Managing and scaling the Chart of Accounts(COA) in QuickBooks Online

Find out interesting insights with John Silverstein, VP of FP&A at Extreme Reach

Moderated by Emily, Digital Transformation Consultant at Hyperbots

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

Emily: Hey, everyone, this is Emily, and I’m a digital transformation consultant at hyperbots. I’m pleased to have John Silverstein on the call with me, who is the VP of FP&A at Extreme Reach. So thank you so much for joining us, John.

John Silverstein: No problem. Thank you for having me.

Emily: So, John, the topic that we’d be discussing today is managing and scaling the chart of accounts in Quickbooks online. The 1st thing that I ask you is, what are some of the key considerations when setting up a chart of accounts in Quickbooks online for a small business?

John Silverstein: Yeah, when setting up the chart of accounts for QuickBooks online, it’s critical to be simple and logical. But you also need to look forward a little bit to the growth of your business. Look at your business model and the industry standards because you want to be aligned with how that’s going to be, and how you can look at your financials compared to either other companies, or if you eventually go for a sale or you acquire another business. It’s good to be in line with that. So assets, liabilities, equity, revenue, expenses. You want to make sure that those are broken out into the proper categories for that industry and that it also meets your regulations. You wanna enable the account number early. This is a big mistake. I see a lot in the smaller businesses that they just name, and their names are all over the place, and they change over time. So it’s hard to trace and understand the data. As it moves. And so it’s if you enable the account number, and it’s easier to integrate into work with other systems. As you and your business grow. So it’s important to implement that as early as possible. It. It creates a little bit of extra work, but it’s not that much.

Emily: Got it. So, John, as a business grows, how can it maintain an effective chart of accounts in QuickBooks online without having to move to a more complex ERP system?

John Silverstein: Yeah, it’s surprising how flexible and how good and what rigor and things you can get into QuickBooks online if you enable the right things. So it’s important to work with your accountants, and if you don’t have one internal, but if you are the accountant and things that you look at and leverage. You know the platform of QuickBooks like classes, locations, and the other dimensions that are there. So you don’t have to overcomplicate. I see a lot of companies that don’t enable classes until it’s too late. And again, it gets really hard. And you’ve overcomplicated your chart of accounts to try to do something that really could have been solved by classes or locations and things like that. So it’s also important to try to understand what those dimensions are. It goes back to the 1st question about industry and things that you do. So segment the data. You have to think about how you’re gonna measure and monitor the business review and monitor and make sure that that chart of accounts is always in line with how you’re gonna do it. If there are any redundant accounts close or inactivate them, make sure they’re properly categorized. Use sub-accounts, use a hierarchy that helps out. And you can go pretty far with QuickBooks online. I’ve been in companies that have made it to that 100 million dollar mark on QuickBooks. So it. It does scale more than what many would expect.

Emily: Got it. Got it. So any common mistake, John, that you’d have seen small businesses make when setting up their chart of accounts in Quickbooks online?

John Silverstein: Yeah, one of the things is there, the biggest thing. And this goes across the board. Any system has too many accounts, and they don’t enable the other dimensions and things. So then you try to use an account for everything, account per vendor, account per customer, and things like that Just remember that there’s reporting and things that can get you there without having to break it out in your chart of accounts that overcomplicate it, and then there are more mistakes, and it causes a lot of confusion as you bring in new people Or you might have to have another accountant or other people look at it, or your management looks at it and things, and it gets more confusing, and it even makes it harder for audit as well, and it creates a lot of clutter.

Emily: Got it, got it. So how can businesses create a flexible and scalable chart of account structure that supports growth?

John Silverstein: Yeah. The best way to do this is to make sure that you have a numbering system that allows for the expansion. And to do, add-ons and things, and to make sure that you’re you, you can change the names without affecting other reporting and things you don’t want to leave gaps between you. You need to leave the gaps in between the account numbers, so you can add accounts and easily use sub-accounts to track more detailed information. So you can have the details when you need to answer certain questions and have it at your fingertips. Make sure that you have that available, and then you plan on growing. So you have those spaces and things, and then this approach will allow you to keep it simple but also have detailed financial analysis and reporting.

Emily: Okay, why, exactly, is it important for different businesses to regularly review and optimize their chart of accounts in QuickBooks online?

John Silverstein: Yeah, it’s critical to ensure that the accounts reflect how your business is today. If you’re selling new things, maybe your models change. Maybe you were initially transactional or your pricing wasn’t, it was more value pricing and things like that. Or, yeah, when you’re smaller you might have more to give. But as you grow and things, it’s critical that you have the information. There, the accounts reflect your current business operations. What does your cost structure look like, are you in? Is everything in the house? Are you doing things yourself? Are you outsourcing those types of things? You must have that at your fingertips. You also don’t want to have to roll up many redundant accounts or account hierarchies even to try to get an answer in your financials, so make sure that you continue to look at it. So you know which accounts to use when you’re answering the questions that you have on your finances, and it also alleviates the errors of things going to too many different places. And then you have to try to figure out how to map it all back together.

Emily A: Got it. Got it. So, John, can you explain the role of AI in maintaining charts of accounts, integrity, and QuickBooks online?

John Silverstein: Yeah. So AI, and this is something that’s gonna have a significant impact. Going forward is on the chart of accounts because it can keep that integrity, it can also have the knowledge to recommend and detect errors between how? What’s posting? To which accounts, and as long? It can make sure that the definitions are consistent on what’s going on, and it can recommend even when you should create a new account and break it out. It could also tell you that you have duplicates or missing entries. So AI algorithms, it’ll enforce consistency in accounting. It’ll make it easier to do analysis, it’ll make it easier to be compliant. You’ll have clarity on where things should be booked, and why. It can also have predictive analytics to suggest. Hey, you need a new account. You need a subaccount. This is a hierarchy and to go into the patterns of transaction history to recommend that. You can also have real-time data validation. So your book closes and things will be faster and more accurate. This is critical as you go through to make sure you have consistent financial data.

Emily: Got it so little bit about ERP migration, John. So how can I help a business that is considering migrating from Quickbooks online to, let’s say, a more complex ERP system like NetSuite?

John Silverstein: Yeah. So if AI could help you start getting there, the more you’re aligned with how the bigger Erps work and you have classes already set up. You have the things set up in QuickBooks online that are more aligned with NetSuite. It’s easier to migrate, and your process is if and flows. If they’re proper and doing the same things as some of these other Erps, it may make it better data, integrity, and continuity, and easier to go through the conversion without having to do a lot of data cleanup it also can automate your reconciliations and validations through the migration to make sure that everything’s in sync it’ll save a lot of time. Reduce the errors. Maybe the Erps will get a little bit worse. 3. Letter acronym. It will become a little more doable and foreseeable to go into an ERP that makes more sense for your business without a huge lift in cost and time.

Emily: Understood. And just one last question, John. So what are some best practices for using QuickBooks online as a growing business? And you know, when should a business consider moving to a more robust or more? Do you know the nuance?

John Silverstein: Yeah. So the one thing I would say is that you need to try to get as much structure as possible in QuickBooks with numbering systems. Reviewing the chart of accounts. A lot of this structure and things and controls in QuickBooks tend to be manual in the process where you have to do manual reviews or have AI review it. Now you have that option. But you didn’t in the past be a business should consider moving to a more robust ERP when they’re getting into more complex workflows and complexities like consolidations and things. If you have multi-entity management QuickBooks, don’t really. It’s a separate entity and roll-ups are hard and complex. They’re getting a little bit better, but it doesn’t. It’s not made for that when you get into some of the currency and other things that you might face as a larger enterprise. Quickbooks aren’t made for that, or designed for that. So if you need more sophisticated reporting, you need to have more data too. It’s probably better to move on to a tool like Netsuite.

Emily: Got it. Got it. Thank you so much, John, for being here and talking to us about managing and scaling the chart of accounts in Quickbooks online. It was great having you. And it was a fruitful discussion. So thank you.

John Silverstein: No problem.

GL coding in the Chart of Accounts(COA)

Find out interesting insights with Jon Naseath, CEO/Founder Cantu Capital Inc

Moderated by Sherry, Financial Technology Consultant at Hyperbots

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

Sherry: Hello, and welcome to all our viewers on CFO  Insight. I am Sherry, a financial technology consultant at Hyperbots, and today we are speaking with Jon Naseath, who 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, John. Today we’ll be discussing the importance of GL coding in the chart of accounts, common mistakes companies make, and how technology can help maintain coding integrity. So let’s dive right in. Can you briefly explain what GL coding is, and why it is so important in the chart of accounts?

Jon Naseath: So just briefly, what GL coding is, and I’ll tell you an example of the importance. GL throughout the entire business. People are doing their work. They’re spending money, earning revenue, buying things, or investing in product development. Whatever you’re doing throughout the entire business. That translates into equity. You’re making money for investors or making customers happy. Whatever is your role, there’s a representation of that in the GL. We have to make sure that what you’re doing, what you’re spending, and what revenue you’re making is accurately represented in what’s going to turn out later to be the P&L or your balance sheet. You know, what did we invest in on the balance sheet? And what did we spend, and how much revenue did we make on the P&L? If we don’t map things correctly to the GL, then the rolled-up reporting numbers will be wrong. There are all these very formal GAP accounting rules over how things exactly have to be mapped. The story example I wanted to raise real quick was just a few hours ago. I got an email from a very good friend of mine. I used to work at a large organization, and he’s a leader in that organization. He spends his whole day talking to big companies around the world about how to reduce the cost of IT and cloud spending, and how to help them with strategy. He pinged me and asked me, “Where can I find the right definition of revenue?” I chuckled when I saw that because, I mean, there are people’s whole careers spent helping companies figure out how to define revenue for their business. He asked, “What’s the definition of net revenue?” I spent a year working with a company where there were actually seven definitions of revenue just within that company. They called it gross revenue, sales revenue, RevOps, net revenue, and all these different things. But the reality is, if you ask an accounting person, there’s only one definition of revenue, and there are actual policies around how that’s defined. The reason I bring it up is, that if you’ve mapped all these different things that you do in your business to the GL, and then you map that GL to management reporting, different management reporting people will want to see how what they’re doing impacts revenue in this example. They can make up their definitions, but they should define that there’s one thing that is accounting GAP, you know, audited revenue. All the other stuff is management reporting. If you’ve mapped stuff in wrong, then the core number is wrong. If you map stuff wrong, then the other pieces are wrong. Just bluntly, if you do it intentionally and you’re trying to hide things, people go to jail. So that’s why it matters. But also so investors can understand what they’re doing, and management can have clear views of how they’re managing the business. Long answer to a short question, but it was a pretty loaded question.

Sherry: And in your opinion, what are some common coding schemes that companies should follow when setting up the chart of accounts? Can you provide examples from different industries?

Jon Naseath: Most simply, think about it as your P&L and your balance sheet. As you walk down your P&L, you know, revenue, cost of goods, operating expenses, whatever you have in your P&L. As you walk down your balance sheet, assets, liabilities, etc. All it is is a number that represents walking down your P&L and balance sheet.  The root of your question, though, is within different industries, there’s become quasi-standards around how they’re doing their business. Every company within that industry is also going to try to find its competitive advantage, so they’ll do something unique to them. When they do roll up their P&L and balance sheet, I remember I was in a job where my job was to take that from the accounting team, roll it up into these investor analyst reports, and then we’d hit submit to go live at quarter-end. There was an army of like 60 investor analysts whose whole job seemed to be to find any errors we had in any of those numbers. What they’re doing is mapping that financial statement to other ones in the same industry and seeing if we’re different, wanting to compare them. So to some degree, you want to be similar to your peers in the industry, but for others, you want to innovate. I was at Equinix, which is an innovator in space. We impacted how the industry looks at metrics like FFO and other REIT-related revenues. We made sure we were compliant with revenue. There were lots of things besides just data center buildings that we had as revenue, and we had to account for them correctly.

Sherry: What are some common mistakes you’ve seen companies make with their GL coding structures? Can you provide examples from various industries?

Jon Naseath: One mistake is in the way companies add dimensions to the GL, like region, department, or sales channel. You might see the initial chart of the account code, and then different dimensions get added as “dash something else.” This lets you slice and dice to understand costs by department, region, or product type. But bloating the GL by adding too much detail, like putting all your product SKUs into the chart of accounts, can make it unmanageable. Over time, old codes and new codes can create complications. Another issue is the lack of standardization. It’s important to align with industry standards so reporting can be compared. Insufficient detail is another problem, where management wants specific insights to reduce costs or invest more, but all they have is a generic code for product costs. You need to break things up by what should be capitalized and what should be expensed. Finally, there’s inadequate training and documentation. If people aren’t trained well, they can tag transactions incorrectly, which impacts the rolled-up reporting. That’s why visibility and proper training are key.

Sherry: How do these mistakes impact a company’s financial management and reporting?

Jon Naseath: From a financial perspective, it creates a lot of unnecessary work. Ideally, you could just roll things up and have it reconciled, and everything makes sense. But often, you do plan vs. actuals or month-over-month, and something’s off. You might have a gut feeling that a number isn’t right, and sure enough, you unpack it, find a miscode, and need to reclassify. The impact includes inaccurate or inefficient financial statements, upset executives, and hours of rework. It can lead to compliance risks, resource wastage, and worse, damage a company’s credibility. If a CFO has too many reporting errors, they could lose their job.

Sherry: How do you think technology can help maintain GL coding integrity and reduce these mistakes?

Jon Naseath: Technology is excellent at reconciling across different dimensions and sources. It can tie everything together, but it’s not perfect—AI can sometimes hallucinate. There are automation tools and AI that help, but there needs to be a balance between understanding numbers and producing accurate outputs. For example, I was talking to the controller of a large global organization. They have a complex ERP system and are transitioning to a new version. They’ve gone through the business planning, and they know what they want that future state GL and reporting metrics to look like. And they finish that. But it’s gonna be another at least a year and a half, maybe 2 or 3 years, until they get this full ERP fully implemented, all trained, and are in the new future state system. In the meantime, they’ve got a year and a half and 2 years or more, because things always go wrong in those projects. There’s always some reporting that’s missing, even if they say they go live. It’s never right at first. However, even with what I just said, it’s never right at first. I believe there’s an opportunity here where if you define what you want your future state reporting to look like, and you have that data coming in. And you’ve created this mapping thing that you’re gonna give off to some developers and they’re gonna rebuild the system based on that new mapping tables and then you have to extract the data from the old table, load it into the new table once it’s developed and then wait. Maybe the reports work, but they don’t. And it’s huge UAT testing.  Anyone who’s been through that knows it’s painful. I think AI can do a lot of that stuff. I think you can take from your legacy system, your current system. You can say, here’s what I want my master tables to look like. Here’s what I want my reporting outputs to look like and it can help produce those. Now, again, it’s going to hallucinate. You have to code it the right way to make sure that it gives you the right outputs. But a lot of the pain, which is real pain, or a lot of the late nights because there’s an error, and there’s rework. You have to go through a lot of the cost of hiring an army of people to fix an error that was in there historically and rebuilding reporting.  A lot of that, I believe, will be able to be fixed by AI. And it’s no longer for me just a belief. I know it’s real, because I’m seeing it happening in different companies I’m talking to or working with and it’s fun. And frankly, I’ll just give you guys a shout-out. You’re on your track with the products you guys develop. I’m seeing good things. It’s exciting to see what you’re building, and where this will lead to.

Sherry: Thank you so much, Jon, and from your experience in the finance industry, can you provide an example of how automation might improve GL coding practices in a specific industry?

Jon Naseath: Yeah. The manufacturing industry is complex a bit, because it’s not all just kind of in the cloud, SaaS, and I’ll say relatively easy. So there are so many different stages of raw materials, work in progress, finished goods, making sure you’re coding things all to the right place and then, making sure it’s current. I think that speed aspect is really important, because then, if you don’t get it right in time, you’re making accruals, and you have to fix them later. So I think that can reduce a lot of human error and complexities when things go away. And I think automation will fix a lot of that stuff.

Sherry: And what best practices would you recommend for companies, or for our viewers looking to implement or improve their GL coding system?

Jon Naseath: Sure. Don’t get overloaded is the way I like to describe it in your GL. Keep it relatively simple. Think about what is the core dimension of your GL, and then what the sub-dimensions, and sub-ledgers that tie into that. Make sure people have the training they need so that they’re not screwing your stuff up. I remember a friend of mine was in accounts payable, and he had a paper on his screen. He would just keep, and all he was doing was coding things to those key numbers, and that master table. When I come into a new company, I’ll, based on that, go around and ask the people in these types of roles: “Show me your kind of cheat sheet. What’s that master thing for mapping that you rely on?” And they all have them. They all pull out, “Well, this is what I look at, this is what I rely on.”I like to take those cheat sheets, standardize them into policy, and make them real. Use technology wherever possible. I do think AI is great, but I think that there’s lots and lots, you know, throughout my whole career there’s been automation of things. So there are lots of things that are proven as technology automation, use them. We don’t need to reinvent AI just to do something that’s already fully automated. And then use AI for stuff that couldn’t have been automated previously. That is now enabled. And the combination of those two things is where you get really powerful results and then just basic, I’ll call them controls. Reconciliations, making sure that things are coded correctly, doing budgeting, and making sure you’re doing those plans versus actuals. The best call out here is to partner with FP&A, finance, and accounting. Accounting wants to get their numbers right. They’re very proud of that. But then it’s FP&A that is creating the management reporting a lot of times and a lot of the forecasting. So if those numbers are off, work together to make sure they’re right before you go spread it all over the business and tell them that they’re idiots because they screwed up some number when it was an accounting-finance disconnect. That never happens, but just hypothetically.

Sherry: Thank you so much, Jon, for these valuable insights on GL coding practices, and how technology can play a crucial role in maintaining financial integrity.

Jon Naseath: My pleasure, always fun.

Differences in Chart of Accounts (COA) across ERPs

Find out interesting insights with Jon Naseath, COO Osmo

Moderated by Sherry, Financial Technology Consultant at Hyperbots

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

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.

Revenue heads in the Chart of Accounts (COA)

Find out interesting insights with Dave Sackett, Finance Persimmon Technologies

Moderated by Jane, a financial technology consultant at Hyperbots

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

Jane: Hello, everyone! This is Jane, a financial technology consultant here at Hyperbots, and today we are joined by Dave Sackett, who is the VP of Persimmon Technologies. Welcome, Dave. Thank you for joining in.

Dave Sackett: Yeah, thanks, Jane.

Jane: Let’s dive straight into it. The topic we’ll be discussing today is revenue heads in the chart of accounts. This topic is critical for effective financial management and strategic decision-making in any organization. To start, can you please tell us why structuring revenue heads properly in the chart of accounts is so important for organizations, especially across different industries?

Dave Sackett: Yeah. So what you have are compliance issues, and different stakeholders need to know revenue accounts to manage the business properly. Depending on the industry you’re in, it can vary significantly. If you’re a SaaS company, you’re looking at usage, internet clicks, etc. If you’re a manufacturing company, you have product revenue. In a service company, the revenue structure differs again. So, regardless of the industry, you may have vastly different ways to look at revenue.

Jane: Understood. What are some common mistakes or errors accountants make when creating revenue heads in the chart of accounts?

Dave Sackett: People who like data often want everything at their fingertips. They might create a revenue structure with very tight granularity, capturing every detail. But in reality, it works better to have a simplified chart of accounts and use other reports for additional details. This helps focus the audience on the right revenue and keeps everyone on target. When you have new business lines or revenue streams, that’s the right time to expand how you look at revenue.

Jane: Got it. Can you share some best practices for structuring revenue heads to avoid these common mistakes?

Dave Sackett: Yep. You want to meet with your stakeholders and figure out what your end product and reports will look like, and who needs the data. It may be for regulatory compliance or reporting to a parent company that consolidates results. Revenue tracking can be critical, especially for accounting eliminations. It’s important that everyone is on the same page when it comes to revenue, and you want to avoid overcomplicating it.

Jane: Understood. How can AI help improve the management and structuring of revenue heads in the chart of accounts?

Dave Sackett: Luckily, we’re in the age of AI, where advancements are happening quickly. AI can support you not only in creating revenue accounts but also in analyzing revenue changes, performing flux analysis, and digging into variances. So, AI has become almost a partner in accounting and finance. Focus on the problem first, then see how AI can support it. As technology progresses, AI’s ability to help will only increase.

Jane: Understood. Can you provide an example of how a specific industry, such as retail or manufacturing, benefits from an AI-validated chart of account structure for revenue heads?

Dave Sackett: Yes. I work in a manufacturing company where we make robots. AI helps us by analyzing variances and providing guidance on whether transactions are going to the correct accounts, or if revenue should be structured differently. AI can alert you if you have transactions that look incorrect based on descriptions, helping guide you in setting up revenue accounts and suggesting whether to add or consolidate accounts. It’s like having another set of eyes to assist in your accounting work.

Jane: Got it. How often should organizations review and update their revenue heads in the chart of accounts, and what factors should trigger these reviews?

Dave Sackett: Right now, I’m transitioning to a new ERP system, which is a great time to revisit revenue categorization. My goal is to keep things simple and basic, and as the business grows and new revenue streams come in, we’ll add accounts but starting with a strong foundation and adding as necessary is key. I wouldn’t recommend changing revenue categorizations frequently, but major milestones like a new compliance report or a new product or service might trigger a review. If no major events occur, an annual review, perhaps during budget planning, is a good rule of thumb.

Jane: Understood. Finally, what advice would you give to CFOs or financial managers looking to optimize their revenue structures in the chart of accounts?

Dave Sackett: Look to the future. Consider tools available today that weren’t available two or five years ago and see how they can help you. AI is very powerful now, especially with advancements in large language models. These AI systems can now really understand your business, and you can train them to support your efforts in tracking revenue.

Jane: Understood. That’s it. Thank you, Dave, for sharing your valuable insights on managing revenue heads in the chart of accounts. Your guidance will surely help many organizations optimize their financial structures and enhance their decision-making processes.

Dave Sackett: Great, thanks, Jane.

Jane: Thank you.

Managing variability in the chart of accounts

Find out interesting insights with Anthony Peltier, CEO Coast to Coast Finance

Moderated by Pat, Digital Transformation Consultant at Hyperbots

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

Pat: Hello, and welcome to CFO Insights by Hyperbots. Welcome to today’s discussion on the variability of the chart of accounts (COA) across different industries, companies, and ERP systems. Joining us is Anthony Peltier, the CEO at Coast to Coast Finance, who will share insights on how the COA can differ, based on several factors. Welcome, Anthony.

Anthony Peltier: Thank you. Glad to be here.

Pat: Alright, so let’s just dive straight in. Can you start by explaining what a chart of accounts is and why it’s essential for organizations?

Anthony Peltier: Yeah. A chart of accounts, or COA, is a list that categorizes all the financial accounts in the general ledger. It serves as a framework for recording and reporting financial transactions. The COA is essential as it provides the structure needed for consistent reporting, compliance, and analysis. It helps ensure that all financial data is captured accurately and can be reported in a way that aligns with both internal and external requirements.

Pat: Alright, that makes sense. How does the structure of the COA vary between different industries?

Anthony Peltier: It varies significantly between industries because each industry has unique reporting needs. For example, a manufacturing company might have raw materials, work in progress (WIP), or finished goods under their cost of goods sold (COGS), while a service company, such as a consulting firm, would have accounts that focus more on labor costs, direct service costs. A retail company may emphasize inventory accounts and sales revenue, while a financial services company might have specialized accounts for interest income, loan loss provisions, and brokerage fees.

Pat: Okay. So we talked about how COA might vary between different industries, but what are some specific examples of how two companies within the same industry might have different COAs altogether?

Anthony Peltier: Sure, even in the same industry, companies can have different charts of accounts based on their business models or operating costs. In the technology industry, a more product-focused company might have detailed accounts for hardware production, software development, and cloud infrastructure, whereas a service-oriented tech company might focus more on support costs, software-as-a-service operations, and professional services. Even two retail companies could differ. One with a brick-and-mortar presence might have detailed accounts for store rent and overhead, while an e-commerce company might emphasize digital marketing and logistics costs.

Pat: What factors typically drive these differences in the COA structure from one company to another within the same industry?

Anthony Peltier: Several factors, like company size, business model, geographic location, and regulatory environment, can drive these differences. For instance, a global company might have a more complex chart of accounts to manage various currencies, tax jurisdictions, and intercompany transactions, whereas a smaller company might have a simpler COA, but still reflective of its focus. Risk appetite, management style, and strategic goals also influence COA structure.

Pat: Could the same company have different charts of accounts for different ERP systems? And if so, why would that be the case?

Anthony Peltier: They could. Different ERP systems might require different COA structures due to specific functionalities and reporting capabilities. One ERP system might be designed to meet local statutory requirements, necessitating a more granular chart of accounts for tax reporting or currency differences. Another ERP, used at a global level, might emphasize standardization and consolidation across geographies, leading to a different COA structure. Variations in ERP configurations and how the systems integrate with other financial tools could also contribute to COA differences.

Pat: What challenges do these differences in the chart of accounts pose for financial reporting and management?

Anthony Peltier: The main challenge is maintaining consistency in financial reporting. If a company has different charts of accounts across business units, consolidating financial statements can become complex and time-consuming. There’s a risk of errors that could affect the accuracy of the reports. Additionally, differing charts of accounts can complicate internal management processes, making it harder to compare performance across divisions or subsidiaries and ensure compliance with accounting standards.

Pat: How can companies manage these challenges and ensure effective financial management?

Anthony Peltier: Companies should aim for a balance between standardization and flexibility. Having a master chart of accounts that can be mapped to different local or business-specific charts allows for consistency while permitting some customization. Regular audits and reconciliations can help ensure alignment leveraging technology like consolidation tools and implementing governance policies is also key. Additionally, continuous communication and training between finance teams across different units are essential for maintaining clarity and coherence.

Pat: Alright, that makes a lot of sense. What trends do you see in how companies are approaching chart of accounts design and management in the future?

Anthony Peltier: There’s a trend toward increased standardization and automation. Companies are looking to simplify and streamline their COAs, enabling faster decision-making. There’s also a move towards global standards, especially for multinational companies, to reduce complexity and improve comparability. AI and machine learning are becoming more prominent in finance, helping companies automatically categorize transactions and even suggesting optimal COA structures. This shift will continue as companies seek greater efficiency and agility in their financial operations.

Pat: Alright, I think that’s very insightful. Thank you so much, Anthony, for sharing these valuable insights on the variability in the chart of accounts and its impact on financial management. It’s clear that the chart of accounts is more than just a list of accounts; it’s a strategic tool that requires careful design and management.

Anthony Peltier: Yeah, thanks for having me. It’s an important topic.

Pat: Thank you so much.

Structuring accrued revenue and accrued expense heads in COA

Find out interesting insights with John Silverstein, VP of FP&A, XR Extreme Reach

Moderated by Sherry, Digital Transformation Consultant at Hyperbots

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

Sherry: Hello and welcome to all our viewers on CFO Insights. I’m Sherry, a financial technology consultant at Hyperbots, and I’m very excited to have John Silverstein here with me today. John is a seasoned finance executive with over two decades of experience in leadership roles, working with both Fortune 500 companies and high-growth startups. Thanks so much for joining us, John!

John: Thanks for having me, Sherry. I’m excited to be here.

Sherry: We’re here to talk about structuring accrued revenue and accrued expense accounts in the chart of accounts, understanding common mistakes, and best practices, and how AI can help streamline these processes. Let’s dive right in. John, why is it so important for organizations to properly structure accrued revenue and expenses in their chart of accounts?

John: That’s a great question, Sherry. Proper structuring of accrued revenue and expense accounts is crucial for accurate financial reporting, compliance with accounting standards, and effective decision-making. When these accounts are set up correctly, they provide clear visibility into outstanding revenues and expenses, ensuring that financial statements accurately reflect the organization’s financial position.

Sherry: I see. So, it’s not just about accuracy, but also about supporting strategic planning and cash flow management, right?

John: Exactly. Proper structuring helps with cash flow management, forecasting, and strategic planning. It allows finance teams to have a clear view of what’s coming in and going out, even if it hasn’t been billed or paid yet.

Sherry: That makes a lot of sense. In your opinion, should accrued revenue and expense accounts mirror their respective revenue and expense parts of the chart of accounts? Why or why not?

John: In many cases, yes, it’s beneficial to have accrued revenue and expense accounts mirror their respective revenue and expense parts. This creates a 1-to-1 correspondence, which makes it easier to do things like ratio analysis. When the accounts align, tracking and reporting are simpler, and it’s easier to reconcile because everything ties directly.

Sherry: But I imagine that there’s a balance to strike, right? You don’t want too much granularity in the accounts?

John: Absolutely. The level of granularity should match the organization’s reporting needs. You don’t want to get too granular because, in a typical month-end close, there’s only so much you can focus on. If it’s too detailed, it can be inefficient. Less granularity can often be more effective for the analysis you need.

Sherry: Got it. What are some common mistakes you’ve observed accountants make when setting up accrued revenue and expense accounts?

John: One big mistake I’ve seen is not aligning these accounts properly. For instance, if you don’t break out the accrued revenue and expenses at the right level, it becomes difficult to perform margin analysis or other key financial analyses. Another issue is getting too detailed, which can lead to misclassification or even overwhelm the team with too much data.

Sherry: So it’s about finding that sweet spot’s detailed enough to be useful, but not so detailed that it becomes unmanageable.  

John: Exactly. Also, failing to regularly update and reconcile the accrued accounts is a common pitfall. Timing issues between revenue and expenses can lead to discrepancies, which can snowball into bigger problems.

Sherry: Could you give our viewers an example of how different industries handle accrued revenue and expense accounts?

John: Sure! In manufacturing, for example, accrued revenue might include income from goods that have been shipped but not invoiced yet. Accrued expenses could include wages or utilities that haven’t been billed. In healthcare, accrued revenue often consists of services rendered but not yet billed, while accrued expenses might include medical supplies or contract labor. In SaaS companies, accrued revenue typically involves a subscription service that’s been delivered but not yet invoiced, or it could be prepaid and recognized over time.

Sherry: That’s helpful to understand how it differs by industry. Moving on to best practices, what would you say are the key guidelines for structuring accrued revenue and expense accounts in the chart of accounts?

John: The key is to align the structure of your accounts with both business needs and industry standards. That way, you can make useful comparisons and support decision-making. You also want to balance granularities providing enough detail for meaningful insights without making the accounts overly complex.  

Sherry: And how important is regular reconciliation in this process? Can AI help with that?

John: Regular reconciliation is essential for maintaining accuracy. Without it, you risk having unreconciled items pile up, leading to errors and timing mismatches. AI can enhance this process by automating the matching of accrued items with invoices and highlighting discrepancies. It can speed up the process and reduce manual intervention, which not only saves time but also minimizes errors.

Sherry: That sounds like a huge benefit! Can you share an example where AI helped a company streamline its accrued revenue or expense management?

John: Sure! I worked with a retail company that implemented an AI tool to manage accrued expenses, like utilities and rent. The AI tool automatically categorized and matched the expenses to the correct accrued accounts detected anomalies, and suggested adjustments in real time. This resulted in a 30% reduction in reconciliation time and a significant decrease in errors, which improved the overall accuracy of their financial statements.

Sherry: That’s impressive! What final advice would you give to organizations looking to improve their handling of accrued revenue and expense accounts?

John: My advice would be to regularly review and update the chart of accounts to ensure it aligns with the business’s evolving needs. As business models and pricing structures change, so should the chart of accounts. Also, consider leveraging AI tools to automate and optimize the management of accrued accounts, from classification to reconciliation. And finally, maintain a balance between granularity and usability to ensure that your accounts provide the insights you need for effective decision-making.

Sherry: That’s excellent advice. Thank you so much, John, for joining us today and sharing your insights on structuring accrued revenue and expense accounts. I’m sure our viewers will find your guidance invaluable.

John: Thanks, Sherry! It was a pleasure.