What is accountancy and why is it important?

Accounting is the process by which businesses post their financial events to specific accounts in the accounting system. Each business event - be it an income, expense, investment or payment - must be categorized and placed in the correct account to ensure that the company's finances are managed correctly. By posting correctly, companies get a clear picture of their financial situation, which facilitates monitoring, reporting and compliance.

Understanding the basics of coding is particularly important when it comes to managing supplier invoices. By using a supplier invoice management system, also known as an Electronic Invoice Processing (EIP) system, businesses can track and manage coding-related issues efficiently. An EFH system automates the recording of invoices and ensures that the correct posting is made immediately, saving time and reducing the risk of accounting errors.

In addition to supplier invoices, there are many other types of accounting within a company. For these, a module called "accounting orders" can be used. This module is useful for creating and certifying various accounting transactions, for example when expenses need to be recorded in connection with monthly or annual accounts.

In contract management, a contract matching module can be used. This module matches invoices to contracts where details such as amount, frequency, supplier and contract number are defined. When registering a contract, it also determines how costs linked to the contract should be charged, making it possible to automate the charging process and ensure that the correct accounts are used.

How does account assignment work?

Posting is the process of recording a financial event to the correct account in the company's general ledger. Each event needs to be linked to specific accounts in order to be recorded correctly. For example, if you buy office supplies, the cost should be recorded in an account dedicated to office supplies and not in an account for salaries or rent, for example.

Step by step: How to do the posting

1. Identify the financial event - The first step in posting is to identify what has happened. Is it a sale, a purchase, a payroll or a payment of an invoice?
2. Choose the right account - The next step is to choose the right accounting account. For example, a purchase may be recorded as an expense, while a sale is recorded as revenue. Swedish companies usually use a standardized chart of accounts, called the BAS chart of accounts, where the account is divided into different categories such as assets, liabilities, income and expenses.
3. Debit and credit - Each transaction is posted to at least two accounts: a debit account and a credit account. For example, if you buy a computer on behalf of your company, the purchase can be debited to the IT equipment account and credited to the company bank account.
4. Document the event - Each entry must be supported by documentation, such as receipts or invoices, showing what happened and why the entry was made in a particular way.

Example of an account assignment

Let's say that your company buys office supplies for 2,000 SEK, and you pay from the company's bank account. This event is recorded like this:

• Debit - Office supplies (account 5410): SEK 2 000
• Credit - Bank account (Account 1930): 2 000 kr

Why is correct coding important?

Correct accounting is not only a requirement of the Accounting Act, it is also a crucial factor for the financial health of a company. Incorrect coding can lead to inaccurate financial statements, which in turn can lead to a distorted view of the company's financial situation. Here are some key reasons why correct accounting is important:

1. Clear monitoring of the business - By categorizing income and expenses correctly, it becomes easy to monitor how different parts of the business are performing. For example, you can easily see how much money is being spent on marketing, staff or purchasing goods.
2. Facilitating audits - When an auditor reviews a company's accounts, correct coding is essential for them to do their job. Incorrect coding can lead to time-consuming corrections and potential problems with the tax authorities.
3. Facilitates reporting - Correct coding makes it easy to compile financial reports such as income statements and balance sheets. This is important for both internal reporting and external reporting to shareholders or authorities, for example.
4. Compliance - Incorrect coding can lead to legal and compliance issues, especially when it comes to tax and other financial requirements. Following the rules saves time and money in the long run and avoids possible fines or sanctions.

Manual and automatic account assignment

As technology advances, more and more businesses have moved to automated posting systems. Traditionally, posting has been done manually, with an accountant or finance staff analyzing and categorizing each transaction. This can be both time consuming and prone to human error. Today, many accounting software programs offer automatic posting features that can identify and categorize transactions without requiring manual work.

Benefits of automatic posting

• Time-saving - Automated systems can handle large volumes of transactions in a short time, making the process much faster compared to manual processing.
• Reduced risk of errors - Minimizing human intervention reduces the risk of incorrect postings and missed entries.
• Integration with other systems - Many modern accounting systems can be integrated with other business systems, allowing transactions to be automatically transferred and posted without manual input.

Common posting mistakes - and how to avoid them

Even with the best systems, mistakes can happen. Here are some common errors and how you can avoid them:

1. Incorrect account classification - A common error is to post a transaction to the wrong account. This can lead to a misleading picture of your company's finances. Make sure to always double-check the account before posting.
2. Forgotten or incorrect documents - All posted events must be supported by documentation, such as receipts or invoices. Without these, you risk problems during audits.
3. Duplicate entries - If a transaction is recorded twice, it creates an imbalance in the accounts, which can lead to problems when closing the accounts. Use accounting software that can detect and warn of duplicate entries.

How to improve your coding

Having a good accounting and bookkeeping system is fundamental to running a successful business. Here are some tips to improve your accounting process:

• Use the right accounting software - Choose a program that fits your business, size and needs. Programs with automatic posting features can save time and reduce the risk of errors.
• Train your staff - Make sure that your bookkeepers and accountants have the right training and understanding of accounting principles.
• Keep documentation in order - Keep all receipts and invoices in an organized system, either physical or digital, so you can always verify your posted transactions.

Summary

Accounting is a fundamental element of your company's financial administration. Understanding and managing accounting entries correctly ensures that your accounting records are both accurate and useful. What's more, modern accounting systems can automate the process, saving time and reducing the risk of errors. Whether you run a small business or work in a large one, accurate accounting should be a priority to keep your finances in order and comply with applicable laws and regulations.

Do you have questions about how to streamline your accounting or other aspects of your financial management? Contact Conrab Opto today to learn more about how we can help you optimize your business' accounting and administrative processes.