Accounting Best Practices, Fifth Edition

14–3. Reduce the Chart of Accounts

All too many organizations are burdened with an immense chart of accounts. Instead of having a short list of accounts in which to store information—such as 100 or 200 accounts—many organizations have a convoluted and lengthy chart of accounts. The sheer length of such a list introduces a number of problems into the general ledger function. First, it is difficult to put numbers into the same accounts consistently time after time. Instead, they are recorded in different accounts, resulting in very poor comparability of information across time. Second, it can be very difficult to train a new general ledger accountant in the use of a very complicated chart of accounts; during the training period, it is likely that the accountant will make mistakes in recording financial information into the correct accounts, resulting in inaccurate financial statements. Third, it is also more expensive to audit a long chart of accounts since the outside auditors must spend more time reviewing more accounts. Finally, writing a new report with general ledger information is quite difficult if the information is being drawn from a veritable maze of accounts. In short, a plague of problems accompanies an excessively long chart of accounts.

The solution is one that takes a fair amount of work to implement. Though it seems simple—just reduce the number of active accounts ...