Accrual and Matching in a Management Accounting Environment

Overview of Management Accounting

MAC-PAC allows you to distinguish between fiscal and managerial accounting transactions by defining three different types of accounts (fiscal, managerial, and common).  Fiscal accounting transactions are subject to legal requirements; managerial accounting transactions are subject to internally defined requirements; and common accounting transactions are subject to both legal and internal requirements.

The management accounting feature was designed for use by companies that need to retain more than one set of financial books for legal or managerial reporting reasons.  Each set of books would collect the financial information in a different format.

The value of the Use Management Accounts flag on Reference File category 133 determines whether your system will distinguish between fiscal, managerial, and common accounts. 

If management accounting is used, the values of the Accounts Receivable Reporting Class, the Accounts Payable Reporting Class, and the Inventory Accounting Reporting Class flags found on Reference File category 026 will determine where the accounts of these reporting classes will be booked. 

If you use management accounting, you must define an account classification (reporting class) for each account in the General Ledger Account Master File.  The account classification may be fiscal, managerial, or common (both).  Fiscal accounts are used in the legal accounting system, managerial accounts are used in the internal accounting system, and common accounts are used in both the legal and internal accounting systems.

An accounting classification (reporting class) is also defined for the financial journals.  Only accounts matching the classification of the journal may be applied to that journal.  Financial statements (balance sheet and income statement ) can be generated for both fiscal and managerial accounting transactions.  Common accounting transactions are included in both fiscal and managerial financial statements.

In addition to defining accounts with a specific classification, you also set up your financial subsystems (Accounts Payable, Accounts Receivable, Inventory Accounting) as either fiscal, managerial, or common.  Only transactions matching the classification of the subsystem may be used in that subsystem.

The Effect of Management Accounting on the Accrual and Matching Process

When you are using MAC-PAC for both Purchasing and Accounts Payable, the system is designed to accrue the amount of the purchase order receipt through the Inventory Accounting module, and then reverse the accrual by means of the invoice entry with three-way matching in the Accounts Payable module.  If the amount or quantity specified on the invoice are different from those specified on the purchase order and receipt, then the system will automatically book variances in order to reconcile the two transactions.

In a non-management accounting environment, the same general ledger accrued purchase receipts account will be used by both Inventory Accounting and Accounts Payable.  Once a receipt is fully matched, the net effect on the accrual account for the combined transactions will be zero. 

If you are using management accounting and your Inventory Accounting and Accounts Payable subsystems are defined with different reporting classes, the same purchase order accrual account cannot be used by both Inventory Accounting and Accounts Payable.  MAC-PAC has provided two methods for handling this situation through the use of the Match flag on Reference File category 200. 

If the Match flag is set to 'AP', then all of the transactions generated by the invoice will be recorded in the reporting class designated for the Accounts Payable subsystem.  The system will still automatically default an accrued purchase receipts account to the distribution lines, and any variances calculated will also be recorded against this account.  The net result when a receipt is fully matched is that the ending balance of the accrued purchase receipts account used by Accounts Payable will be the exact offset of the ending balance of the accrued purchase receipts account used by Inventory Accounting.

If the Match flag is set to 'IA', then the actual invoice amounts and quantities will be recorded in the reporting class of the Accounts Payable subsystem, but any variances resulting from the match will be recorded in the reporting class of the Inventory Accounting subsystem.  The net result of this is that when a receipt is fully matched, the combination of the accrued purchase receipts account and the accrued purchase receipts variance account used by Inventory Accounting will be the exact offset of the actual distribution amount entered in Accounts Payable.

Because the system is using accounts from both the Inventory Accounting and the Accounts Payable reporting classes when the Match flag is set to 'IA', MAC-PAC allows you to use a different book code for these transactions.  The book code default defined for the program AP100E will continue to be used for all transactions except for the variances, while the variances themselves will be recorded using the book code defined for the program AP140E.  It is not necessary for these transactions to be recorded with different book codes, but some companies may want to have the variance transaction recorded with the same book code that is used in Inventory Accounting instead of the book code that is used for Accounts Payable. 

The following table illustrates the differences in the account transaction for each of these cases.  In addition to the standard table which shows the categories used for the account number retrieval, there is a column that shows the reporting class upon which the account will be validated and recorded.