Your Chart of Accounts Is Not a Management Reporting Tool. Stop Trying.

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As far as opening lines go, “there are few things worse than a bloated chart of accounts” sure doesn’t sound exciting.  But it’s no less true for its lack of excitement and I can’t think of another one.

When I look at how some systems have been implemented, this is something that really drives me batty.  I have seen companies with up to six or even seven segments in their chart of accounts. They are trying to track every detail of their transactions in the general ledger and adding very little actual value to their reporting.

It is time for all Dynamics GP customers to focus on moving their reporting out of the general ledger and into the subledgers where it belongs.  Maybe that should have been my opening line.

For example, a company I worked with once had a segment for their products within their chart of accounts.  They told me that it was so they could break out a P&L by product.  Over time, the definition of “product” expanded, and sometimes one inventory item was actually part of two or more “products”.  A fuzzy logic was applied and more than 300 possible values were generated for the segment.  With that, really all they were ever able to glean was gross margin by product and a lot of work was required to correct the coding mistakes made within the segment.

All of that information, and so much more, is already being tracked in the sales and inventory subledgers.  When an item is sold, not only can you quickly get the sales, cost, and gross margin for that item, you can get quantity, shipping data, and cancelled/backordered quantities.  For each of those amounts (measures), you can easily group and analyze the information based on all of the other fields (dimensions) that are available for the item sold and the customer sold to.  Assuming that the items are serial or lot tracked, you can even include purchasing or manufacturing data for the items.

You simply cannot drive proper management reporting from your chart.  Your chart is exclusively for Financial Reporting…and only the bank, the government, and the board should care about your Financial Reporting.  Maybe that should have been my opening line.

There are cases where accountants will fight me on this.  Sometimes I lose, but if they do reluctantly let me convince them to move their reporting to the subledger then when I show them the first sales report (which takes about 1 hour to build) they tend to get so excited that they write songs about me and sing them in the market squares of villages far and near.  OK, maybe not songs and villages.  But they do get excited!  The very first comment from them is invariably an explanation of all the things this report does that they never could do before.

If you are just implementing Dynamics GP, it is much easier to start out with a streamlined chart of accounts and keep it that way than it is to fix it later.  Generally when I set up a new customer on Dynamics GP I try to limit the Chart of Accounts to no more than three segments.  Usually those segments would be Company, Department and Natural. (Departments is only used if there's a fiduciary responsibility for the department managers).  I might have a segment for future use just in case I'm wrong, but usually it never gets used and is just left at 000.

For those of you already running GP with an ugly chart, there’s still hope.  Through clever use of tools like SQL and the Account Modifier in PSTL, we can still fix things and make you happy.  That customer with the product segment?  We were able to reduce their chart from over 80,000 GL Accounts to just over 1,300 and their reporting today is far superior to anything they ever had before.

If you are ready to streamline your chart of accounts while dramatically improving your management reporting Briware Solutions can help.

by Briware Solutions

1 thought on “Your Chart of Accounts Is Not a Management Reporting Tool. Stop Trying.”

  1. This was very refreshing to read. So many accountants and companies have this wrong in designing their COA. And completely don't get it.

    Management reporting always comes from the subledgers that have all the source trxn detail for management reporting. This is how ERP systems like Oracle, SAP, JDE,.....are built.

    Great companies have small COA's.


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