As we close out our series on innovating the general ledger, I want to look at the importance of non-GAAP values. In this final installment, I’ll show you how supporting these values in the general ledger and merging GAAP financial reporting with non-GAAP reporting can help a company manage their business at a granular level that was never possible before.
It’s well known that accountants outgrew simple GAAP financial reporting decades ago, but unfortunately the general ledger hasn’t evolved beyond its GAAP origins to keep up with the growing intensity of reporting requirements. A great example of a non-GAAP measure that is critical to most businesses, but which you won’t find in a traditional income statement, is sales bookings. GAAP revenue is great for showing how I’m able to recognize revenue over the life of a transaction, but I’d also like to simply know my new sales bookings number. Although non-GAAP measures like sales bookings are a start, I think it’s time to stretch the general ledger even further.
Low-end accounting products ask users to categorize their accounts using a taxonomy defined for financial reporting. This approach greatly simplifies the authoring of standard financial reports, but it also puts the GL in a box. Eliminating this preset taxonomy is critical for enabling the true power of the GL. At Intacct, we feel that non-GAAP values are every bit as important as traditional GAAP values to reaping the full benefits of the GL. In fact, they are most valuable when you can also create budgets for these non-GAAP measures, track them across all your business dimensions, and include them in the same reports as your GAAP values. The key innovation here is the acceptance that the chart of accounts is no longer simply for traditional financial reporting.
So let’s take this a step further. If we’re no longer limited to tracking GAAP financial results in the GL, why should we limit ourselves to tracking only monetary results when we can also get value out of tracking statistical measures? For example, let’s say I run a professional services business. Our GL is good at tracking GAAP revenue for my business and with the innovations we’ve just discussed I can track results across my projects through non-GAAP measures like project billings. But what I’d really like to see is how many hours I’ve logged on a project, or how many hours I’ve budgeted to a project. Better yet, I’d like to see my average revenue per hour billed and utilization rates. And, I want to compare these values across time, projects, customers, and my budgets.
In Intacct, we call the accounts for these results statistical accounts and the visibility they provide is practically infinite. Imagine how precise you can tune your financial reporting to exact needs and attributes of your business. In healthcare, you could track prescription drug expense over nursing hours or revenue by patient day. For an aircraft management business, you could track repair expenses over engine hours or how these repair expenses grow over the life of the engine. It is innovation like this that will elevate the GL to the next level—to truly put accounting systems and their respective users on a different level, creating real competitive advantage and measurable value.
Let’s take a moment and summarize what we’ve learned about the general ledger over the course of this blog series. The general ledger is good at tracking both balances and changes in balances and is able to do this historically for any period. It also serves as the record of business results. In other words, the general ledger is the definitive answer for business results. Expanding its scope through features such as multiple books, business-driven dimensions, and non-GAAP values provides insight into the business like we’ve never experienced before.
It’s time that we, as vendors, catch up to what accountants have known all along. The general ledger is living, breathing and growing and we need to nurture it to help it reach its full potential. We need to work closely with accountants and our customers to understand their needs while constantly asking ourselves: what can we do next to make the general ledger even more powerful?
I hope you've enjoyed this series on innovating the general ledger. You can follow me on Twitter (@aaron_r_harris) and Intacct on all our social media channels, including Facebook, Twitter, and LinkedIn. To network with other people interested in cloud financial applications, be sure to join the Intacct Cloud Accounting group and the CFOInsights group on LinkedIn.
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