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Item-based Accounting: Why everyone can do subledger accounting - even a fully automated ERP system

Presently, I am working on a larger article on item-based accounting, a concept deeply embedded in modern ERP system, but barely taught in Accounting Schools or Finance in University, apparently.

The basic idea is to embed as much static data as possible on the individual transaction “item”, also known as the “product” or “article”. By adding those items to a transaction record, a myriad of information related to financial, cost/project, or management accounting are immediately defaulted onto the transaction record.

This idea is becoming especially powerful when the recording of such transactions are handed over to non-Finance Teams, such as Logistics Teams or the individual Employee for personal procurement of items.

Also, when pushing the concept to non-traditional “productivised” industries, for example Professional or Financial Services, really neat new avenues pertaining to the respective business models come into play, which go along well with buzzword concepts such “Consulting 3.0”.

When talking to Accounting departments, I sometimes struggle conveying this concept because in such an approach, the individual transaction, lest the General Ledger, is a record of entry, but just an additional container where you associate the transaction, too.

As a result, for financial, cost/project, or management reporting, you would not focus on General Ledger Accounts any longer, but build your queries directly on the various attributes embedded on the item, project, firm/location/business unit record, or added on the transaction record. There is no need to create a separate GL account for travel expenses by travel type or department as all this data is stored on the Transaction record already.

Finally, this concept can be pushed to the limit when treating activities such as “Leave Applications” or “Time reported” as financial transactions, pushing them into statistical and non-posting GL accounts (not showing anywhere but designated reports, of course). Suddenly, you can report on all these activities like financial transactions, have opportunity costs, precise dates, or approval routings associated to it.

NetSuite allows all this with an incredibly powerful and flexible item record and deeply integrated joined records, where the item record can be