Accounting Best Practices, Fifth Edition

14–2. Modify Account Code Structure for Storage of ABC Information

The general ledger accountant is frequently drawn into any activity-based costing (ABC) project because of his or her knowledge of the existing account structure. This accountant is commonly asked to set up a mapping program that translates the regular chart of accounts into a different (sometimes much different) chart of accounts that will be used to compile information for an ABC analysis. This analysis then compiles the costs of various products or activities throughout the company, which usually results in better management decisions and a greater level of profitability. Though this sounds like a reasonable task, involvement in an ABC project requires a startlingly large amount of time, perhaps even full-time participation for a number of months. The reason for such a heavy involvement is that the existing chart of accounts rarely accumulates data in the same way that an ABC analysis requires. For example, a traditional chart of accounts stores expense information by department, whereas an ABC system needs to have this information stored by activity center (such as a machine). Thus, when an ABC system is installed, the general ledger accountant may not only expect a considerable increase in the current workload, but may even require a replacement to fill in for all previous work while the ABC project is continuing.

A possible solution to this change in workload is to alter the chart of accounts, at least in ...