Implementing a New ERP System? Take the Opportunity to Develop a New Chart of Accounts: An up-to-date chart of accounts helps the organization view itself and it resources accurately, making service and resource allocation decisions easier.

Author:Mucha, Michael J.
Position:Best Practices

A chart of accounts--a listing of the accounts an organization uses to define each class of items for which money is spent or received--provides a uniform format that local governments can use for reporting and accounting. The chart also organizes finances and segregates expenditures, revenue, assets, and liabilities to provide a better understanding of the organizations financial picture. It is a resource that governments can use for budgeting, accounting, and financial reporting.

Government agencies are not required to have logical or even defined charts of accounts or accounting reporting. Many states have suggested charts of accounts or even require that certain account ranges be used to report certain funding. GFOA, the Association of Government Accountants, and other professional associations strongly urge governments to pay close attention to the structures used for financial reporting. The responsibility for identifying and managing this important tool lies with the organization's management, just as the final responsibility for the financial audit's content also remains with management regardless of rules, regulations, guidelines, or suggestions.


GFOA has developed the following guidelines to assist governments in developing a new chart of accounts as part of an enterprise resource planning (ERP) implementation. For all projects, unless there are strict requirements that a specific chart of account structure be used, take the opportunity afforded by the ERP system implementation to develop a new chart of accounts.

  1. Define Each Segment. Each segment of the chart of accounts should have a strict definition that can be communicated and enforced. This will prevent internal inconsistencies within the chart of accounts. For example, the government should universally agree on what a "fund" is, what a "department" is, and what a "program" is, and not allow any exceptions.

  2. Start Over. When developing the chart of accounts, start fresh and don't initially worry about mapping back to the existing chart of accounts. Review the actual organizational structure and operations, and build the chart from there to avoid replicating a problematic chart of account structure.

  3. Start Simple and Build-Out Detail. Identify major categories within each segment and then work to build out detail--again, this will help the government take a fresh perspective and prevent any unnecessary replication of the old chart. For example, when developing the object code listing, start by identifying major object code categories and then work to define detail to the extent necessary. This will also help ensure that the overall chart is organized.

  4. Don't Store Unnecessary Data.

    If the chart of accounts is well developed, the government won't need to create new accounts very often. Most organizations attempt to keep the chart of accounts relatively simple and at a high level, and then use other components of the system (e.g., the project...

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