The Modern Chart Of Accounts: CFO 3.0
More and more it seems like a day can hardly pass without a new shift in technology that seems to make all preceding tech obsolete. Often the ability to adapt to this shift is the difference between a thriving, modern company and a rusty, dying one. Such is the case with the current shift in chart of accounts systems. Combined with dashboards, reports, and business intelligence tools, the chart of accounts forms the infrastructure of an organization’s financial system. Whenever a new financial system is installed, the first thing needed is the chart of accounts in order to build the system from the bottom up. If you build on old, tired technology, your company will quickly grow old and tired too. However with the decision to build a modern chart of accounts, you can give your company an infrastructure that is not only able to handle its weight, but will allow you to be a leader of the digital age.
What makes the modern chart of accounts so special? There’s a quick answer: dimensions, which are used to more quickly and efficiently categorize and track financial data. In the chart of accounts, a dimension allows you to tag a transaction with a category on that line item. For instance, a common tag would be a location of a store or warehouse. You no longer need to sludge through bogs of accounts in order to find all the data pertaining to a specific location when you can simply filter by dimension and receive all the relevant data at once.
The benefits of dimensions are numerous. First, dimensions mean there are far less account numbers to manage for a corporation that wants granular financial analysis. This allows for a cleaner, more efficient experience. Another benefit is the ability to filter the data with not just one but multiple dimensions and get endlessly varied analyses. Thus dimensions make your chart of accounts a better analytical tool that is better suited for your needs. For example, you could very easily get a profit and loss statement by customer and by item. A third benefit is the ability to create real-time dashboards based on dimensional data.
Who can use dimensions?
Although accountants might be the ones using the modern chart of accounts on a daily basis, the accounts do affect the entire company. A salesperson who needs to put in an expense report for reimbursement after a business conference might make an account for airfare costs, but with the ability to tag the information with the appropriate dimension, the CFOs, controllers, and accountants will be able to access and analyze this data quicker and easier.
Therefore the byproduct of dimensions is great analytical tools for everyone. From CFOs analyzing location data to salespeople analyzing customer data to warehouse workers analyzing inventory data, anyone and everyone in a company can benefit from the tagging system dimensions offer and the data that comes out of the modern chart of accounts.
If you are working on four projects simultaneously, accountants might want you to record your time and expenses of those projects. In the modern chart of accounts, one of the dimensions you might use is “project.” You could very easily get dashboards and analysis of the profit and loss of the projects.
Perhaps three of the projects are for one customer and one of the projects is for a second customer. You can use “customer” as a dimension and break down the profit and loss both by project and customer.
Wouldn’t it be great to see how many products you’re selling per month spread graphically across a report? If you notice that one product is selling very slowly, you probably won’t feel the need to restock inventory but if a product is selling quickly over each month, you will want to keep that inventory replenished. “Inventory items” is also a possible dimension that you can use for trend analysis.
The modern chart of accounts is a cloud-based system written in architecture that was designed for the cloud. In non-cloud systems, the concepts of dimensions are virtually impossible. However, it is possible to set up the modern chart of accounts on a non-cloud-based system with customizations.
Building From The Ground Up (And How ACI Can Help)
Now that you know what the modern chart of accounts offers and how it works, how do you build your infrastructure? A company must export its current chart of accounts and start condensing it into one category per account number. There’s also the question of which dimensions to use. The data must then be manually mapped on a spreadsheet before it can be imported into the new system.
It’s possible to build the modern chart of accounts without outside assistance but often guidance can be helpful, especially when it comes to the decision-making process. ACI can help decide what dimensions to use as well as offer thought leadership in order to bring light to the complications that go into converting past transactions to the new chart of accounts. ACI can also help you further understand the difference between the old chart of accounts and the modern chart of accounts and what the benefits of dashboards, analysis, and real-time reporting really mean. After a consulting session, ACI can go into the mechanics, helping with exporting data to a spreadsheet, deciding what dimensions to use, and building a system that will bring your company into the next century.
Large companies become dinosaurs very quickly because they weren’t able to keep up with the trends of a new society. Not being able to analyze and see data that helps to make decisions for future growth is a risky endeavor in a world of constant change and movement. With the help of the modern chart of accounts, you can leave that risk behind and step into the future with your head held high. Reach out to ACI Consulting to learn more.