Chart of Accounts

Much like physical building blocks, CoAs must last long (at least for a reasonable period – 10 Years!). Hence, design of CoA must be futuristic to accommodate changes in businesses/structures/growth over time. Also, CoA must indirectly help users to quickly familiarise and be conversant to select and assign the right account heads to transactions almost with zero errors! 

Some suggested guidelines are:

• Segment Size – Make sure to accommodate future growth – E.g. Balancing Segments – Presently 2 – Good to consider a segment size of 3 considering future growth as this provides an opportunity to consider up to 999 values from the present level of 99. Too big may be clumsy and too small will run out of limits too soon!

• Allocate Separate Value Range for distinct account types/subtypes – i.e. Assets, Liabilities, Income, Expenses, Capital/Equity related etc. – Illustratively, if natural account segment has a size of 5 – may be good idea to assign 00001 to 09999 (Income) – 10000 to 29999 (Expenses) – 30000 to 39999 (Assets) – 40000 – 49999 (Liabilities) 50000 – 59999 (Capital/Equity). Also, ensure to design sub-range – E.g. within fixed assets – for land, buildings, plant and machinery etc.

• Design ‘Parent’ Account Values – Preferably in ‘Alphabets’ – to roll-up account balances of children in the manner required for statutory / internal reporting. Most enterprise applications provide avenues to build multiple account hierarchies for use for different needs.

• Use ‘Leading Zeros’ and ‘Capitals Only’ to provide a standardised segment length visible to the user and also enforcing a discipline to enter segment values in capitals instead of inadvertent use of mixed case/small case/initial capital.

• Use standardised pattern in ‘Description of Account Heads’ – All account heads for contribution to various employee benefit schemes must uniformly start with ‘contribution – xxxxx’ (E.g. ‘contribution – Pension Fund’, ‘Contribution – Health Insurance’, ‘Contribution – Accident Insurance’) – The advantage is when searching based on description just entering ‘contribution%’ will retrieve all heads of similar nature which will not be feasible if non-standard account descriptions are used.

• Use Rhyming and Miming – Segment values for most often used account heads should facilitate easy re-call – e.g. AMC – plant and machinery – 10500, repairs – machinery – 10600, travelling expenses – fare – 11555 etc., are some suggestions for easy remembrance. Positive user perception and adoption significantly contributes to the successful/error free usage of CoA.

• Specific to Enterprise Applications – Have unique accounts for ‘clearing’ / ‘receiving’ accounts is select applications – E.g. In Oracle applications good to have separate ‘Asset Clearing’ accounts for each asset category. Likewise, in Procurement do not use the same accounts for ‘Receiving’ and ‘Inventory’ accounts. Assigning distinct accounts will facilitate in easy tracking/reconciliation.

• Only Designated Team/Member(s) to handle any change request instead of free for all – discipline will do a world of good – trained administrators with specifics of CoA policies will help to handle changes in a structured manner to add years to the CoA.

• Optimise the # of segments – More # of segments does not necessarily mean higher transparency / analytical capability – explore alternate strategies – E.g. In Oracle applications – Receivable transaction sources/types can be used to distinguish the recorded transactions – Before deciding on additional segments examine if this classification will be of help to meet specific expectations.