Are you looking for a better way to organize your freight invoices or to keep track of the amount of money your company spends on them? General ledger (GL) coding may be the solution. A general ledger (GL) code is a pre-determined string of alphanumeric characters assigned to each financial entry in a business’ ledger. With general ledger coding, financial reporting is much more precise. And, it is particularly useful for properly categorizing the many components that comprise freight invoices.
GL Codes – The Great Identifiers
Companies of all sizes use GL coding of freight invoices, but it is especially useful for mid-size to large businesses or those with over a $100 million in annual revenue. Start the GL coding process by looking more deeply into how freight costs are associated with the different departments and functions within the company. To do this effectively, you should work closely with the accounts payable department and the transportation group to identify the business rules and logic to use for coding shipments. These are unique to every business.
GL codes can become quite complex strings, but they help to allocate shipping expenses correctly because of the many different components identified. They not only categorize items correctly, but they also determine the proper department to bill. Some freight invoices can have four to five GL codes associated with them. Below are just a few examples of the key parameters that can be identified with GL codes:
– Freight Type
Freight can be classified as outbound or inbound. Proper GL coding can help to identify if inbound freight should be assigned to inventory or production. While outbound freight can be classified as a finished good or as being sent to a third party.
– VAT
VAT or valued-added tax is defined as a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to point of sale. The VAT amount paid by the user is on the cost of the product minus any material costs used in the product that have already been taxed. VAT is a reimbursable expense. It is important to properly identify VAT because there are tax implications.
– Duty
Duty is a tax levied on imports (and sometimes on exports) by the customs authorities of a country. A customs duty is based generally on the value of goods or upon the weight, dimensions or some other item criteria. Unlike VAT, duty is a tax-deductible expense. And, there are different duty implications depending upon the stage in the customer lifecycle.
– Warranty
Warranty is another item that can be tracked with GL coding. It is critical to track warranty parts because it affects duty implications. For example, a company cannot charge duty for the return of defective merchandise that is to be repaired and sent back to the customer.
Benefits of GL Coding
General ledger coding can become quite complex, and it is ever changing as companies build on logic in order to accommodate future shipments and/or new vendors, etc. However, GL coding also offers many benefits as demonstrated below:
– Time Savings
Tremendous efficiencies can be experienced by GL coding, especially as it relates to data analysis and reporting. By simply searching for a GL code, you can determine the number of warranty items, the amount of inbound freight that is attributed to production and other information as defined by your company rules.
– Accuracy
The many different parameters that GL codes include can lead to an invaluable level of accuracy. You can determine exactly which departments should be charged back or how profitability is being impacted. GL codes can even help a company determine its cost of goods sold (COGS) much more easily and accurately, which leads to much better-informed company decision making.
– Proper Tax
Reporting By using GL codes, you can be more confident about your tax reporting. For example, GL codes can properly classify VAT vs. duty to help prevent any tax reporting issues. With GL codes, your company can be placed in the most favorable tax position.
Looking to Outsource Your GL Coding?
GL coding does offer many benefits, but if your company does not have the proper resources to allocate to this task, AllGreen can help. By outsourcing GL coding to AllGreen, one client recently saved over 1,200 hours of valuable management and accounts payable staff time. We will work directly with different internal departments to ensure we identify and define the rules and logic that best address your GL coding needs. As your company experiences changes, AllGreen will update your database of rules for proper classification. And, with our proven system, you will be assured inaccuracies caused by employees’ manual input will become a problem of the past. To learn more, contact AllGreen today at info@ag-sc.com or 847-531-2209