Namith Hosmane's Blog

There is often a confusion in every new implementation about the design and approach to configure the chart. It merely depends on the nature and size of the business. The small retail company may need simple chart but services company which has global presence may need more complex design.

Here are some common best practices to consider when configuring the chart of accounts in D365

Main accounts:

Review and revise:

1. Firstly, it’s a great opportunity to review and revise the main account list.
2. Consider restructuring the current main account list so it can be shared with different legal entities as much as possible. Re-organize and renumber wherever required.
3. Although it requires a mapping exercise to transfer opening balance during migration, but it is worth doing to benefit in the long run and manage\build strong governance and controls across all legal entities.

Length and formatting:

1. Microsoft recommends using 4-6 as reasonable length for the main account ID. Keeping it too short may impact the scalability and keeping it too big may impact the user experience.
2. Avoid using the letters for better user experience as alpha characters creates more space which may create confusion and usability issues for the users.
3. And Microsoft also recommends using the Harvard standard for numbering schema i.e., Number starting with 1 represents Assets, 2 for Liabilities, 3 for Equities, 4 for Revenues, 5 for Cost of goods sold and 6 for Expenses.

Manage exceptions:

1. Not all accounts and rules of the main accounts are valid for all legal entities.
2. Use Ledger entity overrides to manage exceptions If main accounts need to be suspended in specific legal entity or needs to have different default dimensions and different exchange rate type for foreign currency revaluation.

Create consistency:

1. Create main account template by category that needs to filled by respective BU owner and one who maintains should validate before creating new main account in the system.
2. Use the main account mask to restrict and control the number of digits that can be used when new main account is created.
3. Use the standard main account categories which can help group similar account and drive out of box reporting (Power BI reports and financial reporting).
4. Avoid creating new category and do not rename or update the existing main account categories.

Financial dimensions and Dimension sets:

Simple and flexible:

1. Discuss the purpose of each dimension and consider using financial dimensions to the level which financial statements needs to be segmented for internal and external reporting need.
2. Keep the design simple and create dimensions that absolutely required.
3. For each segment of dimension, the account combination expands exponentially and may cause the performance degradation of the system. Use ranges wherever possible

Singular Purpose:

1. Make sure each dimension has singular meaning and used for specific purpose.
2. Using same dimension for multiple purpose will defeat the purpose of having multi-dimensional chart and makes it confusing and can have significant impact on management reporting

Custom dimension vs Entity backed dimensions:

1. Custom dimensions are user defined values and are shared between legal entities.
2. Entity backed dimensions are backed from existing values in master data such as operating units, customers, vendors, projects etc. Some entity-backed dimensions are shared across legal entities, whereas other entity-backed dimensions are company-specific
3. So carefully consider which type of dimension needs to be used based on the business requirement.

Length and formatting:

1. Use the masking for custom dimensions to restrict and control the number of digits that can be used when new dimension value is created.
2. Carefully consider alphanumeric values. Typically using just numbers is recommended which can avoid difficulty in sorting and filtering.  
3. Create dimension values that are reusable

Manage exceptions:

1. Not all the dimensions are applicable to all legal entities.
2. Ledger entity overrides can be used to manage exceptions of the dimensions. If it needs to be suspended in specific legal entity, the owner and the period when the dimension should be active

Managing balances:

1. Create financial dimension sets to calculate the balances for the required accounting combination. Create balances when you create a dimension set only if you will be using the balances.
2. Update balances periodically during off hours in a batch.
3. Only rebuild when the balances are suspected to be inaccurate. Do not regularly schedule a rebuild and finally
4. Clear balances from unused dimension sets.

Account structure and advanced rules

Design with flexibility:

1. Use separate account structure for different sections of the chart. Consider creating a separate account structure for Balance sheet, Expenses, Revenue and COGS and one for statistical accounts.
2. Create accounts structures for accounts that have similar rules and combination.
3. Minimize the number of dimensions in each account structure.
4. Make the main account first or as close to the front of the account structure as possible, so users get the best guided experience they can during account entry.
5. Reuse account structures as much as possible to reduce maintenance across your legal entities.
6. Use ranges and wildcards as much as possible. This will reduce the changes to the account structure and system performance will be optimal.

Managing exceptions

1. Use advanced rules to manage exceptions when a dimension value applies to small subset of main accounts. But do not create hundreds of advanced rules which can cause performance degradations
2. For variations across legal entities, consider using advanced rules so that account structures can be reused.

Hierarchy relationship:

1. Consider setting up the organization hierarchy relationship with the account structure to dynamically control the valid dimension values.
2. Organization hierarchies are date effective. The changes to the valid combination can be setup to activate in future dates.
3. Keep in mind the organization hierarchies can be only created for operating units(entity backed dimensions) out of the box.

Overall Governance and control:

1. Implement strong controls on who can access the key parameters and configure of chart of accounts in the system.
2. Limit the number of users who can maintain and manage main accounts.
3. Consider using database logging on the changes to main account form and critical parameters for any unexpected changes to review the log for audit trial
4. Consider using the posting validation for the system accounts that needs to be validated outside of the expected posting of transaction type.

References:

Planning and configuring chart of accounts

Financial dimensions

Accounts structure

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