Common Problems in Charts of Account

Accountants are often great at, well, accounting, but tend to get lost in the detail, preferring to count expenses down to the paper clip level instead of focusing on what truly matters for a company’s profitability. Nowhere is that more evident than in the chart of accounts they create. What are some common problems in charts of account? Let’s dive into it below

Common Problems in Charts of Account Design

Here’s a look at the common problems in charts of account and some recommendations for improvement:

Too Many General Ledger Accounts

Often when using QuickBooks or Peachtree accounting software the number of general ledger accounts grow over time. Usually the person entering the data is not a trained accountant. When faced with an accounting entry not specifically described by an existing general ledger account, they will often set up a new account. It is especially easy to do in QuickBooks.

Too Much Detail in Selling General and Administrative Expenses

Similar to the problem mentioned above, often the person maintaining the general ledger is a detail oriented employee. This trait is both a blessing and a curse. The theory goes as follows: If a little detail is good then a lot is better! In order to get more and more detail on the general ledger they set up new general ledger accounts. In the end they are counting paperclips with numerous accounts with less than a thousand dollars charged to them….”

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Common Problems in Charts of Account

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Common Problems in Charts of Account

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2 Responses to Common Problems in Charts of Account

  1. Dave Gottlieb January 29, 2010 at 7:59 pm #

    Matt:
    I agree with your comments. I cannot say how many times I've seen an expense account at year-end with several hundred dollars in it, on a medium size company with revenues of $40+ million.

    And I've seen many a CEO or president ask to accumulate small expenses on the general ledger, to never ask for an analysis or do anything useful with the information.

    I advise people to remember that information in itself is not useful. It is only useful if you can make a meaningful decision with it. When I find someone attempting to open a new account, I simply ask what business decision they will be made with the information.

  2. Anonymous April 9, 2010 at 10:59 am #

    hiya

    just signed up and wanted to say hello while I read through the posts

    hopefully this is just what im looking for looks like i have a lot to read.

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