Odoo uses an app called Analytic Accounting. It can be described as:
- A single-entry bookkeeping system. Is a method of bookkeeping relying on a one sided accounting entry to maintain financial information. Only the costs or revenues associated to the transactions are recorded, but they are not balanced within the accounting system.
- A Non-integral accounting system. Means that the transactions are recorded separately from the financial accounting. In the Analytic Accounting app, separate journals are created, called Analytic Journals. A non-integral accounting system must implement a mechanism to ensure that both accounting systems can be reconciled.
The single-entry bookkeeping system
A single-entry bookkeeping system has the advantage of being simple to implement and operate, but the main disadvantage is that it cannot be easily trusted, as there are no check and balances to ensure accuracy.
For example, consider the scenario where a user wants to distribute costs from one analytic account (say, a department that services others) into two other analytic accounts, manually. The user should manually enter a -100 amount in the origin analytic account and then distribute +50 to each other. She may make a mistake, and enter +500, and the system would never prevent it.
Tracing the errors in a single-entry bookkeeping system, most specially when there’s a significant amount of cost distribution transactions, can be extremely difficult.
Reconciliation between Analytic and Financial accounts
Being a non-integral accounting system, the method that Analytic Accounts implement in order to bring reconciliation with the Financial Accounts system is through the use of the “Inverted Analytic Balance”.
In order to ensure proper reconciliation the the user has to guess all accounts that may have been subject to analytic entries on a period, then print the Inverted Analytic Balance, and finally compare the balance with the debit or credit of the corresponding General Ledger Account.
In case that differences exist, adjusting entries may need to be recorded in either Accounting system.
Other Cost Management Accounting Methods
All researched Cost Management Accounting methods that implement a non-integral accounting system are based on:
- The double-entry bookkeeping system.
- Interlocking systems, by which the two sets of accounts are being kept continuously in agreement or readily recognizable.
The following article explains the interlocking system using double-entry bookkeeping. This system provides the following benefits:
- Brings the accuracy of the double bookkeeping entry system
- Provides the tools to easily reconcile the the Cost Accounting with the Financial Accounting.
- Provides a trusting system to analyze the costs of your company.