Moderated by Sherry, Financial Technology Consultant at Hyperbots
Sherry: Hello, and welcome to all of you on CFO Insight. I am Sherry, a financial technology consultant at Hyperbots and I’m very excited to have Jon Naseath here with me. He is an accomplished executive with expertise in AI, machine learning, and computer vision driving impactful technology solutions in education, healthcare, and business. Thank you so much for joining us today, Jon. Our discussion will focus on the differences, similarities, and reasons for variations in the chart of accounts across different ERP systems. Let’s dive right into it. Can you briefly explain what a chart of accounts is, and its importance in financial management?
Jon Naseath: Sure. So I approach the chart of accounts a little differently than others might because I have a background in information systems. And so, from my perspective, the chart of accounts is kind of like a master data table that defines a standard structure that you’re gonna use for how you want to manage your business. In the simplest way of thinking about it, it’s a listing of the most detailed level that includes all P&L records, like the drill down to the P&L at the base level, and then also it includes the drill down for the balance sheet at its base level. So, it includes all of them. And then from there, you’re going to have other tables that will have accounts receivable and accounts payable and other sub-ledgers they’re called, so a general ledger chart of accounts sub-ledger. This chart of accounts is the master data that you use to structure how you’re gonna roll everything up to the P&L and balance sheet. Just one more piece there. So if it’s the most detailed level down, then you might have like these five types of revenue, and then you’ll roll them up to be your revenue number in a financial statement as an example, or whatever the summary numbers are you see in your management reporting. The core foundation of those financial statements is your chart of accounts.
Sherry: And in your experience, how would you say the chart of accounts is structured differently across the five ERP systems like Sage Intacct, QuickBooks Online, Dynamics, SAP Hana, and NetSuite?
Jon Naseath: The way I would describe it is that each of those companies has a default out-of-the-box chart of accounts that they’ll present to you as a potential customer using their product. Each of them has different target markets. QuickBooks and Sage Intacct are focusing on one business entity at a time, so they want to present a relatively simple chart of accounts, while SAP Hana, Dynamics, and NetSuite want to present that they have flexibility and can handle more complex businesses and dimensions. The reality, though, is with rare exceptions, I’ve ever seen a company who can just adopt whatever is the chart of accounts from any of those systems and then adopt it going forward. Usually, there’s some level of customization that’s required anyway, so the systems are just saying, “What’s the best way we can give a starting point for that customization?”
Sherry: And why would you say ERP systems like SAP Hana and Dynamics have more detailed and segmented GL codes compared to others like QuickBooks Online?
Jon Naseath: The reason I’m pausing is that from my perspective and a pure database design perspective, they’re not different. It’s just designed for how you need to support the customer. They’re still going to be your revenue, the numbers that apply to your business. There are systems designed to support businesses that have different parts of dimensions for each data center, for example. So, it comes down to what are the different ways that you want to slice and dice the chart of accounts. What slicing and dicing dimensions are you going to build into your chart of accounts codes versus other sub-ledgers outside your general ledger chart of accounts?
Sherry: And how do localization requirements affect the chart of account structures in different ERPs? Could you provide an example?
Jon Naseath: Yeah. So, like NetSuite and SAP Hana, oftentimes they’re designed to support global operations. There might be different tax codes, GAAP rules, and IFRS rules, and you’ll design your chart of accounts to support those roll-ups. For example, QuickBooks might focus more on the U.S. market and try to present a simplified structure, while global organizations would require more complexity to consolidate their financials. Without systems that can handle this complexity, you might end up doing roll-ups manually in Excel, which can be painful.
Sherry: As you touched upon customization in ERP systems, what role does customization play in determining the differences in the chart of accounts across these ERP systems?
Jon Naseath: Two quick examples come to mind. I was working with a company where their new finance leader got them to switch from NetSuite to QuickBooks. However, they soon ran into complexities, such as a lack of flexibility for different locations and vendors. They ended up mapping dimensions manually, creating what I like to describe as a “bloated” chart of accounts. The worst case is when companies put all their products as different codes in the chart of accounts. Initially, the accounting team thinks it’s great, but months later, they’re just tagging stuff to the simplest codes, and many codes remain unused.
Sherry: Can you also discuss the similarities in the chart of account structures across these ERPs, and why these similarities are important?
Jon Naseath: At the end of the day, it’s about the P&L and the balance sheet. You’re talking about revenue, cost of goods sold, gross margin, and operating costs. These core elements of the financials are what you need your chart of accounts to support. The beauty of a chart of accounts is that it includes both the P&L and balance sheet, ensuring that adjustments are reflected consistently across both when you understand the system, it’s pretty straightforward. It’s just another master data table in your database that defines how you run the operations of your business.
Sherry: Could you provide a specific example of how a particular industry might benefit from the unique chart of account features of an ERP like SAP Hana or Dynamics?
Jon Naseath: SAP Hana is known for inventory management. It allows businesses to track costs per revenue, per product line, per region, and business unit. For global companies with complex operations, this level of granularity is essential for understanding profitability across multiple dimensions. Dynamics has similar capabilities, allowing for multi-dimensional analysis without overly complicating the system.
Sherry: And why might a smaller company prefer an ERP like QuickBooks Online or Sage Intacct over SAP Hana or NetSuite?
Jon Naseath: A smaller company might prefer QuickBooks or Sage Intacct because they offer straightforward solutions. When your business operations are simple, these systems have all the features and functionality you need without the complexity of larger ERP systems. When businesses get more complicated, they might outgrow these systems and need to upgrade to something like NetSuite or SA then you need other plug-on tools. I have another. Just no, he wants your questions. I have some other thoughts, but we’ll see if your questions bring him up. Go ahead.
Sherry: And how do integration needs impact the differences in the chart of accounts across these ERPs? And can you provide an example for the same?
Jon Naseath: Okay. Now, that wasn’t planned. But that was the next thing I was gonna bring up. So that’s cool. Oftentimes, when you’re talking about ERP systems, it’s kind of this catch-22 because you have your accounting team that wants the data from throughout the business. Maybe 10 years ago, the plan was, well, let’s get everyone Oracle licenses within accounts payable. Let’s get everyone, whatever. Even different business leaders outside of accounting finance needed to have access to that ERP system, and I’m sure ERP sales reps want that to be the case. But I think this somewhat fell apart when the ERP system started buying other integration systems. So now you have your HR system, your expense management system, and other tools, which bluntly, have a little bit nicer user interface, ease of use, and maybe apps that are cool, focused on specific business roles.Those systems, which back in the day, we used to custom-build just so people would use them, because there’s nothing worse than making someone log in, click multiple times, and then finally get to what they need. So give them what they need with a simple user interface. But then, that can feed straight into the general ledger, chart of accounts where needed, or sub-ledger, ensuring it’s coded correctly and avoiding errors.
Sherry: And looking forward, how do you see the differences in the chart of accounts across ERPs evolving as businesses continue to grow and adopt new technology?
Jon Naseath: You know, a lot of the challenge I’m seeing is businesses are evolving quickly. Their business models are evolving quickly. They’re doing M&A, adding new revenue lines, cutting costs, or adding new divisions. Every time you make that fundamental change to a business, in theory, your chart of accounts should update or align to support that. But often, it doesn’t, so you end up creating a new account code, tagging everything to it, and leaving the old ones behind. This results in the chart of accounts being out of sync and not applicable. Technology can help here because, typically, finance ends up creating a mapping of the chart of accounts in a spreadsheet to management reporting needs, along with allocation logic for dividing costs among departments or divisions. And while that’s fine, it’s manual. What AI and technology can now do is help automate this mapping. Based on historical mapping data, AI can generate management reporting and reduce errors caused by manual processes. A lot of manual mapping, revenue discrepancies, and errors in cell linking or extracting data into reporting tools can now be simplified. AI can even map transactions to reporting directly, bypassing the GL in some cases. The GL, being a summary view, still needs reconciliation to sub-ledgers and other systems. AI can help make this process faster and more accurate by automating checks across systems. So, closing the books could become much faster as AI ties the sub-ledger directly to the GL, ensuring it’s complete and accurate.
Sherry: Thank you so much for these insights, Jon. It’s clear from this conversation that the differences in charts across ERPs are shaped by a variety of factors from the size and complexity of the business to the need for localization, customization, and integration. This conversation has been incredibly informative for understanding how businesses can choose the right ERP for their financial management needs.
Jon Naseath: My pleasure.
