In this task you will make sure that each account in your old accounting system is matched to a corresponding account in the DBA chart of accounts. At the end of this process you will end up with a clean and structured chart of accounts in DBA, optimized for manufacturing. Within your merged chart of accounts you will retain complete cross-referencing to your old chart of accounts.
Links:
Screen Help - Chart of Accounts
Cross Reference Your Accounts
Review the Chart of Accounts Specifications first
Before you begin merging any accounts, study the Chart of Accounts Specifications below to gain a familiarity with the standard chart of accounts and understanding as to why it is constructed the way it is.
Perform the following steps with each account in your old system’s chart of accounts.
1. Look for a matching account in DB
Look through the DBA chart of accounts and see if you can find a matching account that corresponds to your old account code.
2. If a matching account is found, enter the X-Ref Account
If you find a matching account in DBA, enter your old system’s account code in the X-Ref Account field in the Chart of Accounts screen. The X-Ref Account is used as a reference to help you transition to the new chart of accounts and it is available in lookups to help find an account.
When applicable, modify the account Description to make it more meaningful to your company.
3. If a matching account is not found, create a new account
If you cannot find a matching account, create a new account in the Chart of Accounts screen. When you create a new account, follow these guidelines:
New Account Creation
Find the appropriate Account Group
Look through the chart of accounts and locate the appropriate Account Group within which the new account should be located.
Determine an account number
Once you’ve located the Account Group, select an open account number within the group’s range of available numbers.
Create the account
Once you’ve determined an open account number, click the New button and create the account. From the Type field’s lookup, select the appropriate Type – Account Class – Account Group combination that classifies this account.
4. Continue until all accounts are matched
Continue this process until all the accounts in your old system are matched to a corresponding account in DBA, adding new accounts where required.
Chart of Accounts Specifications
Assets
Current Assets
All Account Groups associated with cash or assets that can be converted to cash within one calendar year are assigned to the ‘Current Assets’ Account Class.
Cash
All accounts associated with cash on hand are assigned to the ‘Cash’ Account Group.
| • | Accounts 10100 – 10400 are sample bank accounts. Add, delete, or modify these accounts to match the accounts you set up in the Bank Accounts screen. |
| • | Account 10500, Merchant Account – Credit Cards, represents the merchant account to which credit card payments from customers are received. |
NOTE: Credit cards that you use for purchases are set up as bank accounts, but do not assign them to Asset accounts. Instead, assign them to Liability accounts.
| • | Account 10700, Undeposited Funds, represents money received but not yet deposited in a bank account. You may not have any need for this account. |
Receivables
All accounts associated with amounts due from customers for open account invoices are assigned to the ‘Receivables’ Account Group.
| • | Account 11100, AR – Tax Portion, is only needed if you are in a country where the tax portion of receivables needs to be separately tracked. If you are in the USA, you can delete this account. |
| • | Account 11500, Deposits – Purchases, refers to deposits that you have made in advance of purchasing some item or service. Do not confuse this with account 23100, Customer Deposits, which are deposits given to you by customers as pre-payments for jobs. |
Inventory
All accounts associated with the value of inventory and jobs in process are assigned to the ‘Inventory’ Account Group.
| • | The value of all stock on hand is represented by the 12000, Inventory account. Breakdowns by item category or location are achieved outside the GL through the Inventory Value report. |
Why one Inventory account?
In our experience, multiple inventory accounts (by location, item category, purchase or manufactured, finished or semi-finished, raw material or components, etc.) vastly complicate item setup and inventory account reconciliation and would be in conflict with our “alternative to over-complicated ERP systems” philosophy.
A single Inventory account is sufficient for balance sheet purposes. Detailed inventory value analysis is better achieved outside the GL via the Inventory Value report, which serves as a “sub-ledger” to your Inventory account. Instead of being limited to one valuation criteria, the Inventory Value report enables you to value current and past inventory value by item, location, item category, manufactured or purchased, and changes in values between two dates.
Because of the simplicity of the single Inventory account, a new stock item can be set up in DBA with only five required fields and without any accounting decisions to be made.
| • | The value of all work in process is represented by the 12300, Work in Process account. Breakdowns by job type are achieved outside the GL through the WIP Value report. |
Why one Work in Process account?
In our experience, multiple work in process accounts (by location, item category, job type, etc.) vastly complicate item setup and work in process account reconciliation and would be in conflict with our “alternative to over-complicated ERP systems” philosophy.
A single Work in Process account is sufficient for balance sheet purposes. We believe that detailed work in process value analysis is better achieved outside the GL via the WIP Value report.
Long-Term Assets
All Account Groups associated with plant, equipment, real estate and other capital assets, plus financial assets such as stocks or bonds that you plan on holding for more than one calendar year are assigned to the ‘Long-Term Assets’ Account Class.
Fixed Assets
All accounts associated with capital assets such as equipment, vehicles, and buildings are assigned to the ‘Fixed Assets’ Account Group.
| • | Accounts 14000 – 14300 represent typical classes of fixed assets. You may wish to modify these accounts to fit your fixed asset holdings. |
| • | Accounts 15000 – 15300 represent the accumulated depreciation that offsets the corresponding accounts in the 14000 – 14300 group. |
Other Assets
Any long-term financial assets such as stocks, bonds, and notes receivable are assigned to the ‘Other Assets’ Account Group.
| • | Only one account -- 16700, Notes Receivable - Long Term -- is offered as an example. Add or modify accounts as needed to reflect your other assets. |
Liabilities
Current Liabilities
All Account Groups associated with supplier credit, debts, loans, or other obligations due for payment within one calendar year are assigned to the ‘Current Liabilities’ Account Class.
Supplier Payables
All accounts associated with open account purchases from suppliers are assigned to the ‘Supplier Payables’ Account Group.
| • | Account 20100, AP – Tax Portion, is only needed if you are in a country where the tax portion of payables needs to be separately tracked. If you are in the USA, you can delete this account. |
Credit Card Accounts
All credit card accounts that you use for purchases are assigned to the ‘Credit Card Accounts’ Account Group. Credit card accounts are reconciled in the same manner as bank accounts using the Bank Reconciliation screen.
| • | Accounts 20500, Credit Card Account A, and 20600, Credit Card Account B, are examples and should be modified to reflect your actual credit card accounts used for purchases. |
Taxes Payable
All accounts associated with taxes owed are assigned to the ‘Taxes Payable’ Account Group.
Payroll Liabilities
All accounts associated with payroll obligations are assigned to the ‘Payroll Liabilities’ Account Group.
Other Liabilities
Miscellaneous current liability accounts are assigned to the ‘Other Liabilities’ Account Group.
| • | Account 23000, Accrued Expenses, is an example of an accrual account that is posted to by journal entries to anticipate future expenses. If you don’t do this type of accounting, delete this account. |
| • | Account 23100, Customer Deposits, is posted to by the Customer Deposits screen and reflects the value of customer pre-payments for custom jobs. Technically, a deposit is a liability because you are holding someone else’s money that would have to be returned should the job be cancelled. |
Long-Term Liabilities
All Account Groups associated with debts, loans, or other obligations that are not due for payment for a t least one calendar year in the future are assigned to the ‘Long-Term Liabilities’ Account Class.
Long-Term Liabs
All long-term liabilities are assigned to the ‘Long-Term Liabs’ Account Group.
| • | Account 24000, Loans Payable – Long-Term, is an example of a long-term liability account. Delete this account or modify it to reflect your actual situation. |
Equity
Equity
All Account Groups associated with paid-in capital, earnings, and dividends are assigned to the ‘Equity’ Account Class.
Capital
All accounts associated with paid-in capital are assigned to the ‘Capital’ Account Group.
Earnings
All accounts associated with current (this fiscal year) and retained earnings (past fiscal years) are assigned to the ‘Earnings’ Account Group.
Earnings are calculated on-the-fly
Account 30200, Current Earnings, and 30300, Retained Earnings, do not contain stored values like all other accounts. The value of these two accounts is calculated on-the-fly each time you print a Balance Sheet.
Distributions
All accounts associated with the distribution of dividends to the owners of the business are assigned to the ‘Distributions’ Account Group.
Income
Sales Income
All Account Groups associated with product and service sales are assigned to the ‘Sales Income’ Account Class.
Sales – Products
All accounts associated with product sales are assigned to the ‘Sales – Products’ Account Group.
| • | Account 40000, Sales – Products, is designated on the Sales tab of the Account Assignments screen as a default account for all sales. In the Exceptions sub-tab you can optionally assign sales accounts by Item Category or Customer Type. |
Sales – Services
All accounts associated with service revenue are assigned to the ‘Sales – Services’ Account Group.
| • | Account 41000, Sales – Services, is a placeholder account to show you can locate your own service revenue accounts. In the Sales tab – Exceptions sub-tab of the Account Assignments screen you can assign sales accounts by Item Category to distinguish service accounts from product sales accounts. It may be that you don’t have a service side to your business, in which case you would delete this account. |
Other Income
Account Groups associated with non-sales, non-service revenue, such as interest income and late charges, are assigned to the ‘Other Income’ Account Class.
Shipping Income
Accounts associated with customer shipping charges and costs are assigned to the ‘Shipping Income’ Account Group.
| • | Accounts 42000, Shipping Income, and 42100, Shipping Cost, offset each other. Invoiced shipping charges are credited to the Shipping Income account and freight bills are debited to the Shipping Cost account. |
Misc Income
Accounts associated with interest income, late charges and customer payment discounts are assigned to the ‘Misc Income’ Account Group.
| • | Account 42300, AR Discounts Taken, is a “contra” account that offsets income by the amount of discount you offer customers for prompt payment. Although it could be considered a Cost of Sales account type, it arguably represents a price reduction rather than a cost and is therefore categorized as an Income account type. |
| • | Account 43400, Returns & Allowances, is a contra-account. Product returns are debited to this account. |
Cost of Sales
Direct Costs
All Account Groups associated with direct cost of goods sold and services sold are assigned to the ‘Direct Costs’ Account Class.
Costs – Products
All accounts associated with the cost of goods sold are assigned to the ‘Costs – Products’ Account Group.
| • | Account 50000, Cost of Goods Sold, is designated on the Sales tab of the Account Assignments screen as a default account for all cost of goods sold. In the Exceptions sub-tab you can optionally assign cost of goods sold accounts by Item Category or Customer Type. Each of your sales accounts would normally be given a corresponding cost of goods sold account. |
Costs – Services
All accounts associated with the cost of services sold are assigned to the ‘Costs – Services’ Account Group.
| • | Account 51000, Cost of Services Sold, and account 51100, Accrued Service Labor, receive offsetting amounts when you post service labor invoice amounts and have a net transaction value of zero. Even though the transaction has no net value, it does establish a value in the Cost of Services Sold account, which is used as a comparison with actual service costs (see next). |
| • | Accounts 51200 – 51500 are your actual costs for billable service personnel. These costs should be roughly equivalent to account 51000, Cost of Services Sold, but will always have some variance. |
| • | The accounting for service labor is handled differently than manufacturing labor. Service labor payroll costs are direct expenses as they occur. Manufacturing direct labor costs, on the other hand, are offset by an absorbed labor account, which absorbs the labor cost into your inventory. Only when you sell your manufactured products is the labor cost realized as part of the cost of goods sold. |
Misc Costs
All cost of sales Account Groups that do not pertain directly or indirectly to the cost of products or services are assigned to the ‘Other Costs’ Account Class.
Fees
All accounts associated with payment processing fees are assigned to the ‘Fees’ Account Group.
Misc Sales Costs
All accounts associated with miscellaneous sales costs are assigned to this Account Group, which are costs associated with descriptors that have a descriptor type of ‘MISC’ or ‘SUBCON’
| • | Account 50000, Cost of Goods Sold, (or a COGS exception account) and account 52200, Accrued Misc Sales Cost, receive offsetting amounts when you post miscellaneous charge invoice amounts and have a net transaction value of zero. Even though the transaction has no net value, it does establish a value in the Accrued Misc Sales Cost account, which can be used as a comparison with the 52300, Actual Misc Sales Cost account. |
PO Processing
All accounts associated with the PO-related supplier invoices and payments are assigned to the ‘PO Processing’ Account Group.
| • | Account 52400, Absorbed Shipping Cost, is not currently in use but is intended for future use when a landed cost percentage will be available on stock items to add a shipping factor to inventory cost. The Absorbed Shipping Cost will be an offset account to account 52500, PO Shipping Cost, which gets posted to when you enter shipping charges on PO-related supplier invoices. |
NOTE: Even though some PO shipping costs are incurred for general and administrative purchases that are not cost of sales expenses, the PO Shipping Cost account is classified as a Cost of Sales type under the assumption that most purchases are associated with inventory and work in process and ultimately are reflected in the cost of goods sold.
| • | Account 52600, AP Discounts Taken, is a “contra” account that offsets purchase costs by the amount of discount you receive from your supplier for prompt payment. Although it could be considered an Income account type, it arguably represents a price reduction rather than revenue and is therefore categorized as a Cost of Sales account type. |
Indirect Costs
All Account Groups associated with inventory and WIP adjustments are assigned to the ‘Indirect Costs’ Account Class.
Adjustments
All accounts associated with inventory and WIP adjustments are assigned to the ‘Adjustments’ Account Group.
Absorbed Costs
All Account Groups associated with costs that are absorbed into WIP are assigned to the ‘Absorbed Costs’ Account Class.
Direct Labor
All accounts associated with direct manufacturing labor are assigned to the ‘Direct Labor’ Account Group.
| • | Account 54000, Absorbed Labor, which is a contra account that gets updated when labor hours are entered against jobs, should roughly equal the total value of accounts 54100 – 54500, which represent your actual direct labor costs, for a net value of zero. A variance between absorbed and actual costs is common and expected. The net value within this Account Group is roughly zero because actual costs were absorbed into the costs of your products during job processing. Labor cost therefore becomes a portion of each product’s inventory value and is only realized as a sales cost at time of invoice posting as a portion of cost of goods sold. |
Subcontract Services
All accounts associated with job subcontract services performed by outside suppliers are assigned to the ‘Subcontract Services’ Account Group.
| • | Account 55000, Absorbed Subcontract Cost, which is a contra account that gets updated when subcontract service POs are received to jobs, should roughly equal the value of account 55100, Subcontract Service Cost, which represents your actual supplier invoice costs, for a net value of zero. A variance between absorbed and actual costs is not uncommon. The net value of this Account Group is roughly zero because the costs were absorbed into the costs of your products during job processing. Subcontract service cost therefore becomes a portion of each product’s inventory value and is only realized as a sales cost at time of invoice posting as a portion of cost of goods sold. |
Misc Job Cost
All accounts associated with miscellaneous job costs are assigned to the ‘Misc Job Cost’ Account Group.
| • | Account 56000, Absorbed Misc Job Cost, which is a contra account that gets applied jobs when miscellaneous cost POs are received, should roughly equal the value of account 56100, Misc Job Cost, which is your actual supplier invoice cost, for a net value of zero. A variance between absorbed and actual costs is not uncommon. The net value of this Account Group is roughly zero because the costs were absorbed into the costs of your products during job processing. Miscellaneous job cost therefore becomes a portion of each product’s inventory value and is only realized as a sales cost at time of invoice posting as a portion of cost of goods sold. |
Mfg Overhead
All accounts associated with running the factory are assigned to the ‘Mfg Overhead’ Account Group.
| • | Account 57000, Absorbed Mfg Overhead, which is a contra account that gets updated when labor hours are entered against jobs, should roughly equal the total value of accounts 58000 – 59500, which represent your actual manufacturing overhead costs, for a net value of zero. A variance between absorbed and actual costs is common and expected. The net value within this Account Group is roughly zero because the actual costs were absorbed into the cost of your products during job processing. Manufacturing overhead cost therefore becomes a portion of each product’s inventory value and is only realized as a sales cost at time of invoice posting as a portion of cost of goods sold. |
| • | Some monthly expenses associated with various accounts in the 58000 – 58900 range (such as utilities, rent, insurance, etc.) are single amount bills that must be divided between the factory and the office in order to isolate the cost of manufacturing overhead. |
| • | Accounts 59000 – 59300 cover payroll expense, taxes, and fringe benefits for all indirect labor factory personnel, including supervisors, managers, and maintenance people. |
Expenses
Operating Expenses
All Account Groups associated with operating the business (apart from operating the factory) are assigned to the ‘Operating Expenses; Account Class.
Sales & Marketing
All accounts associated with sales and marketing activities and personnel are assigned to the ‘Sales & Marketing’ Account Group.
General Expenses
All accounts associated with general administrative expenses (apart from payroll) are assigned to the ‘General Expenses’ Account Group.
| • | Account 61360, Miscellaneous Purchases, is a “catch-all” account that is updated by default by any POs that are not related to inventory or jobs. If you use POs for a variety of miscellaneous purchases and wish to break them out into multiple accounts, you can create descriptors to represent each expense category and assign those descriptors to accounts in the Exceptions sub-tab of the Purchasing tab in the Account Assignments screen. |
What about departmental accounting?
You may be coming from an accounting system that offered the ability to designate departments in sales orders, POs, and supplier bills in order to assess “profit centers” within the company. Typically, the department is identified with a segment on the end of a core account.
This departmental structure is common to “GL-centric” systems that were designed originally as financial accounting systems and were expanded over time with operational applications. In such systems, the operational applications must conform to the needs of the general ledger, which remains the prime repository of analytical information.
DBA, on the other hand, is an “operational-centric” system where the operational applications of sales, jobs, inventory, and purchasing function without any direct interaction with financial accounting. The General Ledger is designed to fit the needs of the operational applications, not the other way around.
Departmental accounting is not suited for manufacturing
Departmental accounting is not suitable for manufacturing accounting. Most of your manufacturing costs are comprised of labor and factory overhead, which are absorbed into the cost of your products during job processing. Labor hours and overhead allocation are automatically tracked by work center without having to specify a department at the PO or job level.
A manufacturing company is not a collection of separate departments, each with its own revenues and expenses. The factory is a single entity with inter-dependent work centers. The General Ledger is not designed for manufacturing analysis other than giving you the total value of inventory and WIP and the total cost of direct labor and factory overhead. More advanced analysis such as product costing, work center utilization, overhead allocation, labor productivity, and other measures are achieved outside the General Ledger via manufacturing reports and inquiries.
Non-Manufacturing Purchasing
In the non-manufacturing side of your business, you may want to assign purchases to individual departments such as sales, engineering, order entry, etc. To do this we suggest that you create separate sets of descriptors for each department and assign each descriptor to its appropriate expense or asset account. Each department would then create POs using its own descriptors.
NOTE: If your purchasing people think in terms of GL accounts when buying miscellaneous items, consider using the GL account code as the Descriptor ID itself. Another approach is to incorporate the account code into the descriptor’s Description, which can be typed over during PO entry to describe the particular item being purchased.
R & D
All accounts associated with research and development expenses and payroll are assigned to the ‘R & D’ Account Group. Research and development can be substantial in some manufacturing companies and is arguable a form of investment that should not be mixed in with general expense accounts.
Admin Payroll
All accounts associated with administrative payroll and fringe benefits are assigned to the ‘Admin Payroll’ Account Group.
Other Income/Expense
All Account Groups associated with non-operating expenses are assigned to the ‘Other Income/Expense’ Account Class.
Currency
All accounts associated with gains or losses due to currency fluctuations are assigned to the ‘Currency’ Account Group.
| • | Account 63000, Gain/Loss on Foreign Exchange, does not have any current use but will be used in the future when multi-currency processing is completed. |
Asset Sales
All accounts associated with the sale of property, equipment, or other assets are assigned to the ‘Asset Sales’ Account Group.
Income Taxes
All accounts associated with business income taxes are assigned to the ‘Income Taxes’ Account Group.
