Functions such as accounting and bookkeeping provide the backbone for a financially sound and sustainable business. It is always essential to ensure that all accounting books are updated. Accounting practices are conducted in several ways, some of which depend on the industry and area of operation.
Integrated and non-integrated accounting systems are two different systems utilized by businesses. Here are some key points to understand about each:
What is integrated accounting and why is it important for business owners?
Integrated accounting is a type of software that combines major financial accounting functions into one application.
Business activities such as payroll, HR paperwork, business operations, and even meeting deliverables can often incur significant expenses. Comprehensive information on such costs is accessible in the integrated accounting format. An integrated accounting system can include the following characteristics:
- Maintenance of a single set of books for recording expenses, orders, or other operational and financial purposes.
- Reduce the chance of errors.
- Generate accurate profitability reports.
- Recover more reimbursable expenses.
- Accounting for expenses is carried out during the cost period rather than the final account period.
However, this method may not suit businesses that manage data related to cost transactions or expenses and financial data separately. With this method, records for control accounts, including work carried out or in progress, completed tasks, etc., are maintained in a general ledger book.
What is Non-Integrated Accounting?
Non-Integrated accounting systems follow two distinct records for financial accounting and cost accounting. This is also why the system is often called the “cost ledger” accounting system. With financial transactions and cost transactions recorded separately, this system enables access to data and information in a more detailed manner.
- Principal ledgers are maintained alongside a control account. However, this can translate into the need to look for financial information in multiple places instead of a single set of accounting books, as seen in integrated accounting.
- Principal ledgers include cost ledger, store ledger, work-in-progress ledger, and finished goods ledger with details of individual entries.
- The control account also maintains wages control, production overhead, administration overhead accounts, etc.
- The control account balances the cost ledger. All transactions for income and expenses that originate in financial accounts are eventually transferred to cost accounts. There is a control account for each of the principal ledgers, including the cost ledger, store ledger, work-in-progress ledger, and finished goods ledger.
- A non-integrated accounting system needs separate entries for financial and cost transactions, which means different accounting professionals must record each type of transaction.
- Cost accounts in a non-integrated accounting system do not show personal accounts.
- The cost accounting process will focus on income and expenditures for the business.
- Profits and losses exhibited by the two different sets of accounts will have to undergo reconciliation to reflect any event or decision that induces a profit or loss.
How do businesses decide which one is for them?
Should your business implement the integrated system of accounting? Or should it be the non-integrated accounting system? Choosing the correct answer will likely depend on several considerations:
- Industry norms and operating systems of the business.
- Requirements based on client needs, deliverables, current infrastructural abilities, strength of resources.
- In-depth understanding of the business’s financial health and how it can contribute to more effective growth plans and developmental goals.
- Understanding how to scale up existing processes and resources to expected growth levels.
- Continuing to provide value to existing clients; aim to extend services and offerings to match growth expectations.
Strategic partnerships such as outsourced accounting services providers are uniquely placed to provide professional assistance to businesses without investing in extending infrastructure or hiring experts.
- Furthermore, professional assistance provides insightful expertise, allowing businesses to scale up more swiftly and without negatively impacting existing business obligations.
- Professional assistance is not restricted to insights; it can aid with decisions involving infrastructure, choosing the right accounting software to optimize the choice of Integrated or non-Integrated accounting, etc.
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