The DU’s Microsoft Dynamics implementation partners have successfully implemented Microsoft Dynamics GP in many different industries and in businesses of all different sizes. While each business may use a different set of functionality or modules, one thing they all have in common is the need for a Chart of Accounts that can produce the financial reports needed to perform effective financial analysis. It is the foundation upon which the rest of the system is designed.
However, often three to five years after implementing Microsoft Dynamics GP, most companies do not look the same as they did when they initially implemented. These organizations often expand into new geographies, add or drop product lines, make acquisitions, or are acquired. In addition, the budgeting and planning processes become more fine-tuned with experience. As a result, companies need to continually edit and update the chart of accounts.
Chart of Accounts Overview
In Microsoft Dynamics GP, the chart of accounts is configured in four important steps. At the foundation is the development of the account framework. The account framework is set during the installation of Microsoft Dynamics GP and it defines the maximum number of total characters for the account, the maximum number of segments in an account, and the maximum number of characters in each segment. Every company database that is subsequently created within this instance of Microsoft Dynamics GP must have an account structure that conforms to this framework. In most cases this is not an issue as the default framework has maximum characters (50), maximum segments (10), and maximum characters for each segment (6). Changing the account framework after implementation is possible but generally a very expensive and time-consuming process.
A typical account structure of a small business may be two segments set up as:
Main account – four characters
Department – two characters
A larger company may need four segments set up as:
Company – two characters
Division – two characters
Main Account – four characters
Department – two characters
Once the account structure is set, users create a list of valid values for each segment and create a list of valid accounts (combinations of segments).
Design Tips
In designing a chart of accounts, there are a few characteristics that make for a good chart of accounts:
Easy to follow and understand.
Data entry users need to be able to quickly locate account numbers to stay efficient with the system.
Start simple.
If starting with two segments today, it is not difficult to add a third segment at a later time, as long as the new segment is added to the end of the account number.
Have a cushion.
If there are seven departments today, define those using two digits rather than one.
Avoid alphanumeric keys.
For data entry users, numbers are easier to enter and to remember than alphanumeric keys or abbreviations.
Generic with enough detail.
The main account should be generic enough to apply across all the other segments, but have enough detail to budget and plan effectively. This is difficult to balance and it may never be perfect, but hopefully it will be close.
The Design Process
The design of chart of accounts needs to include all the stakeholders – this includes other departments internally as well as external stakeholders including VCs, bankers, tax preparers, auditors and more. Too often ownership of the design stays within the Finance team – or worse – gets assigned to the implementation team. The chart of accounts affects all functional areas of a business and that input is critical.
The design also needs to consider the subsidiary modules and external solutions that feed transactional data into the chart of accounts. Each module has options for how it interfaces with the chart of accounts but do not assume every option exists. Input from a Microsoft Dynamics implementation partner is critical in this step.
Similarly, the design process should consider the financial reporting tool to be used – Management Reporter for example. Management Reporter was developed to allow a user to quickly create financial reports using the “main account” to define the rows on a report and all the other segments to define the financial reporting structure.
Management Reporter Considerations
A well designed financial report clearly requires a well-designed general ledger account structure. But Management Reporter has a number of less-used features that can definitely help overcome any shortfalls in the existing structure.
Many Microsoft Dynamics GP clients have not invested in assigning accurate account categories in the chart of accounts. Account categories are a great tool for creating summary financials in Management Reporter. For example, a company with two segments - account and location - initially assigned all operating expenses in the 6000 and 7000 account range. The finance team is now asked to produce summary financials each month but the operating expenses must be categorized as payroll and benefits, facilities, marketing, or other administrative. Rather than redesigning the entire account structure, the team creates additional account categories and re-assigns each GL account. In Management Report, a new row definition is created that calls for the account category rather than the main account.
Using the same scenario as above, the finance team has assigned certain employees budget responsibility for certain GL accounts and now needs to produce a monthly budget to actual report for each budget owner. Finance utilizes the first user-defined field for each GL account to store the Employee ID. In Management Reporter, a new reporting tree is created that references the user defined field. Finally, a new report is created that uses an existing row definition and the new reporting tree to produce separate P&L reports for each budget owner.
If your organization has yet to implement Microsoft Dynamics GP, the time invested now in developing an effective chart of accounts can create enormous time savings for the team and enable quick production of financial reports stakeholders need to properly analyse the business.
Maybe your organization has been running Microsoft Dynamics GP for a number of years and the account structure has not kept up with changes in the business, your Microsoft Dynamics GP partner is there with some creative approaches to getting the most out of what you do have.