then routed through an approval workflow based on amount, account type or preparer. Recurring templates handle entries that repeat each period. Reversing journals undo accruals automatically when the next period opens.

The detail of the approval workflow matters more than it looks. Thresholds, segregation between preparer and approver, and whether attachments are mandatory all live in configuration, and they tend to drift from the written policy.

Allocations and period end work

Allocation engines spread shared costs using rules that point at a source pool, a basis such as headcount or floor space, and a set of targets. Statistical accounts often hold the basis figures. The rules are built once and run each close, so a stale basis can quietly distort results.

Period end adjustments cover accruals, prepayment releases, revaluation of foreign currency balances and reclassifications. Some run as system jobs; others are manual. The period calendar controls sequencing: subledgers close first, the ledger stays open for adjustments, and then it locks.

Intercompany and consolidation

Intercompany activity is either posted as matched pairs by an intercompany module or recorded separately by each entity and matched afterwards. The first approach removes most mismatches. The second is common where entities sit on different systems or instances.

Consolidation may run inside the ERP or in a separate tool that pulls trial balances from each ledger. Either way, it translates currencies, maps local accounts to a group chart and posts eliminations for intercompany balances and investments. Elimination rules depend on the partner segment being populated correctly at source, which is where many problems start.

Reconciliation and the trial balance

Balance sheet accounts are reconciled to subledgers, bank statements or supporting schedules. Larger organisations use a reconciliation tool that pulls balances, auto-matches transactions, records preparer and reviewer sign-off, and flags accounts by risk. Smaller ones rely on spreadsheets stored in a shared folder.

The trial balance is generated from the ledger at any point, but the version that counts is the one taken after adjustments and reconciliations are complete. Government bodies add further tie-outs, such as matching cash accounts to central treasury records and tracing budgetary reports back to ledger balances.

Management adjustments

Adjustments for management reporting, as distinct from statutory ones, are often kept in a separate ledger, a separate adjustment period or the consolidation tool itself. Keeping them apart protects the statutory books. It also creates a second set of numbers that someone must explain.

Questions to ask the people who run the process

The configured process and the lived one rarely match. These questions tend to expose the gap:

• Which journals still get posted manually even though a subledger should create them, and why?
• Who can create new account or cost centre values, and how long do requests actually sit before approval?
• Are there spreadsheets that calculate entries before they are uploaded, and who owns them?
• When an allocation looks wrong, how is it fixed: by changing the rule or by posting a correcting journal?
• How often does the ledger get reopened after close, and who authorises that?
• Which intercompany differences recur every period, and how are they cleared?
• Are any reconciliations signed off without being reviewed in substance?
• Where do management adjustments live, and does anyone reconcile them back to the statutory ledger?
• What workarounds would break if the system were changed tomorrow?

The answers usually reveal undocumented steps, informal owners and timing pressures that no configuration document records. Those are the things any redesign has to account for.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.