Following up on our previous article where we have covered terminology, financial dimensions, sub-ledger and etc. – we would love to delve into main accounts and their configuration.
Main Account: Numbering Strategies
When we think about the main account, it is important to have a good strategy in place before you start clicking the new button and creating the accounts. There are several factors that you will want to consider:
- The length of the account numbers. Generally, 3 digits are too few and do not allow for much growth, while 7 characters are likely too many and may inhibit the usability of the system. Typically, 4 to 6 digits are recommended and allow enough room for growth and create a balance for usability.
- The format of the account numbers. You will want to define a good format for your chart of accounts and it is generally recommended to stick to numbers, avoiding letters and using the account mask to ensure that all account numbers are the same length. For instance, you don’t want to create some 4 digit account numbers and some 5 digit account numbers.
- Structure. When we think about the strategy for the main accounts, we want a good structure for the accounts. For example, we might want to consider using a standard such as the Harvard standard, where the accounts that begin with one represent assets to represent liabilities. Even if you don’t use a general standard, we recommend that you document your structure and rules and consider creating main account templates for each account type or range that you have assigned in your structure.
Main Account: Configuration Strategies
It is important to consider the basic configuration strategies for your main accounts. First, is the sharing of your main accounts – it is recommended to share your main accounts when possible. Make sure to document and understand the business requirements and reasons for not sharing the main account. It is generally always going to be easier to manage the exceptions and share where possible.
When thinking about managing exceptions, we want to use the legal entity overrides. Remember that you could disable accounts that are not needed in specific legal entities. If you have an account that is only needed in one legal entity, you can suspend the account and then use legal entity overrides to enable the account in the legal entities where it is needed. Also consider the use of additional consolidation accounts – it is very common that businesses need an alternative numbering or naming of accounts for regulatory requirements. In this case, you can often use an additional consolidation account to define a different number and account for each main account.
Finally, it is critical to have a strong governance process in place for managing and maintaining your chart of accounts. Remember that your governance process should include the downstream posting profiles and parameters that are affected by changes to your chart. It is recommended to configure and test security rules to limit the number of users who can maintain your main accounts, financial dimensions, posting profiles, and so on. Use your main account templates to help create consistency and to improve the usability and ease at which you can create new accounts.
Chart of Accounts Facts
Each chart of accounts is a distinct list of main accounts. Every implementation will always have at least one chart of accounts defined. The chart of accounts page is not legal entity-specific, meaning that you can open the page from any legal entity in the system and you will see each chart of accounts and all of the main accounts within it.
Then, each legal entity can have one chart of accounts. This is configured on the Ledger form and this is how you tell the system which chart should be used for each legal entity.
Also, it is important to note that you cannot change the chart of accounts after transactions exist. Well, you can create new main accounts or make changes to these settings on existing main accounts. The chart itself is fixed after you post your first transaction. For this reason, we strongly recommend planning, testing, and validating your chart of accounts designs carefully, before going live.
You can add new main accounts to the existing chart of accounts and disable the accounts or make changes to the accounts after transactions exist. This includes making legal entities overrides on the main account if you need the behavior to be different for one or more legal entities.
Many legal entities can have the same chart of accounts. If you want to share the chart, you will simply assign the same chart of accounts in the Ledger form for each of your legal entities.