Journal postings have always been an essential part of the financial close. They’re needed to reflect the actual level of economic activity within a business—the basis of accrual accounting. Journals maintain integrity with the balance sheet, and they ensure the accuracy of information as data moves downstream to create financial statements.
But posting journals manually—using spreadsheets to capture, categorize, and post data into one or more ERPs—becomes a notorious time sink that can delay the close and risk errors at a time when speed and accuracy are paramount. Human errors can go unnoticed, validation errors can slow processes, and ERP limitations can cause conflicts that take time to resolve.
These are some of the reasons why David Brightman, director of product marketing at BlackLine, advocates for automating journal postings.
“Journal automation changes the game completely,” he says. “Journal entries are an automation-ready yet underserved area of the financial close. Accountants don’t have to worry about chasing down data sources and filling in all the financial details. They don’t have to worry about doing Excel data dumps and then posting back to the ERP.”
With manual journal entry, accountants often have to mediate between upstream business or operational teams and downstream reporting processes.
Accounting teams may be dealing with a variety of different data systems, such as ERP and supporting data sources like a payroll or travel system, to post hundreds or thousands of journal lines in a month. This kind of routine work can dull the senses of even the best accountants, and greatly increase the risk of mistakes.
The bottom line: it reduces the speed to gaining insights from your accounting data as it’s typically backloaded in the month-end.
Looking at Exceptions
By contrast, journal automation can be configured to handle the routine postings automatically, based on pre-set business rules. This leaves accountants to deal with exceptions.
Examples of exceptions are things like bad debt determinations or various kinds of exception analysis that require adjustments. Human judgement is valuable in looking at factors such as historical data or market information to determine what percent of a company’s debtors might have to be written off.
Brightman points to a T&E anomaly as an example of preventing risk of error or fraud in journal entries
“Let’s say travel and entertainment typically ranges around $10,000 a month for a company. The automated posting process can handle this automatically, but one month it jumps to $100,000, and the change automatically alerts the accountant to take a look before it is posted. This is a tremendous safeguard against fraud or error, and it’s an example of a good use of the accountant’s time and intellect.”
Another rule that guards against errors is automatic segregation of duties, which ensures that different people are assigned the roles of preparer and approver. Also, with automated journals all relevant information—postings, documentation, and other filings—reside in a central database.
This saves time when this information is called upon in the annual audit. It also promotes accuracy in postings, compared to manual systems where relevant data often resides in a variety of spreadsheets and ERPs.
“Automated journal entry works in tandem with automated reconciliations and other processes to make the close a lot easier, too,” says Brightman. “With manual systems, accountants usually have to wait until the period end to do much of the posting. With automation, the system can post throughout the period, routing exceptions to people as they occur.
“This greatly simplifies the month-end close process, and it helps companies keep on a path to Continuous Accounting, where the workload is spread out along the month and quarter, rather than all hitting at the period’s end.”
Read our latest issue of BlackLine Quarterly for more stories like this and become better prepared to take advantage of new opportunities that will undoubtedly arise throughout the year.