Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts.
This function helps to assist the companies in the preparation and submission of various statutory reports that require in-depth and specialized domain knowledge. This process enables companies to consolidate global performance across various channels and create global income statements and balance sheets. This provides visibility to various channel heads to understand and comment on the key variance drivers with reference to plans and past years' performance. All the activities from recording to reporting of transactions are included in the "Record to Report" process also known as "R2R", “Account to Report”, “A2R”, General Ledger, “Finance & Accounting” process. People with extensive training/experience with knowledge of client/country-specific requirements are important for building an effective “Record to Report” process.
The record-to-Report process is an end-to-end process that includes, general accounting, sub-ledger accounting, tax compliance, regulatory compliance, financial analysis, and reporting and interacts with the functions of budgeting and forecasting and internal and external audit. It includes all subsequent activities after the recording financial transactions related to the financial close consolidation, through the external reporting of the Company’s financial results. The R2R process ends with the completion of account reconciliations of balances generated during the financial close process.
The four core steps in the record to report process are
The processing cycle is where the majority of data required for the Record to Report process is generated. The R2R process begins when recording occurs in a general ledger singly or jointly on Management GAAP and Statutory accounting basis. This step happens once the maintenance and closure of sub-ledgers are completed. Recording transactions includes documenting revenues (by invoices or sales receipts), and entering purchases (in the account payable account) and expenditures (in the check register). This step sometimes also involves high-level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow.
To record and classify a transaction to appropriate accounts, a proper understanding of the accounting equation is and accounting standards and practices is a must. Calculating and summarizing transactions in a traditional accounting system is a tedious process and automated accounting frees accountants from these repetitive tasks by calculating and summarizing hundreds or thousands of individual transactions and generating reports to satisfy a variety of stakeholders.
Once the processing cycle is complete, the next cycle is to close the books. Closing of Management GAAP books is done following the common R2R Organizational Global Closing Calendar along with the closing of statutory accounting books. Close Cycle is the elapsed time for posting transactions to the general ledger and financial reporting systems through locking down the general ledger.
The consolidation cycle is the next pivotal step in the Record to Report process and this step allows companies to perform eliminations, reconcile intercompany balances and produce the data required to generate financial statements by entities. The consolidation cycle must address both internal and external reporting needs. Consolidation and elimination include completion of within and outside own Business eliminations, intercompany reconciliations, and other post-close activities leading to final financial statements at the consolidated “Consolidating Entity” segment level.
The reporting cycle is the formal process of data gathering, assimilating, performing analysis, and distributing the results. Throughout a leading practice close and consolidation cycle, management is receiving reports that address key indicators and statistics. The key to this process is the flow of the information necessary to provide accuracy in an efficient manner. This would include information from all source systems and sometimes requires a support process to accomplish it. Reporting cycle includes submission of financial data and commentary to the Organization’s Corporate Headquarters, external reporting, and government reporting.
The accounting system records the economic data about business activities and events, the next logical step is to prepare the business reports and provide them to the stakeholders according to their informational needs. The double-entry system enables accountants to prepare some standard reports like trial balance, profit and loss account, and balance sheet. Accounting reports are based on generally accepted accounting standards and these reports are powerful tools to help the business owner, accountant, banker, or investor analyze the results of their operations. Stakeholders use accounting reports as a primary source of information on which they base their decisions. They use other information as well. For example, in deciding whether to extend credit to a company, a banker might use economic forecasts to assess the future demand for the company’s products. The banker might inquire about the ability and reputation of the managers of the business.
The accuracy and integrity of the financial statements largely depend on the efficiency of transactional bookkeeping activities. People with extensive training/experience with knowledge of client/country-specific requirements are important for building an effective “Record to Report” process. This function helps to assist the companies in the preparation and submission of various statutory reports that require in-depth and specialized domain knowledge. This process enables companies to consolidate global performance across various channels and create global income statements and balance sheets. This provides visibility to various channel heads to understand and comment on the key variance drivers with reference to plans and past years' performance.
In this article we will focus on and understand the accounting process which enables the accounting system to provide the necessary information to business stakeholders. We will deep dive into each of the steps of accounting and will understand how to identify accounting transactions and the process for recording accounting information and transactions.
GL - Recurring Journal Entries
A “Recurring Journal” is a journal that needs to be repeated and processed periodically. Recurring Entries are business transactions that are repeated regularly, such as fixed rent or insurance to be paid every month. Learn the various methods that can be used to generate recurring journals. See some examples and explore the generic process to create recurring journals in any automated system.
In this article, we will explain the general Ledger journal processing flow from entering journals to running the final financial reports. Understand the generic general ledger process flow as it happens in automated ERP systems. The accounting cycle explains the flow of converting raw accounting data to financial information whereas general ledger process flow explains how journals flow in the system.
In this article, we explain some commonly used subsidiary ledgers like accounts receivable subsidiary ledger, accounts payable subsidiary ledger or creditors' subsidiary ledger, inventory subsidiary ledger, fixed assets subsidiary ledger, projects subsidiary ledger, work in progress subsidiary ledger, and cash receipts or payments subsidiary ledger.
Team-Based Organizational Structure
Team-based structure is a relatively new structure that opposes the traditional hierarchical structure and it slowly gaining acceptance in the corporate world. In such a structure, employees come together as team in order to fulfill their tasks that serve a common goal.
Business Metrics for Management Reporting
Business metric is a quantifiable measure of an organization's behavior, activities, and performance used to access the status of the targeted business process. Traditionally many metrics were finance based, inwardly focusing on the performance of the organization. Businesses can use various metrics available to monitor, evaluate, and improve their performance across any of the focus areas like sales, sourcing, IT or operations.
After reading this article the learner should be able to understand the meaning of intercompany and different types of intercompany transactions that can occur. Understand why intercompany transactions are addressed when preparing consolidated financial statements, differentiate between upstream and downstream intercompany transactions, and understand the concept of intercompany reconciliations.
The general ledger is the central repository of all accounting information in an automated accounting world. Summarized data from various sub-ledgers are posted to GL that eventually helps in the creation of financial reports. Read more to understand the role and benefits of an effective general ledger system in automated accounting systems and ERPs.
There are two commonly used methods of accounting - Cash Basis and the Accruals Basis. Understand the difference between accruals and reversals. Recap the earlier discussion we had on accruals and reversals and see the comparison between these two different but related accounting concepts. Understand how the action of accruing results in reversals subsequently in the accounting cycle.
Accrued expenses, sometimes referred to as accrued liabilities, are expenses that have been incurred but have not been recorded in the accounts. Discuss the need to record accrued liabilities and why they require an adjustment entry. Understand the treatment for these entries once the accounting period is closed and learn to differentiate when the commitments become liabilities.
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