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14–3 Reduce the Chart of Accounts
system is installed, the general ledger accountant may not only expect a consider-
able 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 part, so that information is stored in the manner the ABC
system uses. By storing information in the ABC format right away, there is no
need for the general ledger accountant to spend additional time reformatting it.
This can be quite a difficult best practice to implement, for several reasons.
First, it requires the transfer of expense information from old accounts to new
ones, as well as the alteration of all entries to the general ledger, so that all new
information is redirected in a similar manner. Also, all reports derived from the
general ledger must be altered so that they draw information from the new
accounts instead. The greatest problem of all is that the recipients of the revised
reports may not be at all pleased to find that the information that they are accus-
tomed to receiving has been substantially altered. For example, a department
manager may find that there is no longer a department expense report, but
instead an expense report grouped by machine. This alteration is not usually
taken well by company management. The best way around all of these difficul-
ties is to set up automatic distributions within the general ledger so that
expenses are still routed to the same accounts, but the accounts are then allo-
cated out to a different set of ABC accounts for further ABC analysis. Unfortu-
nately, the account allocation feature is not normally available in less expensive
general ledger accounting software packages, so this option is usually only
available to larger corporations. A lesser alternative is to alter just a small por-
tion of general ledger accounts so that they can be used for ABC work, leaving
the main accounts as they are and relying on a manual conversion of data for
these accounts. This approach has the advantage of not altering the existing
financial reports to any significant degree, but still requires a considerable
amount of work by the general ledger accountant.
Despite all of the problems with converting the general ledger format to
accommodate an ABC system, this is still worthwhile in many cases. The reason
is that though there is no increase in efficiency for the general ledger function
(quite the contrary), there will be a rapid and smooth flow of information into the
ABC system, which will result in better management decisions, which in turn
will have a direct impact on the profitability of the entire organization.

Cost: Installation time:

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