Understanding the 6 layers of accounting

Unless you're an accountant, you probably consider the accounting side of business a mystic art. Mastering your company's financial performance is a very important task. So the more you understand about accounting, the better your chances are to do a good job.

At Orax we use an easy to understand 6 layer approach to business accounting. This is helpful for all accounting functions as well as top level management.

Once you understand the 6 layers of business accounting, you will find it easy to match the activities needed in Orax SDI to each layer.

The first and top most layer is where business documents are created. These include sales invoices issued to customers, purchase invoices created when you buy inventory from a supplier, and payslips when salaries are paid to employees. This is the basis of your financial performance.

Use the Customers, Suppliers and HR menus to administer this layer in Orax SDI.

The second layer is the physical inventory and assets layer. You only used this layer if your company buys and sells goods or manages assets. This layer is used to reconcile physical records with accounting records. Documents in this layer include goods receipts when suppliers deliver stock and goods dispatches when you ship items to your customers. Transfers, consignment and returns are also made in this layer.
Use the Inventory menu to administer this layer in Orax SDI.

The third and arguably the most important layer is the cash layer. This is where your bank and cash transactions are recorded. You import bank statements in this layer. A bank statement has to be reconciled after it was imported to ensure that your recorded transactions are perfectly accurate. The cash layer has a high risk component and should be regarded as very important!
Use the Bank tab in the Ledgers menu to administer this layer in Orax SDI.

The forth layer is the adjustments layer. This is where you make adjustments to the records you have added so far in the top 3 layers. Adjustments are made to ledger accounts. Think of adjustments as discounts to customers or opening balances for each financial year. Moving money between divisions or adjusting stock levels can also be done here.
Use the Journals tab in the Ledgers menu to administer this layer in Orax SDI.

The fifth layer is the accounts layer. This is where you manage outstanding cash transactions like payables and receivables. In this layer you create customer statements and manage outstanding supplier and tax payments.
Use the Debtors and Creditors tabs in the Ledgers menu to administer this layer in Orax SDI.

The last and final layer is your financial reporting layer. In this layer the owners and financial managers evaluate the performance of the company. This layer starts with a summary of all the other layers called the Trial Balance.
From the Trial Balance, 3 statements are created for evaluation and reporting.

The first is the income statement or profit and loss statement. It shows the performance of the company. Whether it is making money through all it's efforts.
The second is the balance sheet or statement of financial position and shows the current wealth of the company. This is where the success of your investments become evident.

The cashflow statement presents the heartbeat of the company. Without cash a company dies, and the cashflow statement shows the general health of your company's heart.

Use the Reports tab in the Ledgers menu to administer this layer in Orax SDI.

The 6 layers of accounting can be used to ensure that your company has the best chance to survive and thrive. In Orax SDI you can manage one or more companies with maximum efficiency and results.