What does the chart of accounts say about the company?

It is not uncommon for employees in companies to maintain Excel spreadsheets that help explain what is happening in the organization financially – expenses and income by project, budget versus actual, classification by sub-projects, etc.

The power of Excel lies in its flexibility. Any line item can be broken down into many different types of expenses/income and excellent reports can be produced, but there is a catch: the report is accurate only at the moment it is generated, and in order for it to remain up to date it must be maintained constantly.

As work with engineered reports and with systems that are not based on bookkeeping increases, so does the distance from accounting, which over time creates a disconnect between accounting and the rest of the organization. So when a manager wants to know whether a certain project is profitable or not, they will not turn to accounting because, from their perspective, accounting mainly handles invoice payments and collections and reporting to the authorities; instead, they will speak with that function in the organization that maintains those engineered reports.

Over time, this distance may create serious damage in the organization, because it may create a situation where according to the processed reports the situation looks good, but in practice in the records and in the bank – the situation is problematic.

So what do we do? Everything starts with the company’s chart of accounts. A correct structure of the chart should ensure that a simple generation of a trial balance (without any field adjustments other than limiting dates) presents the company’s correct and up-to-date financial situation with no need for explanations or notes.

What about detailed reports? What guides accounting in building the chart is correct and convenient recording, while for the business manager what matters is the breakdown by projects and their profitability. How do we bridge the gap? A common option is to use segmentation in the account numbering structure (the position of the first digit indicates an expense-type account, the position of the fourth and fifth digits indicates the project code, etc.). This structure makes it possible to produce reports that satisfy both accounting and the business manager, all without making any manual selections or artificial cuts across the various reports.