The Six Key Elements of Modern Accounting Systems

The Six Key Elements of Modern Accounting Systems


This is a transcript of a video by Jim French, Founder & CFO of IFI Professionals.

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Hi, I'm Jim French, founder and CFO of IFI. Today we're on my farm with my turkeys, chickens and goats, talking a little bit about the modern accounting system design and how it's transforming businesses to produce better insights quicker so that they can execute better on their business.

About three years ago, my wife and I decided we wanted to leave the city and we wanted to build and live on our own farm, but we wanted that farm to operate in harmony with nature. An example of this is that we needed to feed our trees, plants, and vegetables. And so the best fertilizer available out there is the extract from turkeys, chickens, and goats. After all the technology advances that we've had in this world, it still comes down to the basics of those animal extract is the best fertilizer that's out there.

We use that concept in doing our modern accounting design. No, that doesn't mean that we're gonna fill your accounting system full of animal extract. What it means is that we started with our end in mind, and then we understood how the components would work together to ultimately produce the output that's gonna help you drive your business.

So when we started this mission about six years ago, we came across six key elements that were driving that modern accounting system design. The first element being starting with the end in mind, then you go ahead and centralize that data in a central brain. Then you're gonna go and determine how you're going to store that information in that brain. You have to understand how the components in that brain are going to work together. You need to maintain the integrity of that information that you put in the brain. And finally, you need to feed that brain with information.

Let's go ahead and start with the first two components, which is building the system with the end in mind and storing your data in the central brain. When we wanted to build out the farm, we needed to understand what our output was or what we were gonna produce. Just like that in the modern accounting system, we understand what that output. When we started this mission, we wanted to produce more than just the typical income statement and balance sheet. We wanted to provide true business insights. Things like bookings, invoice backlog, revenue backlog, project profitability, purchasing commitments, and a lot more. And it wasn't the matter of using various different systems, storing their data in a database and using a BI tool to export out the data.

There's two problems with that. One being the fact that you've now siloed your data separate from your financial data, and number two is there's gonna be delays in that data being fed into that, and there's gonna be potential conflicts between those datas and the source. So by going ahead and building this process on an accounting system, we can go ahead and cube that data as part of the transactional process, blending both the financial data, as well as the financial operational data, so that you can get the true insights in the business. This is also going to produce information quickly and allow you to extract large volumes of data.

We accomplished this in a couple different ways, one being the general ledger. The problem is, is that we found that the general ledger wasn't big enough. And so we expanded that general ledger past its normal area, right? And so this allowed us to capture more data, more operational data.

Secondarily is we leverage things called dimensions. And what that means is that as a transaction would flow through, we would tag it with additional information, customers, vendors, projects, location, etc. This would allow us to then go ahead and view data on both sides of the process, where it's the order to cash or the procure to pay, and combine those two to really tell us the insights.

Now moving on to the next component, which is the integrity of the system, right, as you've moved yourself to a centralized data repository that's giving you that single source of the truth. If the data coming in isn't accurate, well, then people are making decisions with inaccurate information, right? And so when you've expanded that source of the data to cover the entire operational flow, as well as tagging it with all those different dimensions, you've increased the complexity.

We correlate this to actually tying to seven layers of chess, where you have to understand if I move a piece on the first level, how it affects on the seventh level, if I move a piece on the fifth level, how it interfaces on the third level, and without controls in place, it's gonna be very difficult to maintain the integrity of that information. So we figured out how to accomplish this leveraging with workflows.

We used workflows to help us maintain that, as well as a concept that we call the eye of the needle. Both of these concepts working together produce the integrity that we need to ensure that the accuracy of the data coming out. And so by maintaining that accuracy of that data, we're now able to rely on that information that's coming out of the system.

We've talked a little bit about the six components that we've found that are driving this transformation into the modern accounting system design. And so obviously there's a lot of complexities into it and a lot of things that we learned, but just like we, when we started our farm, we didn't go at it alone. We brought in people that were experts in irrigation, people that are experts in bees, people that are experts in vineyards and apple trees and orange trees and our animals. These people helped us along our journey to make sure that we didn't make the mistakes and to make sure that we got there as effectively and efficiently as possible. IFI has been designed that same way.

We're not focused on delivering you a system and walking away. We want to partner with you as you go through that journey, helping you along, pointing out the things that we've learned to ultimately produce that output that's gonna help you better drive your business. If you'd like to learn a little bit of more about how we do that, set up a call with us so that we can talk to you about where you are in your journey and how we may be able to assist you along that journey.

Additionally, if you want to learn a little bit about what we view as a successful business process, come watch our video where we focus on planning, execution, measurement, and analysis, and our video of the continual business process.

Again, thank you for your time and learning a little about our view of the modern accounting system.