chart of accounts

In our consulting activities we constantly meet it, unfortunately it often has an insignificant and unloved shadowy existence: the chart of accounts. Most of the time, employees are dissatisfied with it for a variety of reasons: too detailed, poorly structured, unclear, historically grown or simply incomprehensible.

Therefore, we want to put it in the middle for you and call for an upgrade of its role in companies, because its importance in the context of digitization, corporate management and financial reporting is enormous.

What is a chart of accounts?

Companies must record its business transactions in accordance with the law and uniformly if they have an influence on their asset and financial position. In the context of bookkeeping, these entries or posting takes place in so-called accounts.

The chart of accounts is the structured list of all accounts of a company. This directory should be structured in such a way that it reflects the business of the company in a meaningful way.

A sensible and efficient setup of the chart of accounts and a clear definition of the account usage supports you in processing the day-to-day accounting correctly and efficiently and then evaluating it transparently and meaningfully.

How is a chart of accounts created?

In many cases, companies don’t care much about their chart of accounts when they start doing business. Young companies in Germany usually outsource their accounting to a tax consultant, who usually simply starts with the tax-oriented German standard account system SKR 03 and SKR 04 of the German DATEV.

An account system and the chart of accounts belong directly together because an account system is the basis for the design of a company's individual chart of accounts. The difference is that a chart of accounts is an account system specifically tailored to the needs of a business but retains the basic structuring such as classes of accounts or the logic of numbering.

When looking at German account systems, a distinction is made between the following basic concepts:

  • Process structure: Sorting of accounts according to the procedures or processes (service provision and service utilization) within a company.
  • Financial statement structure: Sorting of accounts according to the legal requirements for the balance sheet and the profit and loss account.

On the way to a company-specific chart of accounts, the following adjustments are usually made:

  • Accounts that are not needed for your company's business model will be deleted. For example, a service company does not need a "Commodities" account. 
  • Individual accounts are created, for example, an account with bank name and account number is created for each bank account. 
  • Accounts are renamed to ensure unique account usage, for example, specific terminology is added to the account name.

In the following table you will find an overview of widely used German standard account systems (SKR) of Datev, which are used in Germany to derive company-specific charts of accounts.

Account system Usage structure 
SKR03 Companies subject to disclosure requirements In addition to HGB, it is also available in the IFRS/IAS variant with a comparison of the balance sheet items according to HGB and IFRS/IAS. Process structure 
SKR04 Companies subject to disclosure requirements In addition to HGB, it is also available in the IFRS/IAS variant with a comparison of the balance sheet items according to HGB and IFRS/IAS. Financial statement structure 
SKR 30 Retail Financial statement structure 
SKR 51 Automotive industry Financial statement structure 

In addition, there are also account systems from German industry associations, e.g.

  • Industrial account system (IKR) - Bundesverband der Deutschen Industrie 
  • Retail account system (EHK) - Handelsverband Deutschland e.V.) 
  • Account system of the housing industry- Bundesverband deutscher Wohnungs- und Immobilienunternehmen e.V.  
or sample charts of accounts from providers of various financial accounting or ERP systems.

For both young companies and companies that need a new chart of accounts, it is important to select the most suitable account system possible and then tailor it to the individual requirements of the company.

In corporations or groups of companies, individual charts of accounts are also referred to as operational charts of accounts, which contain all G/L accounts required in day-to-day business for the structured and legally compliant recording of business transactions.

Why is a tailor-made chart of accounts important for companies? 

The chart of accounts of a company is one of the most important links between the various departments and along the company's internal end-to-end processes. For internal cooperation to run quickly and smoothly, the individual derivation of the chart of accounts should take into account the overall business of the company, the relevant transactions and the company's internal business processes. In addition, all stakeholders involved should be involved both in the initial definition and in the ongoing development of the chart of accounts. This facilitates cross-departmental and procedural cooperation.

In addition, a chart of accounts specially tailored to the needs of the company enables efficient and meaningful reporting on the company's business activities and, above all, the financial performance of the company.

Overall, a chart of accounts tailored to the company and its business processes and properly structured also helps to increase governance, risk and compliance (GRC) in the company:

  • Create a clear governance structure by providing a standardized methodology for classifying financial information.  
  • Systematic organization and classification of financial data, which makes it easier to identify potential risks. 
  • Structuring of financial data in accordance with legal and regulatory requirements. 

A chart of accounts is an organizational element that can be found in almost all areas of the company, processes and systems. Therefore, it is also understandable that growth, changing business models or new organizational structures mean that new accounts have to be added and accounts that are no longer needed have to be deactivated. Very often you can find relicts of company history in charts of accounts.

Massive changes to the chart of accounts are always imminent when

  • acquisitions require the integration of new companies with different charts of accounts 
  • companies have to report or completely change due to new reporting requirements according to international accounting standards, 
  • legal changes or new technological possibilities (e.g. e-balance sheet, ESEF) use the chart of accounts for reporting purposes. 

Charts of accounts are subject to constant change and must be professionally maintained and managed accordingly – in our opinion, they are among the most important master data in the company.

Unfortunately, chart of accounts in many companies still have a shadowy existence and uncontrolled growth arises. Again and again, new accounts are created uncoordinated for individual situations or accounts are simply used differently. The result is manual reconciliations, mappings and inefficient closing and reporting processes.

The importance of a lean and multidimensional chart of accounts for digitization in companies 

In times of digitalization, it is more important than ever for companies to keep processes and systems and associated data up to date. In addition to the classics of customer master data (customers, articles, suppliers, materials and employees), the chart of accounts is one of the most important master data and data suppliers in companies.

Of crucial importance here is the financial accounting or ERP system. It represents the basis or digital core for all data and processes relating to corporate value creation and financial reporting of companies.

Modern financial management systems offer the possibility of multidimensionally recording and evaluating business transactions in addition to G/L postings. Such additional account assignments, dimensions or tags make it possible to supplement business transactions with additional reporting aspects that can be used for a wide variety of purposes, e.g.

  • Cost accounting dimensions such as cost centers, cost objects, functional areas, or segments, 
  • Controlling dimensions for normalization, i.e. the identification of one-off effects, 
  • Financial reporting dimensions required in the preparation of financial statements or consolidation, such as movement types for the preparation of fixed assets, liabilities or equity statements or indicators for identifying intercompany transactions, 
  • Additional tax information such as tax codes or license plates. 
These technical possibilities should be used when introducing new financial management systems and support the streamlining of bloated charts of accounts that are misused for a wide variety of reporting purposes. A lean and multidimensional chart of accounts is therefore of great importance for digitization in companies. It facilitates the automation and analysis of financial processes and is an important milestone on the way to efficient, accurate and reliable digital financial accounting.

When should companies clean up their chart of accounts? 

Our remarks show the importance we see for a lean and efficient chart of accounts. It is one of the most important levers for optimization in the financial sector, because it

  • enables a clear and structured recording of business transactions in accounting, 
  • is the basis for efficient processes and effective reporting, 
  • is an important basis for almost all digitization initiatives in finance. 

In our consulting projects, therefore, some trigger situations have emerged in which companies should take a closer look at their chart of accounts and, if necessary, clean it up:

  • Growth and change: If companies are growing strongly and new business areas are added, it may be useful to adjust the chart of accounts to reflect the new business areas. 
  • Changes in systems and processes: If IT systems and business processes change, this can affect the chart of accounts. 
  • Inefficiencies: When finance struggles with inefficiencies, the chart of accounts often plays an important role.
  • Compliance: If the legal requirements for financial accounting change, the chart of accounts must be adjusted to meet the new requirements.
  • Merger & Acquisitions: When companies are bought or sold, it is often necessary to merge the charts of accounts of both companies.
  • In order to get the chart of accounts under control after a clean-up action, a professional account management process should be established. All stakeholders in the chart of accounts, such as accounting, controlling, tax, group accounting and IT, should be involved in a process in which every change must go through a cross-departmental coordination process.

At this point, we must also point out that the chart of accounts of a company according to German law belongs to the organizational documents of accounting according to § 257 HGB and § 147 AO. It should therefore be archived for 10 years. 

With our experience and expertise, we are happy to support you in setting up and optimizing a chart of accounts tailored to the individual requirements of your company.

If you have any questions, please contact our specialists at any time!
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