The Library of Congress (LOC) houses a lot of books – almost 40 million! Now imagine nearly 600 dump trucks taking the entire LOC book collection to an enormous field where they are dumped into a huge pile. Your boss then asks you to find “The Tale of Two Cities” in that pile. While doable, you immediately think “what a ridiculous needle-in-the-haystack exercise!”
What makes this task possible at the LOC but nearly unimaginable in that field is the Dewey Decimal Classification (DDC) system, a brilliant syntax of letters and numbers that allows book collections to be organized in a standardized manner. The DDC, used by 200,000 libraries in 135 countries, allows the retrieval of a specific book in seconds. Additionally, chances are very high that you could find “A Tale of Two Cities” in the same shelf location at any library in the world.
For accountants, the Chart of Accounts (COA) organizes financial transactions in a similar manner as the DDC does for books. A well-designed COA provides an environment where a single, specific financial transaction can be identified and selected from a mountain of data. Further, a good COA always underpins excellent reporting. However, there is a major point where the similarity between DCC and COA breaks down. To meet specific organization needs, COAs are constantly modified, evolving away from standardization. Chances are remote that “salary expense” would be in the same place on the COA of two different organizations. COA design flaws that meet a momentary need are often introduced and perpetuated after being habituated within an organization. The downstream effects of a poorly designed COA manifest in subtle and unmistakable ways, especially difficult data extraction and poor reporting.
Could your COA be hampering your organizational efficiency and effectiveness? We can help!