A chart of accounts (CoA) is a listing of the names of the accounts that a company has identified and made available for recording transactions in its general ledger. The CoA defines how accounting transactions, assets, and liabilities are processed and classified. The CoA is the framework for financial reporting and operational decision making.
Each country in the world has its own chart of accounts, that’s also due to different taxation and legal regulations in various countries. But nothing is set in stone – laws change, companies merge, grow, or relocate. Then, chart of accounts needs to be adjusted.
Acquisition – when the CEO goes on a shopping spree
Within companies, chart of accounts often changes. For example, a German company might buy a company from Slovakia, and while in Germany the account number “1000” might stand for software expenses, in Slovakia the same account stands for food catering. In this case, chart of accounts needs to be updated and made compatible with the parent company. The account naming convention may also differ among companies based in the same country – based on the CFO’s decisions.
Harmonization – to fix obsolete naming conventions
20 years ago, the company’s CFO might have opted for a 4-digit naming convention for their chart of accounts. But as the company kept growing, the need arose to revise it, add more digits or change to logics behind it. The same goes for changes of legal regulations that apply in a given country, or, as it was in the case of introducing euro, changes of currencies.
Differences between a standard and SLO approach to chart of accounts conversion
Standard approach adopted by known consulting companies a two-step one: first, they add a new account number and debit there the amount from the old account. Secondly, they credit the same amount in the old account so that the balance would come at zero.
Let’s say a company called Muffin Factory requested to change the naming convention from a 4-digit to a 5-digit one. Here’s what it would look like with the standard approach:
Before the change:
After the change:
The downside? It’s a two-step operation, and Muffin Factory is still left with their old account numbers in the system, stuck there together with old logs and account history. The new account number starts with a clean slate, so for historical transactions Muffin Factory needs to check up the old account.
The SLO approach that we would recommend to Muffin Factory takes only one step – it simply re-names the account number. In this way, no new logs are created, and the account stays intact, with all its history and logs.
Before the change:
After the change:
Other benefits of the SLO approach:
- Tool based
- Re-naming goes across the whole system covering Documents, Master Data, Customizing, Change documents, Closed and open items, Historical data, etc.
- After the re-naming, only the new CoA exists in the system, and all data is adjusted accordingly.
- SLO method can change both the Chart of Account, as well as the individual account numbers and cost centers
- Individual accounts can be changed in the following ways:
- 1:1 rename one old account to one new account
- N:1 merge of multiple old account into a single new account
- As part of this process, the length of the accounts can also be adjusted.
- CoA related data in customer tables (Z* and Y*) can also be included.
- It can be combined with further services such as Fiscal Year Conversion, CO objects harmonization
Contact our experts for your next SLO project: