Chart of Accounts Design – Dynamics 365 Business Edition vs Dynamics GP

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I am sitting beside a pool on a family vacation somewhere warm. The kids are swimming, the ocean is within view, and all is right with the world. With a Banks Beer at my side, and a shady table to sit at it feels exactly the right time to write a blog post on chart of accounts design concepts!

Dimensions vs Segments

When you look at mid-market ERP solutions today, there are basically two chart of accounts design models. We're ignoring the Quickbooks model where you get what you get and you don't get upset, here.

The first model uses segments to define the chart of accounts and generate financial reporting. First, you define a main account segment (often referred to as a Natural segment) which identifies what the account actually is. In other words, you have a natural account for cash, accounts payable, sales, cost of sales, etc. To that natural account, you add other segments to identify key reporting elements of the transactions. For example, you might have a department segment, a legal entity segment, a warehouse segment, or all of the above. You generate a chart of accounts based on all of the valid permutations of the natural and other segments.

In a case where a segment doesn't apply you would have a zero filled value. For example, assume that you have a sales territory segment that is 3 characters long. You would always have a value of 000 in that segment so that when it gets added to something like a cash account you can still get a complete string.

The second model uses the natural account as the chart of accounts and adds "dimensions" to transactions in order to drive the financial reporting. Like segments, dimensions allow you to further define elements of the transaction for financial reporting purposes. Using the example above, you could have a dimension for legal entity, a dimension for department, a dimension for warehouse, or all of the above. Unlike segments, a dimension doesn't have to be applied to every account - or even to every transaction using a particular account. You're warehouse dimension might only apply to inventory accounts, while your department dimension might only apply to P&L accounts. You can also use Master data, such as customers or inventory items, to default the dimension value used on any given transaction.

What do Dynamics GP and 365 Business Edition use?

Dynamics GP uses segments to build GL Account strings. Out of the box, Dynamics GP can have up to 66 characters spread across up to 10 segments for a chart of accounts. I say out of the box because when you first install GP you have to decide on an account "framework". The framework establishes the maximum number of segments and the maximum size of each segment that any company database you create can use. When you create a new company database in GP, you establish an "Account Format" for that company. It can use fewer segments and/or smaller segments than the framework, but can not exceed the framework.

When designing your framwork for GP, be pretty careful to plan ahead. We always recommend that every segment in the framework be at least 2 characters longer than you plan to use in your format, and that you have at least 2 segments you never plan to use. When you set up yor account format, set it up for your desired number and size of segments.

Dynamics 365 uses dimensions for financial reporting. When you first create your company, you'll get a default chart of accounts (which I promise you'll change). You can then start to add dimensions as you need to after your chart is perfected. There is currently no limit on the number of dimensions you can add, but I would advise you to try and keep it simple. A complex set of dimensions can be difficult for even accountants to work with - and most of your users are NOT accountants. At the time of this writing, Dynamics 365 does not allow you to limit the value that can be selected in one segment based on the value selected in another.

It is quite a bit easier to change your chart of accounts structure in Dynamcis 365 than it is in GP. I actually completely changed my structure about a month after we went live. I haven't tried removing any dimensions, though, so I might need to update that statement in a later post.

Which one is better?

Honestly, they're pretty much the same thing. In fact, all of the financial reporting tools available for GP treat each segment as a dimension anyway, so the account string is really only relevant for the purposes of transaction entry. The only possible concern I would have is that in Dynamics 365's current implementation of the Dimensional model, there is no ability to restict the choices of one dimension based on the selection in another. This could lead to invalid dimension combinations being inadvertantly selected by operational staff - who very often are not accountants and won't be trained to think like accountants.

The most important thing for both is the dimensions/segments you choose and the complexity you build into it. As long as you select segments or dimensions that are both relevant to your financial reports and easy for your staff to work with, you'll get perfect financial statements every time.

If you'd like to discuss your chart of accounts design, please contact me at

By Rod O’Connor, Briware Solutions,
Follow me on Twitter: @Briware_Rod

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