Accounting workflow – what is it, how it functions, and how to improve it?

Category: Blog, Finances and accountancy
Accounting workflow - what is it, how it functions, and how to improve it? | Archman Navigator

What is the accounting workflow?

When hearing ” financial document workflow” one usually thinks of one thing: invoices! However, it is important to remember that invoices are the tip of the iceberg – accounting, next to human resources, is the cell in the company that generates and processes the largest number of documents. Warehouse documents, accounting notes, cash documents, bank documents, fixed asset records, payroll documents, budgets, handover protocols, contracts… All these are accounting documents that the company produces or that it receives from outside in connection with its operations.

Each of such documents has a defined workflow, verification and approval path, or simply document workflow. Sometimes it is a very simple workflow – for example, payroll, which usually requires only the approval of the chief accountant and the chairman, and sometimes we are dealing with very complex workflows involving several or more departments of the company, an example of which is the workflow of a contract that includes financial, substantive, legal arrangements, negotiations with the contractor, etc. Therefore, there is no single, universal method to describe the circulation of accounting documents. Each of their categories should be approached individually.

Rules related to accounting documents

When constructing an accounting workflow, there are a few basic requirements to keep in mind:

  • An accounting document is produced for a specific purpose. As a rule, this purpose is subject to either external constraints (e.g., VAT settlement deadline, invoice payment deadline) or internal constraints (budget plan approval deadline). Therefore, it is necessary to keep an eye on the timeliness of the preparation of financial documents and the timeliness of their flow.
  • Specific individuals are responsible for the document. Be sure to identify at each step of the workflow the person or persons responsible for completing that step. Keep an eye on deadlines, the substantive consistency of documents and the correct forwarding of documents for further action.
  • It is necessary to ensure the consistency of documents. This applies to both internal and external documents. Mechanisms should be provided to verify the document for consistency (e.g. consistency of amounts on the document) and correctness of data (verification of the VAT status of the counterparty, whitelisting of bank accounts)
  • Documents require approval: substantive, formal, accounting. It should be ensured that it is clear from the document workflow who should make the approval, and it should be possible to put the approval information on the document.
  • Finally, security remains. The data contained in accounting documents is often covered by company secrets or has other restrictions (e.g. under the Data Protection Act). It is necessary to ensure the security of these documents by all available methods – from securing the accounting premises, the computer systems that process these documents to implementing a clean desk policy.

Classification of accounting documents

There are many ways to classify accounting documents. We can classify them by type, place of production (internal, external). For business documentation reasons, the division into source and secondary documents is important.

Primary accounting evidence

Primary evidence are documents produced by the company or received, which document a specific economic event. They are the basis of accounting operations performed in the company (external extraneous, such as a purchase invoice) or are the result of economic operations (external own, such as a sales invoice). Internal documents can also be found here, for example, if we are conducting interdepartmental/vertical settlements.

Secondary accounting evidence

These are documents produced on the basis of source accounting evidence. These can be summary documents, such as reports or budgets, specifically budget execution. In addition, this category includes any substitute documents or documents related to source documents such as accounting orders.

Types of accounting documents

Przy budowaniu obiegów dokumentów księgowych najczęściej patrzymy na rodzaj dokumentu księgowego. Dokumenty należące do tej samej grupy (rodzaju) mają z reguły podobną strukturę i podobnie zbudowany proces obiegu. Najczęściej spotykane rodzaje dokumentów z przykładami dokumentów to:

  • Dokumenty kupna-sprzedaży, np.:
    • VAT invoice
    • Corrective invoice
    • Bill, receipt
    • Internal invoice
  • Warehouse documents
    • External receipt
    • Internal receipt
    • Internal returns
    • Internal disposition
  • Cash register documents
    • Cash register receipt
    • Cash register disbursement
    • Cash report
    • Settlement of advance
  • Bank documents
    • Bank statement
    • Transfer order
  • Fixed assets
    • Receipt of fixed assets
    • Liquidation of fixed assets
    • Transfer of fixed asset
    • Change of place of use
  • Payroll
  • Accounting documents
    • Posting order
    • Accounting note
    • Correction note
  • Budget
    • Budget of the division/department
    • Salary budget
    • Project budget
  • Contracts
    • Purchase agreement
    • Framework agreement

Functions of accounting documents

The primary function of an accounting document is to document business operations. For this reason, they must be properly secured and kept for a legally defined period of time. The document does not have to be in paper form, the electronic form of the document has the same legal force so it can serve as evidence in court or in dealing with the tax office.

In addition to the documenting function, financial documents also have an accounting function. On the basis of these documents there is an entry in the books of the enterprise.

One should also not forget about the informational and control function. On the basis of financial documents it is possible to prepare reports, statements, dashboards that present the current situation of the company. Using computer systems, you can easily provide the board of directors or managers with important information on the current state of the company and, in addition, on the basis of this data you can prepare forecasts or construct plans for the future.

Accounting evidence workflow diagram

It is impossible to unequivocally indicate the only valid scheme for the procedure of financial document circulation. This is an individual issue, related to the organizational structure of the company, accounting policy or the way the company is managed. However, it is important that such a scheme is created, is stable, i.e. does not change too often, is precise or defines at each step of the circulation what is to be done, who is to perform the task and what the next step is to be.

What should an accounting workflow manual contain?

  • The main issue is to identify the document that will reflect the business operations. This is important in case there will be more such documents, for example, External Receipt and VAT invoice
  • Determine the hierarchy of documents and their relationships. Often we have a whole chain of documents in which one document results from another; as part of the workflow, you need to keep in mind the links between documents and the impact of one on the other – for example, a purchase invoice linked to a contract should check the balance of the contract (whether we have exceeded the contract) and set this balance after approval.
  • Describe the different steps of the invoice workflow with the contractors and the order of these steps. It is also important to describe the conditions for passing through the various paths, for example, by indicating the document acceptance threshold for a particular type of document.
  • Describe the control conditions for the document i.e., for example, the relationships between the data on the document.
  • Include a fallback path in the event that irregularities are detected. Irregularities can be of various types e.g.:
    • Exceeded contract/budget value
    • Incorrect data on the document
    • Accounting inconsistency
    • Suspicion of fraud by finding an unusual business operation, failure to verify the VAT status of a counterparty, or the absence of a bank account on the whitelist.
  • Define the rules for decreeing the document; who enters the data, what type of data it should be, etc.
  • Rules for archiving documents

Security rules for accounting documents – control and protection of data

It is important to remember that financial documents are the backbone of a company’s operations. Their protection is due to a number of factors: legislation, corporate secrecy, protection of personal data. For each type of document, it is necessary to accurately identify the sources of data protection and, on this basis, identify protection tools. In particular, it is important to:

  • Physical security of documents. If they are stored in a computer system then care should be taken to back them up; for paper documents, care should be taken to ensure that the archive is adequately protected from fire, flooding or other factors.
  • Access permissions should be defined. It is obvious that the chief accountant or president should see all documents, but the director of a division may have limited privileges only to his documents. Use the principle that the fewer people who have access to a document the better
  • It is necessary to guard the integrity of the data, i.e. to protect against potential unauthorized changes to the document. In information systems, this can be achieved through checksum or document hashing mechanisms.
  • In the case of personal data, keep in mind the mechanisms for anonymizing and pseudonymizing data. This allows you to share the document with a wider audience if you secure sensitive data.
  • For information systems, it is necessary to implement logging of access to the document and modification of the document. This will make it possible to verify who viewed and modified the document. In the case of personal data, logging access to this data is required by law.

Electronic workflow system

Electronic workflow systems are an ideal tool for handling financial documents. Or at least some of their types. It is worth noting right away that it is best to use dedicated systems that cooperate, through integration mechanisms with ESOD systems, for the circulation of financial documents. The best example is the circulation of purchase invoices which should be entered into ESOD, there, according to the circulation procedure we have the completion of the document, its approval, decrementation and then through the interface of data exchange it goes to the ERP system.

NAVIGATOR system has many modules for the circulation of financial documents, such as circulation of invoices, warehouse documents, purchasing module, CRM, agreement circulation, payment processing, budgets… On the basis of NAVIGATOR system and data exchange interfaces we can build virtually any financial data circulation system.

Get to know more about Electronic Workflow, AI, Business Intelligence and No-code applications in NAVIGATOR system

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Graduate of Jagiellonian University in Kraków with a degree in Informatics, Mathematics and Physics Department. In the company, he plays the role of analyst and quality control specialist. Specializes in modeling business processes, designing IT systems, and describing business requirements. Has over 20 years of experience as an IT systems designer and system analyst, has also run a big project for the construction and implementation of IT systems in the finance-accounting area. He is a lecturer at the College of Economics And Computer Science in Cracow, sharing with students his knowledge of workflow system operations, like NAVIGATOR.

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