Record to report (R2R) is a finance and accounting management process that involves collecting, processing, analyzing, validating, organizing, and finally reporting accurate financial data. R2R process provides strategic, financial, and operational feedback on the performance of the organization to inform management and external stakeholders. R2R process also covers the steps involved in preparing and reporting on the overall accounts.
This function helps to assist the companies in the preparation and submission of various statutory reports that require in-depth and specialized domain knowledge. This process enables companies to consolidate global performance across various channels and create global income statements and balance sheets. This provides visibility to various channel heads to understand and comment on the key variance drivers with reference to plans and past years' performance. All the activities from recording to reporting of transactions are included in the "Record to Report" process also known as "R2R", “Account to Report”, “A2R”, General Ledger, “Finance & Accounting” process. People with extensive training/experience with knowledge of client/country-specific requirements are important for building an effective “Record to Report” process.
The record-to-Report process is an end-to-end process that includes, general accounting, sub-ledger accounting, tax compliance, regulatory compliance, financial analysis, and reporting and interacts with the functions of budgeting and forecasting and internal and external audit. It includes all subsequent activities after the recording financial transactions related to the financial close consolidation, through the external reporting of the Company’s financial results. The R2R process ends with the completion of account reconciliations of balances generated during the financial close process.
The four core steps in the record to report process are
The processing cycle is where the majority of data required for the Record to Report process is generated. The R2R process begins when recording occurs in a general ledger singly or jointly on Management GAAP and Statutory accounting basis. This step happens once the maintenance and closure of sub-ledgers are completed. Recording transactions includes documenting revenues (by invoices or sales receipts), and entering purchases (in the account payable account) and expenditures (in the check register). This step sometimes also involves high-level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow.
To record and classify a transaction to appropriate accounts, a proper understanding of the accounting equation is and accounting standards and practices is a must. Calculating and summarizing transactions in a traditional accounting system is a tedious process and automated accounting frees accountants from these repetitive tasks by calculating and summarizing hundreds or thousands of individual transactions and generating reports to satisfy a variety of stakeholders.
Once the processing cycle is complete, the next cycle is to close the books. Closing of Management GAAP books is done following the common R2R Organizational Global Closing Calendar along with the closing of statutory accounting books. Close Cycle is the elapsed time for posting transactions to the general ledger and financial reporting systems through locking down the general ledger.
The consolidation cycle is the next pivotal step in the Record to Report process and this step allows companies to perform eliminations, reconcile intercompany balances and produce the data required to generate financial statements by entities. The consolidation cycle must address both internal and external reporting needs. Consolidation and elimination include completion of within and outside own Business eliminations, intercompany reconciliations, and other post-close activities leading to final financial statements at the consolidated “Consolidating Entity” segment level.
The reporting cycle is the formal process of data gathering, assimilating, performing analysis, and distributing the results. Throughout a leading practice close and consolidation cycle, management is receiving reports that address key indicators and statistics. The key to this process is the flow of the information necessary to provide accuracy in an efficient manner. This would include information from all source systems and sometimes requires a support process to accomplish it. Reporting cycle includes submission of financial data and commentary to the Organization’s Corporate Headquarters, external reporting, and government reporting.
The accounting system records the economic data about business activities and events, the next logical step is to prepare the business reports and provide them to the stakeholders according to their informational needs. The double-entry system enables accountants to prepare some standard reports like trial balance, profit and loss account, and balance sheet. Accounting reports are based on generally accepted accounting standards and these reports are powerful tools to help the business owner, accountant, banker, or investor analyze the results of their operations. Stakeholders use accounting reports as a primary source of information on which they base their decisions. They use other information as well. For example, in deciding whether to extend credit to a company, a banker might use economic forecasts to assess the future demand for the company’s products. The banker might inquire about the ability and reputation of the managers of the business.
The accuracy and integrity of the financial statements largely depend on the efficiency of transactional bookkeeping activities. People with extensive training/experience with knowledge of client/country-specific requirements are important for building an effective “Record to Report” process. This function helps to assist the companies in the preparation and submission of various statutory reports that require in-depth and specialized domain knowledge. This process enables companies to consolidate global performance across various channels and create global income statements and balance sheets. This provides visibility to various channel heads to understand and comment on the key variance drivers with reference to plans and past years' performance.
Although technically a general ledger appears to be fairly simple compared to other processes, in large organizations, the general ledger has to provide many functionalities and it becomes considerably large and complex. Modern business organizations are complex, run multiple products and service lines, leveraging a large number of registered legal entities, and have varied reporting needs.
Legal Structures for Multinational Companies
A multinational company generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. A multinational company (MNC)is a corporate organization that owns or controls the production of goods or services in at least one country other than its home country.
GL - Different Accounting Methods
The accounting method refers to the rules a company follows in reporting revenues and expenses. Understand the two common systems of bookkeeping, single, and double-entry accounting systems. Learners will also understand the two most common accounting methods; cash and accrual methods of accounting and the advantages and disadvantages of using them.
In some of the ERP tools, there are more than 12 accounting periods in a financial year. This article discusses the concept of accounting calendar and accounting periods. Learn why different companies have different accounting periods. Understand some of the commonly used periods across different organizations and the definition & use of an adjustment period.
Five Core General Ledger Accounts
Typically, the accounts of the general ledger are sorted into five categories within a chart of accounts. Double-entry accounting uses five and only five account types to record all the transactions that can possibly be recorded in any accounting system. These five accounts are the basis for any accounting system, whether it is a manual or an automated accounting system. These five categories are assets, liabilities, owner's equity, revenue, and expenses.
Learn the typical accounting cycle that takes place in an automated accounting system. We will understand the perquisites for commencing the accounting cycle and the series of steps required to record transactions and convert them into financial reports. This accounting cycle is the standard repetitive process that is undertaken to record and report accounting.
What is Accounting & Book Keeping
Accounting is a process designed to capture the economic impact of everyday transactions. Each day, many events and activities occur in an entity, these events and activities are in the normal course of business; however, each of these events may or may not have an economic impact. Events or activities that have an effect on the accounting equation are accounting events.
Legal Structures in Businesses
Businesses not only vary in size and industry but also in their ownership. Most businesses evolve from being owned by just one person to a small group of people and eventually being managed by a large numbers of shareholders. Different ownership structures overlap with different legal forms that a business can take. A business’s legal and ownership structure determines many of its legal responsibilities.
Functional Organizational Structures
A functional organizational structure is a structure that consists of activities such as coordination, supervision and task allocation. The organizational structure determines how the organization performs or operates. The term organizational structure refers to how the people in an organization are grouped and to whom they report.
After reading this article the learner should be able to understand the meaning of intercompany and different types of intercompany transactions that can occur. Understand why intercompany transactions are addressed when preparing consolidated financial statements, differentiate between upstream and downstream intercompany transactions, and understand the concept of intercompany reconciliations.
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