- Before reading this article, we recommend you review the Accounting Settings Knowledge Article.
There are four enablements in Accounting Settings. This article discusses the pros and cons of enabling each.
Product costing allows the cost of goods sold to be recognized when billing a customer for an inventoried product and a purchase price variance to be recognized when purchasing an inventoried product at a price different than standard cost.
Recommendation - It is recommended that you enable this feature only if you are using Accounting Seed's Orders and Inventory module to track inventoried products.
Pros - Product costing must be enabled if you are using Accounting Seed Orders and Inventory functionality for inventoried products.
Cons - It is recommended that you disable this setting if you are not using Accounting Seed to track inventory balances. Enabling it could create possible errors in your accounting if a product is accidentally mismarked as an inventory product.
Billing & Payable Period Sensitive Aging
Enabling Billing and/or Payable Period Sensitive Aging will track the balances of all unpaid billings and or Payables at the end of a specific accounting period. This creates the data for an audit-able snapshot of your detailed accounts receivable and payable balances at the end of a specific accounting period.
Recommendation - It is recommended that you enable this only if external investors or auditors are looking to perform a detailed valuation analysis of your accounts receivable or payable balance.
Pros - A detailed history of your accounts receivable and or payable will be available for audit.
Cons - If you do not plan to perform monthly audits of accounts receivable or payable then enabling this feature will create data that you will probably elect to purge later. It is typically a waste of data and time to manage data if it is not being used.
Cash Flow Statement
Enabling the Cash Flow Statement will assist you in understanding your churn of cash and where it is coming from and going to. This is a management report that can help you better understand your changes in cash over one or multiple accounting periods.
Recommendation - It is recommended that you enable this if you have any of the following circumstances in your accounting:
- You have many events in your books that drive a large difference between cash and accrual accounting such as:
- A large value of deferred revenue and/or expense transactions
- Large-valued accruals
- A long collection cycle for billings (Over 30 days)
- A long payment cycle for payables (Over 30 days)
- You have cash coming in and going out with many sources outside of customers and vendors, such as:
- Many different investors funding your operations
- Many different distributions frequently being paid to owners
- Frequent repurchase and selling of stock
- Frequent debt issuance, refinancing, and payments
In these situations, the cash flow report is very helpful to have a consolidated view of your cash flow activity. In absence of these events most customers who have smaller and more simple operations can simply run the balance sheet or trial balance and view a standard profit and loss to get an understanding of the cash balance change in their business.
Pros - A consolidated view of your cash flow is all in one place
Cons - Thought needs to be put into categorizing cash flow transactions to make them meaningful. Also, additional time and consideration will be taken at the time of entry to tag transactions correctly. The cash flow statement also drives additional data consumption that will be a nuisance for customers not using the data.