Everyone can agree on the benefits of an integrated and optimized financial management system – improved efficiency, reduced costs, better data and insights – but how should an organization get started? Just like any construction project, assembling an accounting technology structure depends on the quality and organization of materials (in this case different types of data and processes). In this series, we outline three critical components needed to build a technology foundation that pays dividends for your organization. Up first, chart of accounts.
The chart of accounts serves as the basis for any financial management system and affects nearly every task performed by accounting or finance professionals. It defines the classes of items used by an accounting system to aggregate transactions into financial reporting. The chart of accounts structure determines how financial data enters the system and how it is extracted for reporting.
Do you need a chart of accounts tune-up?
Let’s start with a few questions:
- Is your chart of accounts out of control?
- Does it contain thousands of account numbers?
- Must you set up a new account to keep track of every expense for each business segment?
- Do you struggle to run reports that produce the information you need on a segment-by-segment basis?
If you answered yes to any of these questions, it may be time for a chart of accounts tune-up. Before you get started, here are some key considerations and best practices for implementing an efficient, effective and scalable solution.
Start with your destination
What are your financial reporting goals? What information is necessary to provide to management? The answers to these questions are the first step in creating an effective financial reporting system. Considering specific financial reporting goals at the start can provide a road map to help you stay on course.
Keep it simple and streamlined
If the account structure itself is overly complex, the entire accounting system will suffer. Develop simple, easy-to-understand logic and account definitions to keep everyone on the same page regarding the use of each account.
Here is an example: Begin all asset accounts with the number one, liability accounts with the number two, equity accounts with the number three, income accounts with the number four, cost of goods sold accounts with the number five and expense accounts with the numbers six and seven.
Modernize for scale
Traditional accounting systems are often unable to track the granular data needed by management. Many of these systems use a hard-coded account structure that is rigid and overly complex. Modern financial management systems centralize and integrate transaction data across the entire organization. A solution that uses table-driven architecture based on logical dimensions reduces complexity and increases visibility.
A well-designed, modern chart of accounts can make the difference between simply reviewing your organization’s data via backward-looking reports and instead using dynamic, real-time analysis to advance priorities and track progress toward goals.
If your chart of accounts needs a tune-up, contact your RKL advisor or reach out using the form below. Next, we’ll take a look at another aspect of the accounting technology foundation – dimensional reporting. Dimensions let you analyze your business in ways not possible with a typical chart of accounts – and do it in seconds, not days.