You’ve heard of bookkeeping and accounting, but how about pre-accounting?
If not, don’t worry. It’s nothing fancy. Pre-accounting is simply the process of collecting, coding/sorting, and submitting your firm’s key financial data, and it’s done as a preface to your main accounting process. When we say it’s nothing fancy, we mean it. It involves searching for receipts and invoices, organizing them, and then entering the data into either a spreadsheet or an accounting system. You need a good pre-accounting process in place for your main accounting to be smooth and for reconciliation to be successful.
How does T&E factor in?
The T&E domain is likely one of the biggest contributors of invoices and receipts for your business. The receipts brought in by your employees must be submitted to and processed by the finance team before they are handed over to your accountant.
The challenges with pre-accounting expenses
If your expense management process is manual, you are going to have a hard time preparing for pre-accounting. Firstly, manually tracking receipts makes pre-accounting inefficient and leads to a great deal of paperwork. While having an accountant helps to some extent, it makes their job difficult, too. Most firms collect paper data from their employees, consolidate it, and hand it over to the accountant at the end of the month. It hits your accountant all at once, and they are left scrambling to find lost receipts during reconciliation.
That is one challenge. Then comes the fact that pre-accounting as a whole is not only one person’s job. Everybody has an important part to play. A business traveller may view only the business trip as a part of their job, not the storage and submission of receipts. Even if they do save all their receipts, the submission may not be on time. If your employees withhold the receipts for weeks altogether, your book of accounts for the month won’t be accurate. This creates a domino effect. It affects your accounting data. The lack of timely data will impact your decision-making process and limit your visibility into the future of your business finances.
For example, your project manager has returned from a business trip. They would have had both reimbursable and non-reimbursable expenses (i.e. expenses paid using the company credit card). While they may bring back and submit receipts for the reimbursable expenses, they may forget to do the same for their non-reimbursable expenses. This makes it difficult for your accountant during the reconciliation. If issues arise, there is no source document available for verification.
The solution? An expense management system. Expense management systems digitize the data needed for pre-accounting.
Here are some ways in which they help:
Capturing expenses the right way
Expense management systems let your employees capture expenses in real time and store those receipts safely.
With a mobile expense management application, employees no longer hold on to receipts but simply take pictures of them. The optical character recognition (OCR) automatically extracts the necessary data to help create expense reports. Since the extracted data is also needed for accounting purposes, employees and accountants no longer have to worry about missing codes or missing receipts.
Mapped corporate card feeds
If you’ve equipped your employees with corporate cards, you would know how tricky reconciling these expenses can get. You need to provide your accountant with the receipts and the purpose stated for each expense. If these expenses date back several weeks, there is a possibility of lost receipts or forgotten expense information.
Let’s consider the example from the previous section: your accountant had a hard time during credit card reconciliation because they had no source documents to verify missing data with. This would not happen with an expense management system because they come with direct credit card feeds for tracking and verification.
Furthermore, since most firms integrate their expense management systems with their accounting software, they can simply export the recorded card feeds to the accounting system in a few simple steps. In the end, your employees and the finance team will no longer have to worry about safeguarding receipts until they are delivered to your accountant. And for your accountant, getting inputs regularly makes their work easier.
Here’s your takeaway!
In a nutshell, pre-accounting is a cumbersome process that only gets worse if you handle your firm’s expenses manually. The ideal solution to this is the implementation of an expense management system. With digitalization, you can save time and effort and make reconciliation easy. It also impresses stakeholders as it gives you an accurate picture of your business finances in real time.