In this three-part series we’re looking at the heart of the Microsoft® Dynamics GP system, the Chart of Accounts. The structure is difficult to shrink once implemented, but can be much more easily expanded. Careful analysis of the structure will ensure a balance between current financial reporting needs and future growth. The Professional Services Tools Library (PSTL) and third-party products are available to make shrinking or expanding more user friendly.
Segmentation Capabilities and Consequences
Based on thousands of implementations, Computeration offers the final five explanations and recommendations on how to create a powerfully simple chart of accounts.
Recommendation 6: Allow space for the addition of new accounts
Number accounts as follows:
This allows 10 numbers between your initial accounts and occasionally skips nearly 100 numbers.
Recommendation 7: Start chart of accounts design early in the process
You’ll need the accounts for nearly every other module. So start early, remain flexible, and provide for space.
Recommendation 8: Start chart of accounts design early with the financial reports
Design your chart backwards from your financial reports. Your chart ultimately represents how you want to report the data. I’ve seen many companies that designed the chart based on other criteria and defer consideration of how they want their reports to present the data. Then they design financial reports at the end, creating what we call “spaghetti code” having to substantially re-sequence and re-group accounts.
Balance that design of the accounts between reflecting the sequence they appear on financial reports and making them easy to find during input of transactions.
Recommendation 9: Create your chart to facilitate preparation of the Cash Flow Statement
This recommendation deals with fixed assets and long-term liabilities. It’s very common to create a sequence such as:
1500 Furniture and fixtures
If instead you create this sequence, you can automatically generate the Cash Flow Statement without editing it in Excel.
1500 Furniture and fixtures, Increase
1510 Equipment, Increase
1520 Vehicles, Increase
1550 Furniture and fixtures, decrease
1560 Equipment, decrease
1570 Vehicles, decrease
You would group the increase accounts for the line in the Cash Flow Statement for use of funds and the decrease accounts for source of funds. Doing this rather than depending on selecting only debits or credits from an account accommodates for accounting adjustments that are quite common in your fixed asset accounts—someone capitalized something that doesn’t meet criteria. Management Reporter and FRx allow you to select just debit or credit entries, but in the case of adjustments, your cash flow statement won’t be correct with those concepts
Recommendation 10: If you didn’t do it right the first time
Looking for more information on your Chart of Accounts? See the discussion on “Adding a Dimension to Your Existing Chart of Accounts” in our IFRS Accounting series.