A well designed management accounting system will communicate the significance of financial goals within the organization. The financial information provides a basis for assessing performance against targets and is often an important input to management decisions. The quality of this information depends on the policies and procedures used in its production, but also on a well-designed and maintained accounting structure. A badly designed structure, on the other hand, can often lead to inefficient and difficult processes, and potentially to poor financial information.
So how does one go about designing the essential building blocks for financial information? While there is no standard answer, there are several things to consider when building your Chart of Accounts (COA).
- The COA must consider the current financial information needs but be flexible so it can adapt to potential future needs. This requires some discussion of what the future might look like and what strategies the company is likely to face.
- Challenge existing operations and processes instead of modifying a new system to fit your existing COA. While it is important to configure your accounting system to your company’s particular needs, it is unadvisable to be too inflexible about your existing processes.
- Keep it simple. There may be many specific requirements due to your industry, to laws and regulations, or to other factors. Be wary of overcomplicating your system, as this can make it more difficult to use and, consequently, more error-prone.
There are several features of the Microsoft Dynamics SL system to consider when designing your Chart of Accounts. These features can greatly enhance the policies and procedures you use to produce financial information.
Accounts and Subaccounts Structures in Dynamics SL:
Account numbers should have an orderly, logical structure to them – one based on a specific account number coding scheme. A coding scheme is a system of combining and arranging numbers and/or letters into meaningful record identifiers. The purpose of a coding scheme is to make each record distinguishable from all other records in the database and to make the records associated with a given identifier easy to reference and report. A typical structured account numbering approach divides the Chart of Accounts into the following groups:
- Main account groups (asset, liability, income, expense)
- Subgroups within the main groups (cash, accounts receivable, etc.)
- Detail accounts within the subgroups (petty cash, payroll, checking, etc.)
For example:
Main Group + Subgroup + Detail Acct = Acct Number
1 (Assets) + 0 (Cash) + 10 (Petty Cash) = 1010
One of the key decisions to make when setting up a Chart of Accounts is to decide if and how to use subaccounts. Subaccounts identify specific segments of your business, such as departments, divisions, or profit centers, which is extremely useful for maintaining responsibility accounting information.
Subaccount numbering is extremely flexible, allowing you to define a subaccount numbering structure to fit to the specific needs of your business. To make subaccount usage more efficient, you might divide the overall subaccount number into two or more segments set apart from each other by a separator character, such as a hyphen. You then can define a range of acceptable values for each segment and then define the acceptable combinations of each segment that form a subaccount.
Accounts / Subaccounts Validation in Dynamics SL:
Dynamics SL also allows you to validate the combinations of account and subaccounts. This tool is used to combine or link subaccounts with accounts, letting you control account/subaccount combinations used during data entry. This helps control data entry and ensure the appropriate information is posting to the appropriate account/subaccount combination. Since SL allows you to have multiple companies within a single database, this tool goes further by allowing you to set up the valid combination for each company.
Ledgers in Dynamics SL:
Creating multiple ledgers allows you to maintain the information of multiple sets of books in a single database. A ledger can be a company’s financial or tax books, a budget, statistics, or a translated set of financials. Ledgers provide the flexibility you need to maintain unlimited sets of books. The four types of ledgers are:
- Actuals — this is your actual financial ledger, although you can set up additional ones; for instance, one for cash basis and one for taxes.
- Budgets — to set up ledgers for budgets and forecasts.
- Statistical — to do sales comparisons on multiple types of statistics, such as setting a ledger for gallons sold, number of employees, or square feet.
- Reporting Currency — to translate financials from a subsidiary’s to a parent’s base currency in a multinational organization.
Sometimes it can be difficult to push your way through the discussions needed to accommodate all these ideas and options. Boyer & Associates can help you with those discussions.
Since 1994, we’ve provided exceptional ERP services and support for our clients. We approach each project with the understanding and deep industry knowledge we’ve gained in our almost two decades as a business. Our team has extensive knowledge of the Dynamics SL system and a thorough accounting background to help meet your needs. Please contact us if you have any questions.
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