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General Ledger Best Practices
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accounts that covers many pages. The sheer length of such a list introduces a
number of problems into the general ledger function. One is that 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 informa-
tion across time. Another issue is that it can be very difficult to train a new gen-
eral ledger accountant in the use of a very complicated chart of accounts; during
the training period, it is very likely that the accountant will make mistakes in
recording financial information into the correct accounts, resulting in inaccurate
financial statements. It is also more expensive to audit a long chart of accounts
since the outside auditors must spend more time reviewing more accounts. Fur-
thermore, 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 best practice that resolves this problem is one that takes a fair amount
of work to implement. Though it seems simple—just reduce the number of
active accounts in the chart of accounts—there are ancillary issues that require
additional work. One problem with reducing the chart is that users may still
continue to code expenses to the old accounts, if only out of habit. To stop this
from happening, the old accounts that are being retired must be blocked from
further use in the computer system. Though most computer systems now have
this blocking feature, it is useful to determine its presence before proceeding
further with an implementation. Another issue is that when the chart is reduced,
it is much more difficult to create historical reports to compare account bal-
ances to those of previous periods. For example, if five accounts are merged
into one consolidated account, it becomes impossible to show how the balance
in the new account compares to the old balances in five accounts, unless the
general ledger copies all of the information to an electronic spreadsheet and
manually regroups the information, a time-consuming task. There is no good
way around this problem, unless the existing accounting software has a report-
ing feature that allows old accounts to be grouped for comparison purposes (a
rare feature). This is a particular problem if the accounts are merged in the mid-
dle of a company’s reporting year so that it is not even possible to compare
financial results from month to month. The best solution to this problem is to
undertake major chart of account conversions only at the very beginning of a
reporting year so that there is no intra-year reporting problem. Another way to
resolve the problem is to fix the chart of accounts over a number of years by
eliminating only a small number of accounts each year, which does not impact
the comparability of accounts in any one year to any great degree. A final issue
with reducing the chart of accounts is that information may be stored in an
account strictly for inclusion in a report that has some special purpose. If the
account is discontinued, the report can no longer be completed, which may be a
source of irritation to the report recipient. To avoid this issue, it is necessary to
review all reports generated from the general ledger and determine which