I have been thinking about this article for a long time. I wish I was properly understood, especially by people who think that a company’s chart of accounts is a “formality” imposed by accounting textbooks. Some time ago, a colleague of mine quoted her professor: “a company’s chart of accounts can only consist of two accounts: one active and the other passive.” I hadn’t thought about that. It’s true. The lady was right. It’s quite a different question how well this will work for us when we need to cross reference and extract the information from these two accounts to prepare the financial statement, unless we have carefully considered what items these two accounts should have.
Years ago, there was a mandatory chart of accounts in Bulgaria. I mention this because for many young people this may be an unknown fact. At some point, as we became more European and more international, it was said that there was no need for such a thing and it was abolished. I want to say that we very often cross out Bulgarian things with a light hand, without considering what this means and what consequences it leads to. A lot of knowledge about accounting, the grouping of assets, liabilities and capital, the types, the correspondences between them, was put into this chart of accounts. Corporate accountability has gained nothing by letting the ordinary operational accountant “create” without having the knowledge. IT services for companies have become more expensive, because in order to display the forms of the financial report, it must be clear what objects each account covers. In one company, the code XXX means a claim, in the other the same code means a liability. There is no way to make a uniform setting, you have to approach it individually, and this costs time and, accordingly, money.
However, this article was prompted by something else. I have been an auditor for many years, and I have been dealing with IT systems for as long as I can remember. They send me a turnover statement and, accordingly, the OPR and balance sheet for the same year. I’m submitting it for technical adjustment in the audit system. And my IT, sets up and accordingly requests time for consultations with me. There are two expense accounts in the turnover sheet: 602 Expenses for external services and 609 Other expenses. Accordingly by their names he sets them according to the appellations. We open the presented report and see that the amounts are reported exactly the opposite: the amounts from 602 are in other expenses, and the amounts from 609 are in external services.
I have nothing to say to the young man except to see the documents. It turned out that they were correctly exchanged, but I ask myself: What kind of professionalism is this? If this was an isolated phenomenon I would certainly wave my hand. Unfortunately, however, this phenomenon is quite common: in the turnover sheet, the account means one thing, and in the financial statement something else. All through the year when the documents were posted, every accounting document said it was an “outsourced service” and suddenly at the end of the year something else was decided. I think that this is pure carelessness and an unprofessional attitude towards what is being done.
A company’s chart of accounts is a mirror of its assets, liabilities, capital and the transactions it carries out. It is important at the beginning of the year that, even before we start, we review the specifics of the activity and whether something in the activity or in the regulatory plan has not changed, so that we can properly encrypt, separate the significant transactions into separate synthetic accounts and sub-accounts . The batches of individual accounts are not to be underestimated either. They are carriers of a lot of information and help to build both management reports and the easy preparation of the company’s interim and annual reports. It is good not to report assets, liabilities, income, expenses of different nature in one item, unless this item is named “others”. Pay attention to the “other” lots. Sometimes it happens that 80% of the total expenses or income are accounted for under the name of others. This in itself means that we have never really analyzed the specifics of the activity. Another phenomenon is the overuse of items in accounts that group together types of expenses or income. One extreme is to put 2-3 lots and each of them contains many heterogeneous sets, and the other extreme is to fragment them so much that no analysis can be done on them, and the truth is in the middle ie. proper systematization of uniform, essential transactions for the enterprise into types and subtypes, which will enable the output of statements and/or reports “honestly and faithfully drawn up” with little or no effort, rather than starting the accounting from scratch when it is necessary to let’s output some grouped information. It is a matter of professionalism and business knowledge to take the time to do this before any postings have started.
Another phenomenon in recent years is the entry of ERP systems into the work of enterprises. Go explain to some programmers and implementers what a general ledger is and how much information it holds for people who understand accounting. Many IT professionals believe that ERP systems have nothing to do with accounting and try to force this statement on accountants. Thus justifying their poorly structured systems. I’ve even come across claims of how wonderful and easy it is to work with “a lot on the debit” and “a lot on the credit”. I think that we should not put up with this, because the correspondences between the account codes are carriers of information. Here’s an example: 2+3=1+4. In this equation we don’t know how many of the 2’s and how many of the 3’s went into the 4’s, but if we split this equation into two equations: 1+2=3 and 1+1=2 we will be fully aware of the movement of information flows, which of course has a direct connection with the primary documents, be they paper or electronic. That is why we should not give in to suggestions of how much more modern the other is, but we should demand that the systems cope with the need for information and control of the same as it passes from one account to another. Accounting is a normal companion of any process. And the sooner we manage to weave this process into the other: production, trade in goods, trade in services, accounting for non-governmental relationships and others, the more likely we are to get better results in the main activity. It is important when implementing a system to analyze and properly understand the processes so that the relevant information control points are built into it. The added value that accounting brings back to business is the ability to make analyses, timely inquiries, reports. All this is achieved if it is built in the right way and with the right means.
https://www.ada-soft.bg/bg/mproducts/trading-companies/erp
Eng. Eleonora Bilbileva-RO, member of IDES
