Better financial control with an optimal Chart of Accounts (COA)

Find out interesting insights with Shaun Walker, Sock Compliance Manager at Norfolk Southern

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Don’t want to watch a video? Read the interview transcript below.

Emily: Hi, everyone! This is Emily, and I’m a digital transformation consultant at Hyperbots. I am very happy to have Shaun on the call with me who is the sock compliance manager at Norfolk Southern Company. So it’s really great having you, Shaun.

Shaun Walker: Glad to be here. Thanks for having me.

Emily: Of course, the topic we’d be discussing today is optimizing financial control with an optimal chart of accounts and we’ll explore how exactly an optimal chart of accounts can serve as a foundation for better financial control within a company. So, to begin with, Shaun, how does an optimal chart of accounts help control company expenses?

Shaun Walker: So I’d say, an optimal COA allows for granular tracking of expenses. It categorizes them into meaningful heads. For example, travel, office supplies, marketing, and utilities, and it helps to identify certain spending patterns. It monitors deviations from the budget. So those are just a few examples.

Emily: Got it. So, Shaun, can you explain how a well-structured chart of accounts can ensure accuracy in general ledger updates for revenues, costs, expenses, assets, and liabilities?

Shaun Walker: Sure, a well-structured chart of accounts will have distinct heads for each type of account. You want to have separate accounts for different revenue streams, for example, product sales, service income, and different cost categories like direct materials and overheads. That will ensure that financial transactions are recorded accurately and consistently and adhere to all the accounting standards.

Emily: Got it, got it. And how does the chart of accounts contribute to effective cash management?

Shaun Walker: It can support cash management by categorizing cash flows into three main categories, which are operating, investing, and financing activities. This helps to understand the sources and uses of cash, which is crucial for cash flow forecasting.

Emily: Understood. Shaun, just out of curiosity, in what ways can an optimal chart of accounts help minimize variances between actuals and provisions?

Shaun Walker: It helps to minimize variances by providing accurate, timely, and detailed financial data, which supports better budgeting and forecasting. It allows for detailed variance analysis by breaking down revenues and costs into specific categories.

Emily: Got it. Also, Shaun, could you provide examples of how an optimal chart of accounts enhances forecasting and projection?

Shaun Walker: A well-structured COA supports forecasting by maintaining detailed historical data in a very structured format. That’s vital for trend analysis. For example, a SaaS company might use a chart of accounts to track different revenue streams, such as subscription fees, professional services, and consulting. By analyzing historical trends in customer acquisition and retention rates, the company can project future revenues more accurately. It also allows for “what-if” scenarios if there are changes in sales volumes or cost increases, and forecasts can be made based on those assumptions.

Emily: Got it, understood. Shaun, how exactly does a well-organized chart of accounts align with key performance indicators in a company?

Shaun Walker: A well-organized chart of accounts can be designed to align with a company’s KPIs, allowing for consistent tracking and reporting of performance metrics. For instance, if a company’s KPIs include gross margin, operating margin, and net profit, the chart of accounts should have specific accounts that allow for accurate calculations of these metrics. Aligning the chart of accounts with the KPIs ensures that financial data is easily accessible and relevant for decision-making.

Emily: So just out of curiosity, Shaun, what are some of the common mistakes that companies make when structuring their chart of accounts? And how exactly can they avoid it?

Shaun Walker: Some common mistakes include creating an overly complex chart of accounts that may be redundant or duplicative, using vague or inconsistent naming conventions, or failing to align the chart of accounts with business objectives. To avoid this, companies should regularly review their chart of accounts to eliminate redundancies, ensure clarity in account naming, and align with industry standards and best practices. Leveraging technologies such as AI to scan for duplicates and redundant accounts can also help.

Emily: Got it. So, Shaun, now that you just spoke of AI, I’d want to wind things up. How exactly can technology, particularly AI, enhance the management of the chart of accounts for better financial control?

Shaun Walker: AI is a powerful tool. It can automate data entry, detect anomalies, and ensure accuracy in financial data. For example, it can automatically classify transactions into the correct accounts, reducing manual errors and improving consistency. AI can also identify patterns and trends that might not be immediately apparent, such as expense patterns that may indicate fraud. It can regularly scan and streamline the chart of accounts structure, ensuring that a company’s financial objectives are achieved.

Emily: Got it. Thank you so much, Shaun, for talking to us about optimizing financial control with an optimal chart of accounts. It was really great having you, and the discussion was truly insightful. Thank you so much.

Shaun Walker: Absolutely. Thank you for having me.