Evaluating accounting systems by reviewing the account number

By J. Carlton Collins, CPA

 

Examine the Account Number Structure 

This article is part of a series entitled “Evaluating Accounting Software” in which J. Carlton Collins explains his quick and dirty 20-minute guide to evaluating an accounting software package. The article series starts here:

An important feature that you should always evaluate early on is the size and segmentation of the product's account number structure. Often you can eliminate many inadequate products by first checking this feature. If that structure is inadequate—no matter how superior the product in every other way—the software should be rejected. It's important to understand what's behind that statement.

Many companies need an account number which offers four segments or more. For example,  larger companies often have territories, subsidiaries, divisions, and departments that must be identified and rolled up in the accounting system via four, five or six segments in the account number. Many large not-for-profits need at least four segments in their account number structures—for the account, sub-account, department, and program. Many government agencies need at least four segments in their account number structures to identify the account, sub-account, department and fund. To help you understand why this is important, consider the following example:

Let us assume that a high school purchase some English books. In this case, the four-segment account number debited is as follows:

6050 (Expense) (Book Expense)

SMITH (Sub-account) (Mrs. Smith's Class)

ENG (Department) (English Department)

FED (Funds Used) (Federal Funds)

Using this account numbering scheme, the high school can later produce P&L for the entire school, individual departments, and even for each class. The high school can also produce a report that accounts for all expenditures of federal funds. 

A summary of the account number structure for selected accounting software products is listed below: