Accrual and Prepaid in ERP

Guys,

I have been asked some journal entries in some interviews. Fortunately I could convince them with my answers. As the interview was progressing, the learned interviewers were trying to know what was that really I did in my past companies. I was assessed from all fronts of my education, starting from theoretical understanding of my concept knowledge on subject matter to the practical applications to the same.

As I was educated on fundamental accountancy on accrual and prepaid,  I could recognise that books of accounts of an entity has to be maintained mandatorily on mercantile basis of accounting. well, now question was how do I record them?

The first question was what is accrual?

The next one followed was how to pass an entry. I explained that we debit an expenses and credit a liability.

But that was not the solution to them. They wanted what is really the entry I will be passing on erp platform.

So friends here is how the picture. There is used to be a notional account through which we are going to transact. Let say, There is revenue accruals. So they have to pass entry like following

Accrued Revenue ( Current Assets)   DR

 To Revenue                                      Cr

Account Receivable ( Current Assets) Dr

To Accrued Revenue                         Cr

Let say we are going to accrue our payables or expenses:

Exp                                                  Dr

To AP accrual Account (C.L)          CR

AP Accrual Account                        Dr

To Liability                                       Cr

Now you can ask me why there is a routing in the notional accounts. At the end it has to be zero right!!!!

You are absolutely right.... Here we go to explain

You know companies go to enterprise resource planning(ERP). This planning is due to certain factors like, Now business has become a global phenomenon and It has resources at different places in globe. It has different currencies, different tax territories, difference organisation set ups. It can have different places for storage and inspectiona and manufacturind.

The varies of processes are 

1.Ordering process, Procuring process and Payment process

2.Issue Process, manufacturing process, inventory valuation process

3.sales process, receivable and customer management process

4. accounting process

5.Manpower recruitment and maintenance process.

All the above processes are varies and situates at varied places. ERP gives a solution for all these at once.

That is why erp recognises each process as accountable process and throughs errors in subsequent process.

In other words, erp dictates error at individual process rather than to carry it forward. It becomes more easy to audit and fix responsibilites.