The financial structure of MKG

Setup 1. Basic

The MKG software is configured with a basic financial setup for a large portion of companies. In this configuration, only posting a purchase invoice or creating a sales invoice results in a financial transaction. Purchases of materials and/or outsourcing are directly recorded as cost of goods sold on the profit and loss statement in this manner. Sales invoices are posted to the designated revenue account(s). In this setup, we refer to the determination of period results.

With these settings, both the posting of purchase and sales invoices will result in updating the accounts payable and accounts receivable open items. These can be further processed through payment transactions. Periodically, one journal entry needs to be created in the general ledger for work in progress (WIP), and one entry related to inventory adjustments. In other words, it involves the reversal and/or booking of amounts from the cost of goods sold on the profit and loss statement to the balance sheet.

Setup 2. Basic+

A portion of companies configures the MKG software with the financial configuration Basic+. With this configuration, posting a purchase invoice or creating a sales invoice results in a financial transaction. Purchases of materials and/or subcontracting are directly recorded as cost of goods sold on the profit and loss statement. Sales invoices are posted to the designated revenue account(s) via an intermediary account (which can be the revenue account itself).

The difference with the Basic configuration is that revenue is initially booked to an intermediary account during invoicing. This intermediary account is subsequently reversed when the cost of goods sold is determined. Another distinction is that upon receiving purchased goods, a posting is made, showing the outstanding invoices in the general ledger.

With these settings, both the booking of purchase and sales invoices will result in the recognition of outstanding payables and receivables. These can be further processed through payment transactions. Periodically, one entry must be made in the journal for work in progress (WIP), and another entry for inventory adjustments. In other words, this involves the reclassification of amounts from the cost of goods sold in the profit and loss statement to the balance sheet.

Setup 3. Customer-specific

If you opt for a customer-specific configuration, almost all actions processed in the workflows lead to financial transactions in the accounting system. In certain modules, actions are executed in two steps: preliminary and final processing. A consequence of this configuration is that due to these procedural actions, the positions of work in progress (WIP) and inventory on the balance sheet change immediately.

In this configuration, processing direct labor hours, among other things, results in recording covered hours as well as an increase in work in progress. Another example is that all material issuances on production orders lead to financial transactions: a decrease in the value of inventory and an increase of this value in work in progress.

When financially finalizing the production order, the entry will be opposite: value deduction from WIP, revenue and cost booking in the profit and loss statement. Timely financial finalization of production orders is crucial in this case.

In practice, a customized setup is not always chosen because this way of working places greater pressure on the Administration department. Each procedural event has a financial consequence and must be verified. Additionally, all financial events (invoices, hours, and inventory issuances) need to be processed promptly and accurately to extract correct and reliable information from the system. Reversing (reversing) these financial transactions in case of an error can only be done through a reversing entry: precisely reversing the original entry and then making the correct entry.

In the context of determining results, the outcome depends on an effective process handling, and within MKG, we refer to such a setup as a process result. During the setup, the choice can be made to:

• book prepaid revenue through the balance sheet and/or;
• book prepaid installments through the balance sheet;
• book a provisional cost price for partial billing.

The listed options indicate that we are dealing with a customer-specific configuration: the mentioned choices depend on how a company wants to manage its results.