Pre-accounting and its advantages for companies
What is pre-accounting? What advantages does pre-accounting offer to the companies? If you are interested in these topics, continue reading as we will explain what pre-accounting is and its advantages for companies.
What is pre-accounting?
In order to have real-time control of their monetary transactions, companies need to keep track of their income and expenses on a daily basis. In order to be able to do this monitoring, they carry out the pre-accounting work, also called management control, which consists of recording, classifying and controlling daily expenses and income prior to the recording in the accounting records.
Thanks to pre-accounting, the company can control the incurred income and expenses, can monitor the cash flow and has an overview of the accounts receivable and accounts payable.
The pre-accounting can be performed in two ways, depending on the way transactions are recorded, called the cash method or the accrual method.
- Cash method
The cash-based method or cash method records transactions at the time the cash transaction itself happens, i.e., when the money enters or leaves the checking or cash account.
- Accrual method
The accrual method, on the other hand, as its name indicates, is based on the accrual principle, according to which transactions are recorded at the time they occur, regardless of the date of the payment or the collection. The objective of the accrual principle is that the annual financial statements of a company clearly reflect the equity, financial position and income statements of the company in a concrete period, allocating expenses and income to the period to which the financial statements refer to and affect the same, regardless of the time of their collection or payment.
What advantages does pre-accounting offer to the companies?
- Real time information
Having a record of transactions prior to their recording in the accounting records has several benefits for companies. In the first place, it allows to monitor the business, being able to have real and updated information in real time, without having to wait for the end of the month, time at which the monthly accounting books will be closed, in the best of the cases.
- Greater breakdown
Pre-accounting allows different breakdowns, and in most of the occasions, of greater detail in comparison with the accounting ledgers. This is because pre-accounting is usually set-up to provide breakdowns by categories or groups of categories of items, suppliers, or customers or even at the level of each of them. In the accounting ledgers, however, the maximum breakdown that can be obtained is the one provided by the lowest level of the accounting account, and such breakdown is usually not as granular as will be in the pre-accounting.
- Cash management
In addition, it allows a more effective cash management, as there is a more effective control of both liquidity needs and excess of cash in real time, a key management item that affects all types of businesses.
- Faster monthly accounting closing
Finally, thanks to pre-accounting, monthly accounting closings are speed up, since the activities of tracking the transactions in real time, identifying deviations and reconciling on a daily basis, allows to identify errors in a continuous basis and at the moment of closing the monthly books, the workload is substantially reduced, as the the workload has been distributed more evenly throughout the period.
Snab as a pre-accounting software
Snab is a cloud-based platform, which allows you to automate the receipt and recording of incoming invoices. Also allows to have a real-time control of all transactions, as you can connect all your existing bank accounts, as well as gives you accurate information of all accounts payable/receivable. By using Snab, you can benefit from all the pre-accounting advantages previously mentioned. Request a demo with us.