An accounting book can be one of two types:
- Primary Book: Transactions complying with the main set of Accounting Standards are posted to the Primary Book by default. Invoices, credit notes, and cash entries are automatically assigned to the primary book. Journals are assigned to the primary book by default, but book specific journals can also be created and assigned to any of the existing books. Transactions generated by other sources (for example Cash Matching Journals, Intercompany Journals, Allocations, Archiving, Billing Documents or Direct to Transactions API and other APIs for document creation) will be automatically assigned to the primary book. If you are using Multi-Book Accounting, you must set up one book as primary. There can only be one primary book in the org.
- Adjustment Book: Used for book-specific adjustments, necessary to comply with different Accounting Standards. Manual journals are assigned to specific books, for example the primary book or any of the adjustment books.
Accounting Book Guidelines
Reporting under different Accounting Standards doesn't mean that every transaction gets a different accounting treatment under different accounting standards. In fact, only a small percentage of transactions need to be treated differently. Most transactions you post will be compliant with all the Accounting Standards, so there's no need to process the same transaction multiple times to be assigned to the different accounting books.
With Multi-Book Accounting, all transactions based on the main set of Accounting Standards for the org (for example, US GAAP) are posted to the primary book. Necessary adjustments are then posted to the relevant adjustment books, which combined with the main transactions, results in the correct treatment under a different set of Accounting Standards (for example, IFRS). This way, transactions are not duplicated and posted to every book.
Setting up more than one accounting books enables you to follow this approach by having one primary book and as many adjustment books as you require.
Accounting books are set up at org level and are not company specific.
Once Multi-Book Accounting is enabled, all transactions and Reporting Balances are assigned to the relevant accounting book. The Accounting Book field can then be used in filters when setting up your reports. This enables you to maintain different sets of reports for the different Accounting Standards you need to comply with.
Example 1: An org with 3 companies
If you have an org with 3 companies:
- Company 1: parent company, based in the USA, reporting under US GAAP
- Company 2: subsidiary based in the UK, reporting under US GAAP (for consolidation purposes) and under IFRS
- Company 3: subsidiary based in Spain, reporting under US GAAP (for consolidation purposes), under IFRS and under Spanish GAAP
You could set up the following Accounting Books in the org:
- US GAAP book: this would be set up as the primary book. All transactions for all the companies would be processed under US GAAP standards and assigned to this book.
- IFRS adjustment book: only adjustments necessary to comply with IFRS for Company 2 and Company 3 are posted and assigned to this book.
- Spanish GAAP adjustment book: only adjustments necessary to comply with Spanish GAAP for Company 3 are posted and assigned to this book.
For reporting purposes:
- US GAAP compliant reports need to include a filter to select transactions (or Reporting Balances) posted to the US GAAP book only.
- IFRS compliant reports need to include a filter to select transactions (or Reporting Balances) posted to both the US GAAP book and the IFRS adjustment book.
- Spanish GAAP compliant reports need to include a filter to select transactions (or Reporting Balances) posted to both the US GAAP book and the Spanish GAAP adjustment book.
Example 2: Recognition of Compound Financial Instruments
This type of Financial Instrument includes characteristics of both Equity and Liability. US GAAP and IFRS apply different rules to restrict the percentage that can be recognized as equity vs liability for these Financial Instruments. The following example illustrates how to use Multi-Book Accounting to deal with this issue.
A company needs to recognize a compound financial instrument. The accounting treatment under IFRS is different to the accounting treatment under US GAAP.
Under US GAAP:
| General Ledger Account | Debit (USD) | Credit (USD) |
|---|---|---|
| Liability GLA | (8,000) | |
| Equity GLA | (2,000) | |
| Bank and Cash GLA | 10,000 |
Under IFRS:
| General Ledger Account | Debit (USD) | Credit (USD) |
|---|---|---|
| Liability GLA | (7,000) | |
| Equity GLA | (3,000) | |
| Bank and Cash GLA | 10,000 |
Applying Multi-Book Accounting, you can post the following journals:
| Accounting Book = US GAAP Book (Primary Book) | ||
|---|---|---|
| General Ledger Account | Debit (USD) | Credit (USD) |
| Liability GLA | (8,000) | |
| Equity GLA | (2,000) | |
| Bank and Cash GLA | 10,000 | |
| Accounting Book = IFRS Adjustment Book | ||
|---|---|---|
| General Ledger Account | Debit (USD) | Credit (USD) |
| Liability GLA | 1,000 | |
| Equity GLA | (1,000) | |
US GAAP Reports will show only the journal posted to the US GAAP book; the compound instrument is recognized as complying with those standards.
IFRS Reports will include both journals, so the combination will result in the correct accounting treatment for the compound instrument recognized as complying with IFRS.