Accounting moves from cash to accrual with Workday

Iowa State's financial business will move from cash-based to accrual accounting with the July 1 implementation of the Workday software system. But what does that mean?

It's all about timing, said controller Kathy Dobbs.

"In the current system, the timing is based on when cash changes hands. In accrual accounting, it's about when expenses are incurred and revenue is earned,'" Dobbs said.

That means account balances will reflect reductions before final bills are paid and increases before revenue is collected. For example, if a department orders a new desk, the expense will be reflected on the account when the funds are committed -- in this case, when the desk is ordered, not when the invoice is received. For income, accounts will reflect revenue when clients are billed, rather than when cash is received.

"In the current cash-based system, the departments are used to seeing things happen when checks go out or come in the door," Dobbs said. "With Workday, we'll recognize expenses and revenues at the time they occur, not at the time we actually cut or cash a check."

Real-time information

Dobbs said the new system will provide nearly real-time transaction processing to help units and departments make financial decisions with timely financial reports.  

"Workday is configured to make the correct accrual accounting entries at the time transactions occur so when departments look at financial information, it's current, it's up-to-date and they don't have to wait for other things to happen to get the answers they want," Dobbs said.

Dobbs said the ISU already produces university-wide accrual-based financial statements at the end of the fiscal year, a requirement for all colleges and universities. Currently it's a labor-intensive process that brings in numbers from other financial systems to produce external financial reports.

With Workday, all of that will be done in one system, which updates every time a transaction is made.

"There's increasing pressure for institutions to produce financial statements more frequently and faster," Dobbs said. "With that environment in play, it makes sense to have all this in one system so we can get a picture of what the financials look like at any point in time."

Accrual accounting is a familiar concept for accountants but may be new to some employees who work with financial transactions and reports. Training will give specialists in accounting roles on the finance service delivery teams a deeper understanding of the system, Dobbs said.

"For most people, it's really how to look at the financial information they have access to and how to interpret it," Dobbs said. " We are committed to providing that information in a way that's very digestible."