The introduction of resource-consumption accounting is the most valuable step in streamlining cost accounting systems, more details here. Definition of resources is a prerequisite for resource consumption accounting.

The Objective

The purpose of resource-consumption accounting is to have a system where expenses can be tracked and accounted for in a consistent and comprehensive manner. This system must have at least three key characteristics for each expense transaction: organization unit defines who is responsible for the cost resource identifies what caused the cost account categorizes the expense in the accounting reports.

It is important to note that these characteristics must be fulfilled for all cost transactions and not just selectively. In some cases, there may be additional characteristics required, but the principle remains the same. With a complete and accurate resource-consumption accounting system, cost estimates can be easily summarized and analyzed based on various goals, such as by account for accountants, by resource and account for economists, and by unit and account for unit managers monitoring the budget. Regardless of the goal, the accounting system must be comprehensive and consistent.

How to proceed?

Broadly speaking, the problem can be divided into three:

Periodic transactions arising from other modules

The cost entries in the general ledger are primarily generated from the fixed assets and personnel accounting modules. This is because these modules reflect most of the company’s key resources such as personnel, equipment, facilities, systems, etc. When identifying resources, these lists serve as important inputs and it is important to ensure that the accounting in these modules is well-organized. To do this, you typically need to add a resource (and orgnization unit if it hasn’t already been done) to each record in the lists and specify not only the account but also the resource and organization unit as the details of the transaction in the logic of entries to be generated from the module. For most business software, this should not be a technical challenge, and if needed, you can seek assistance from your software vendor.

Entries generated on the basis of expense invoices

Another significant area is the expense entries generated from expense invoices. To accurately record expenses from these invoices, changes to the existing invoice approval process are necessary. This process typically exists in some form in every organization.

The person responsible for procuring products or services must allocate the invoice cost to resources because they have the best understanding of which resource caused the cost to occur. Accountants only record the defined allocation, they cant be repsonsible for allocation itself.

Material accounting

Material accounting does not require any changes if a warehouse module for storing materials is used. This is because the necessary information about materials can be obtained directly from stock accounting. The materials are already described in the cost model, and there is usually no need to make any transformations.

Support for implementers

When implementing the procedure for resource-consumption accounting, it is important to provide support to cost allocators and unit managers in case of any issues. The concept of resources and their content can be confusing at first, but these issues typically resolve quickly as the parties involved become more familiar with the resources and costs they encounter on a daily basis. Making the cost entries created using the new method available in reports is also very useful for analysis. Understanding that the quality of the data used for analysis depends on the accuracy of the cost allocation contributes to the quick adoption of the procedure.

FAQ

There will likely be an increase in workload, and more people may be needed to handle it.

You don’t have to hire more people as the workload does not increase significantly. The procedure for approving expense invoices already exists, and the additional information added to the expense line does not require additional resources.

What is the typical time frame for introducing a new procedure?

It is important to consider a quarter of the costs to ensure that the distribution of expenses is organized. Typically, a quarter has a cycle where all types of costs are incurred and any issues should also surface during this time.

Unit managers and cost generators are reluctant to undertake additional work.

The only solution to this issue is to have a strong leader with enough support from the board to prevent any instances of “democracy.”