Lean Accounting with Event Types

In a period of economic downturn, competitive advantage goes to those companies that can reduce their expenses and operate more efficiently than their competitors. The purpose of this post is to investigate how companies can reduce their bookkeeping expenses, a burden that is common to every business in existence. Can most financial recording be made simple enough that it does not require a skilled financial worker to perform the chore and can it be done with a minimal amount of data-entry labor?

For most transactions within a typical company, the answer is an obvious “yes.” This is evidenced by the use of modern Point-of-Service (POS, i.e. cash registers) that are implemented with software that automatically records the critical accounting data of each revenue transaction as it occurs. Thousands of transactions are fully recorded for the company’s accounting system with the mere push of a button by a relatively untrained clerk at a check-out counter. Many business transactions are already fully automated and are nearly costless to the business.

But, there are many other forms of business transactions than the revenue-generating operations that occur essentially within a cash register. Expenses, capital investments, depreciation, and payment of credit are just some of the transactions that cannot be handled by the modern cash register. However, as we will see, these less automated transactions can also be reduced to a minimum effort by people who have no bookkeeping skills.

How can advanced bookkeeping be accomplished by people who do not understand debits and credits? To fully satisfy all of the requirements of the Generally Accepted Accounting Practices, the only thing that a worker would have to do is enter the amount of a transaction and select the type of event that the transaction represents. The selection process would be made easy with a user interface that presents the various “Event Types” in an intuitive and foolproof manner.

Hidden within each “Event Type” would be the identity of the accounts that are credited and debited. The person doing the bookkeeping could be an untrained clerk who has been given a simple introduction to the few Event Types that are affected by his role in the company. The selection of debit and credit is transparent to him, making the bookkeeping process simple.

The person entering data would also have control to set the date, but the default of the current date would suffice in the vast majority of cases. The Event Type would supply a default note about the transaction, which the user could also edit at his own will.

In summary, very advanced bookkeeping could be performed by the unskilled by simply selecting the type of the event and entering the amount. The particular Event Types and the accounts that they affect could be tailored to fit any business model in any industry. The resulting effect of the use of Event Types would be to reduce the most challenging bookkeeping operations to an operation requiring less skill than the operation of a cash register.