What's a Monetary Flow?
Simply put, a monetary flow represents the movement of money from one account to another. Think of a monetary flow as a simple, atomic transaction involving one debit and one credit.
A monetary flow is the pairing of a debit line item and a credit line item within the same transaction of a general ledger. To be a monetary flow, the monetary values in each line item (the debit and credit) must match.
When a matching debit and credit appear in a transaction, Ai Auditor can use this information to learn more about your client’s underlying business processes. For example, a credit to a credit card account and a debit to an office expense account implies that office supplies were purchased on the credit card.
How Does Ai Auditor Determine Monetary Flows?
Ai Auditor analyzes a transaction for matching pairs of debit and credit values. Each pairing becomes a monetary flow. The line items that make up the flow are then removed from consideration for the next steps.
Once all the ledger’s line items have been paired into flows (Step One), any remaining “orphaned” debit or credit lines are left in the transaction. Ai Auditor creates a set of monetary flows that spread this transaction out across all other line items. See the ‘Wage Expense’ line item in the sample transaction below.
If multiple orphan debit and credit lines remain in the transaction, Ai Auditor will create a monetary flow for the remaining debits and credits in the transaction.
For monetary flows belonging to debit accounts, Ai Auditor sets the corresponding credit account to Unknown Account.
For monetary flows belonging to credit accounts, Ai Auditor sets the corresponding debit account to Unknown Account.
This creates a set of flows that state, “We know that money was debited or credited to an account, but we can't locate the corresponding credit or debit account.” Ai Auditor’s analytics will treat these flows accordingly.
An Example of a Transaction’s Monetary Flows
In the transaction above, Ai Auditor will detect three monetary flows:
- A $50.00 flow involving the Union Expense account and the Union Payable account.
- An $800.00 flow involving the Wages Expense account and the Bank (Payroll) account.
- A $200.00 flow involving the Wages Expense account and the Income Tax Payable account.
Note that the $1000.00 Wage Expense line item is not represented in a single flow, but is instead broken out into two separate flows.