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Analytic accounting


video:


bron: openerp.com

Sitting at the heart of your company’s processes, analytic accounts (or cost accounts) are
indispensable tools for managing your operations well. Unlike your financial accounts they are for
more than accountants - they are for general managers and project managers, too.

You need a common way of referring to each user, service, or document to integrate all your company’s
processes effectively. Such a common basis is provided by analytic accounts (or management accounts, or cost
accounts, as they are also called) in Open ERP.

Analytic accounts are often presented as a foundation for strategic enterprise decisions. But because of all the
information they pull together, Open ERP’s analytic accounts can be a useful management tool, at the center of
most system processes

There are several reasons for this:

  • they reflect your entire management activity,
  • unlike the general accounts, the structure of the analytic accounts is not regulated by legal obligations, so
    each company can adapt it to its needs.

While the structure of the general chart of accounts is imposed by law, the analytic chart of accounts is built to fit
a company’s needs closely.

Just as in the general accounts, you will find accounting entries in the different analytic accounts. Each analytic
entry can be linked to a general account, or not, as you wish. Conversely, an entry in a general account can be
linked to one, several, or no corresponding analytic accounts.

You will discover many advantages of this independent representation below. For the more impatient, here are
some of those advantages:

  • you can manage many different analytic operations,
  • you can modify an analytic plan on the fly, during the course of an activity, because of its independence,
  • you can avoid an explosion in the number of general accounts,
  • even those companies that do not use Open ERP’s general accounts can use the analytic accounts for
    management.

Analytic accounts make up a powerful tool that can be used in different ways. The trick is to create your own
analytic structure for a chart of accounts that closely matches your company’s needs.

For this chapter you should start with a fresh database that includes demo data, with sale and its dependencies
installed and no particular chart of accounts configured.

1.1  To each enterprise its own Analytic Chart of Accounts

To illustrate analytic accounts clearly, you will follow three use cases, each in one of three different types of
company:
1.  Industrial Manufacturing Enterprise.
2.  Law Firm.
3.  IT Services Company.

1.1.1  Case 1: Industrial Manufacturing Enterprise

In industry, you will often find analytic charts of accounts structured into the departments and products that the
company itself is built on.

So the objective is to examine the costs, sales and margins by department and by product. The first level of the
structure comprises the different departments and the lower levels represent the product ranges that the company
makes and sells.

In daily use it is useful to mark the analytic account on each purchase invoice. The analytic account is the one to
which the costs of that purchase should be allocated. When the invoice is approved it will automatically generate
the entries for both the general and the corresponding analytic accounts. So, for each entry on the general
accounts there is at least one analytic entry that allocates costs to the department that incurred them.

Here is a possible breakdown of some general accounting entries for the example above, allocated to various
analytic accounts:

Breakdown of general and analytic accounting entries (Case 1)

The analytic representation by department enables you to investigate the costs allocated to each department in the
company.

So the analytic chart of accounts shows the distribution of the company’s costs using the example above:

Analytic chart of accounts (Case 1)

In this example of a hierarchical structure in Open ERP you can analyze not only the costs of each product range
but also the costs of the whole of production. The balance of a summary account ( Production ) is the sum of the
balances of the child accounts.

A report that relates both general accounts and analytic accounts enables you to get a breakdown of costs within a
given department. An analysis of the Production / Product Range 1 department is shown in this table:

Report merging both general and
analytic accounts for a department (Case 1)

The examples above are based on a breakdown of the costs of the company. Analytic allocations can be just as
effective for sales. That gives you the profitability (sales - costs) of different departments.

1.1.2  Case 2: Law Firm

Law firms generally adopt management by case where each case represents a current client file. All of the
expenses and products are then attached to a given file.

A principal preoccupation of law firms is the invoicing of hours worked and the profitability by case and by
employee.

Mechanisms used for encoding the hours worked will be covered in detail in the following chapter, Lead &
Inspire your People. Like most system processes, hours worked are integrated into the analytic accounting. Every
time an employee enters a timesheet for a number of hours, that automatically generates analytic accounts
corresponding to the cost of those hours in the case concerned. The hourly charge is a function of the employee’s
salary. So a law firm will opt for an analytic representation which reflects the management of the time that
employees work on the different client cases.

All expenses and sales are then attached to a case. This gives the profitability of each case and, at a consolidated
level, of each client.

Billing for the different cases is a bit unusual. The cases do not match any entry on the general account and nor
do they come from purchase or sale invoices. They are represented by the various analytic operations and do not
have exact counterparts in the general accounts. They are calculated on the basis of the hourly cost per employee.
These entries are automatically created on billing worksheets.

At the end of the month when you pay salaries and benefits, you integrate them into the general accounts but not
in the analytic accounts, because they have already been accounted for in billing each account. A report that
relates data from the analytic and general accounts then lets you compare the totals, so you can readjust your
estimates of hourly cost per employee depending on the time actually worked.

The following table gives an example of different analytic entries that you can find for your analytic account:

Analytic entries for the account chart (Case 2)

You will see that it allows you to make a detailed study of the profitability of different transactions. In this
example the cost of Case 1.1 is 95.00 (the sum of the analytic costs of studying the files, searching for
information and service charges), but has been invoiced for 280.00, which gives you a gross profit of 185.00.

But an interest in analytical accounts is not limited to a simple analysis of the profitability of different cases.

This same data can be used for automatic recharging of the services to the client at the end of the month. To
invoice clients just take the analytic costs in that month and apply a selling price factor to generate the invoice.
Invoicing mechanisms for this are explained in greater detail in Deliver Quality Services. If the client requires
details of the services used on the case, you can then print the service entries in the analytic account for this case.

1.1.3  Case 3 : IT Services Company

Most IT services companies face the following problems:

  • project planning,
  • invoicing, profitability and financial follow-up of projects,
  • managing support contracts.

To deal with these problems you would use an analytic chart of accounts structured by project and by contract. A
representation of that is given in the following example.

The management of services, expenditures and sales is similar to that presented above for lawyers. Invoicing and
the study of profitability are also similar.

But now look at support contracts. These contracts are usually limited to a prepaid number of hours. Each
service posted in the analytic accounts shows the remaining available hours of support. For the management of
support contracts you would use the quantities and not the amounts in the analytic entries.

In Open ERP each analytic line lists the number of units sold or used, as well as what you would usually find
there – the amount in currency units (USD or GBP, or whatever other choice you make). So you can sum the
quantities sold and used on each analytic account to determine whether any hours of the support contract remain.
To differentiate services from other costs in the analytic account you use the concept of the analytic journal.
Analytic entries are then allocated into the different journals:

  • service journal,
  • expense journal,
  • sales journal,
  • purchase journal.

So to obtain the detailed breakdown of a support contract you only have to look at the service journal for the
analytic account corresponding to the contract in question.

Finally, the analytic account can be used to forecast future needs. For example, monthly planning of staff on
different projects can be seen as an analytic budget limited to the service journal. Accounting entries are
expressed in quantities (such as number of hours, and numbers of products) and in amounts in units of currency
(USD or GBP perhaps).

So you can set up planning on the basis just of quantities. Analyzing the analytic budget enables you to compare
the budget (that is, your plan) to the services actually carried out by month end.

1.2  Putting Analytic Accounts in Place

For the initial setup of good analytic accounts you should:
set up the chart of accounts,
create the different journals.

1.2.1  Setting up the Chart of Accounts

Start by choosing the most suitable analytic representation for your company before entering it into OpenERP. To
create the different analytic accounts, use the menu Accounting → Configuration → Analytic Accounting →
Analytic Accounts and click the New button.


Setting up an analytic account

To create an analytic account you have to complete the main fields:

  • the Account Name,
  • the Account Code : used as a shortcut for selecting the account,
  • the Account Type : just like general accounts the View type is used for virtual accounts which are used
    only to create a hierarchical structure and for subtotals, and not to store accounting entries,
  • the Parent Analytic Account : defines the hierarchy between the accounts.

If the project is for a limited time you can define a start and end date here. The State field is used to indicate
whether the project is running (Open ), waiting for information from the client (Pending), Draft or Closed .

Finally, if the analytic account is a client project you can complete the fields about the partner, which you would
need so that you can invoice the partner:

  • the Partner,
  • a Sale Pricelist, which shows how services linked to the project should be charged,
  • a Max. Invoice Price, showing the maximum invoice price regardless of actual overspend,
  • a Maximum Quantity, for contracts with a fixed limit of hours to use,
  • an Invoicing Rate per Journal field, which defines an invoicing rate and whether the project should be
    invoiced automatically from the services represented by the costs in the analytic account.

Once you have defined the different analytic accounts you can view your chart through the menu Accounting →
Charts → Chart of Analytic Accounts.


Example of an analytic chart for projects

1.2.2  Creating Journals

Once the analytic chart has been created for your company you have to create the different journals. These enable
you to categorize the different accounting entries by their type:

  • services,
  • expense reimbursements,
  • purchases of materials,
  • miscellaneous expenditure,
  • sales,
  • situation entries (special situations, such as installation of the software).


Creating an analytic journal

To define your analytic journals, use the menu Accounting → Configuration → Analytic Accounting → Analytic
Journals then click New.

It is easy to create an analytic journal. Just give it a Journal Name, a Journal Code and a Type. The types
available are:

  • Sales , for sales to customers and for credit notes,
  • Purchases , for purchases and miscellaneous expenses,
  • Cash , for financial entries,
  • Situation , to adjust accounts when starting an activity, or at the end of the financial year,
  • General , for all other entries.

The type of journal enables the software to automatically select the analytic journal based on the nature of the
operation. For example if you enter an invoice for a customer, OpenERP will automatically search for an analytic
journal of type Sales .

1.2.3  Working with Analytic Levels

You can work with analytic levels using OpenERP by installing account_analytic_default module.
It allows you to automatically select analytic accounts based on some criteria:

  • Product
  • Partner
  • User
  • Company
  • Date

You can configure these criteria using the menu Accounting → Configuration → Analytic Accounting → Analytic
Defaults and click the New button.


Specify criteria to select analytic account automatically

1.3  Analytic Entries

1.3.1  Integrated with General Accounting

Just as in general accounting, analytic entries must belong to an account and an analytic journal.
Analytic records can be distinguished from general records by the following characteristics:

  • they are not necessarily legal accounting documents,
  • they do not necessarily belong to an existing accounting period,
  • they are managed according to their date and not an accounting period,
  • they do not generate both a debit and a credit entry, but a positive amount (income) or a negative amount
    (cost).

The figure Analytic account records for a customer project represents the entries on an analytic account for a
customer project.

You can see there:
the service costs for staff working on the project,
the costs for reimbursing the expenses of a return journey to the customer,
purchases of goods that have been delivered to the customer,
sales for recharging these costs.

1.3.2  Manual Entries

Even though most analytic entries are produced automatically by the other Open ERP documents it is sometimes
necessary to make manual record entries. It is usually needed for certain analytic operations that have no
counterpart in the general accounts.

To make manual record entries, use the menu Accounting → Journal Entries → Analytic Journal Items and click
on New button.

Select a
journal and complete the different fields. Write an expense as a negative amount and income as a positive amount.

Automated Entries

Analytic accounting is totally integrated with the other Open ERP modules, so you never have to re- enter the
records. They are automatically generated by the following operations:

  • confirmation of an invoice generates analytic entries for sales or purchases connected to the account shown
    in the invoice line,
  • the entry of a service generates an analytic entry for the cost of this service to the given project,
  • the manufacture of a product generates an entry for the manufacturing cost of each operation in the product
    range.

Other documents linked to one of these three operations produce analytic records indirectly. For example, when
you are entering a customer sales order you can link it to the customer’s analytic account. When you are
managing by case or project, mark the project with that order. This order will then generate a customer invoice,
which will be linked to the analytic account. When the invoice is validated it will automatically create general
and analytic accounting records for the corresponding project.

Expense receipts from an employee can be linked to an analytic account for reimbursement. When a receipt is
approved by the company, a purchase invoice is created. This invoice represents a debit on the company in favour
of the employee. Each line of the purchase invoice is then linked to an analytic account which automatically
allocates the costs for that receipt to the corresponding project.

To visualize the general entries following these different actions you can use one of the following menus:
1.  To see all of the entries, Accounting → Journal Entries → Analytic Journal Items
2.  To see the entries per account, per user, per product or per partner, you can use menu Accounting →
Reporting → Statistic Reports → Analytic Entries Analysis.

1.3.3  Analytic Models

Using Analytic Model concept you can distribute your income or expense to your analytic accounts. You can
define your analytic plans using menu Accounting → Configuration → Analytic Accounting → Multi Plans →
Analytic Plan.


Definition of Analytic Plan

Using the link Distribution Models given on right side of Analytic Plan form, you can define the distribution of
either your expenses while creating supplier invoice or revenue when defining customer invoices.


Definition of Distribution Models

As for example, when you create the invoice (suppose 1000 EUR) for the product ‘Client Project’ with analytic
distribution that we defied as above.

When invoice has been validated then you can find the Analytic Journal Entries with distributed amount among
the analytic account using the menu Accounting → Journal Entries → Analytic Journal Items.


Journal Entries with distributed amount

You can also specify default ‘Analytic Distribution’ for particular product, partner, user and company for specific
time interval using the menu Accounting → Configuration → Analytic Accounting → Analytic Defaults.

1.4  Financial Analysis

Various reports designed for financial analysis are based on the analytic accounts. Most of those are available
directly from the tree of accounts or from the form view of the account.

1.4.1  Analysis per account

From an Analytic Account form, click on one of the REPORTS buttons to select a report. Open ERP provides the
following financial analyses from the analytic accounts (and maybe more, depending on the additional installed
modules):

  • Cost Ledger,
  • Cost Ledger (quantities only).
  • Inverted Analytic Balance,
  • Analytic Balance,

The cost ledger

The cost ledger provides all of the detailed entries for the selected accounts. It enables you to make a detailed
analysis of each operation carried out on one or several projects.


The analytic cost ledger gives a detailed history of the entries in an analytic account

The cost ledger (quantities only)

This report gives the detail of entries for an analytic account and a list of selected journals. Only quantities are
reported for this analysis, not costs and revenues.


The cost ledger (quantities only) gives a history of an analytic account

Inverted Analytic Balance

The inverted analytic balance provides a summary report relating general accounts and analytic accounts. This
report shows the balances of the general accounts broken down by the selected analytic accounts for a selected
period.


The inverted analytic balance shows a breakdown of operations by analytic account (project)

This enables you to analyze your costs by general account. For example, if you examine your general account for
staff salaries you can obtain all your salary costs broken down by the different analytic (or project) accounts.

Analytic Balance


The analytic balance shows a breakdown of each project by operation in the financial accounts

The analytic balance is a summary report that relates the analytic accounts to the general accounts. It shows the
balances of the analytic accounts broken down by general account for a selected period.

This report is useful for analyzing the profitability of projects, giving you the profitability of a project for the
different operations that you used to carry out the project.

Analytic Entries Analysis

You can have the statistical analysis on all analytic entries from the menu Accounting → Reporting → Statistic
Reports → Analytic Entries Analysis.


Statistical report for analytic entries

1.4.2  Key indicators

If you use analytic accounts with a structure of accounts by project client you should install the
account_analytic_analysis module. This module adds three new tabs to the analytic account form:

  • management indicators in the Analysis summary tab,
  • monthly statistics in the Stats by month tab,
  • statistics on each user in the Stats by user tab.


Management indicators for an analytic account

The figure Management indicators for an analytic account shows all of the management indicators.

These indicators enable you to quickly see such important information as:

  • project profitability,
  • whether you can still invoice any services to the client, or not,
  • the amount of services to invoice,
  • the different margin figures.


Breakdown of monthly costs for an analytic account

The real revenue is given by the amount invoiced to the client. The theoretical revenue is given by the sale price
of different project costs which could be invoiced to the client. These give different margin figures.

For example, in the case of a fixed price project contract, the real sale price at the end of the project will be equal
to the contract negotiated with the client. The theoretical price gives the amount that would have been invoiced if
you had charged for all the time worked.

To give project managers a direct view of their different projects, the account_analytic_analysis
module creates new menus in the Project management module in Project → Billing → Overpassed Accounts.


Analytic accounts in Project Management

These different menus give quick views that are useful for live projects. For each project you can check if there
are uninvoiced services, see the last invoice date and the last uninvoiced service date, and get reports on the
amounts received and those planned. So project managers have all the information necessary to manage their
project, shown in a single page.

In the following chapters you will see how project managers can use this information to carry out the various
operations needed to manage the project, such as automatic invoicing, project planning, keeping customers up to
date, and budgeting for resources.

 
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