In today's post, we will continue on our journey into how business needs are dictating the innovation of the general ledger. In our previous post, we talked about how managers need more flexible reporting and how a multiple book strategy provides that capability. Today we will dive into dimensions: why they are needed and how to recognize real ones when you see them.
In the beginning, the chart of accounts was a simple, elegant list of categories and the general ledger neatly solved GAAP financial reporting using them. Then business changed and leaders wanted to see more. For example, a common shift in many organizations was that economic activity became largely project-based, so naturally it also became the most useful way to view results. Some clever accountant solved this problem by adding sub accounts to the chart of accounts.
Although accounting systems vendors obliged to user requests and added the functionality to their software, the long, complicated account numbers were error prone, and the sheer number of them was a hassle to manage. Furthermore, reporting was limited to a specific business activity and comparing results across multiple activities was still difficult. To accommodate management’s reporting needs, organizations were forced to use external reporting tools.
At Intacct we took a different approach. We knew the general ledger was already good at tracking data across two dimensions—time and category (GL account), so why not add more dimensions? We added location, department, project, customer, vendor, employee, item (product), and class to the list. Instead of constructing a chart of accounts with tens of thousands of entries, we keep it simple and present users with simple lists of dimensions to choose from.
Now we are taking this concept even farther. Having pre-set dimensions at your fingertips is useful, but what businesses really need is to define their own dimensions that are relevant to their business. For example, if I manage a fleet of private aircraft I probably want to know my expenses by aircraft tail number, or my revenue by chartered flight. With custom dimensions that are treated exactly like hard-coded ones, businesses can achieve unprecedented visibility.
To truly grasp what I’m saying, let me provide a quick definition of a dimension. Many accounting packages are adopting the concept of custom dimensions but not all of them are truly dimensions. Custom fields are not dimensions. Additional journal entry attributes are not dimensions. These solutions may allow users to run filtered reports on a set of transactions, but a dimension has additional characteristics, such as:
- You can budget dimensions. If you can’t define a budget on the dimension upon which to compare your results, it’s not a dimension.
- Dimensions are available not only in general ledger transactions, but also in all operational transactions, such as sales orders.
- Dimensions are a managed and controlled list, not free form text fields.
- Dimension records can be grouped and, ideally, are hierarchical. Customer is an important dimension, but in many businesses customers may be hierarchical. I sell to Big City Distributors (a distribution partner) who in turn sells my product to Blue Enterprises, but Blue Enterprises has several divisions. I want to report my revenue for Big City Distributors and expand that revenue reporting across all of their customers and each customer’s locations.
- Dimensions are more than just lists of things. You should be able to track attributes of dimensions. For example, tracking transactions by tail number is helpful, but I should also be able to capture and report on additional information about the aircraft such as seating capacity, engine type, range, etc.
In these last two posts I talked about multiple books and dimensions—two examples of innovations in the GL that capture the evolving demands on accounting professionals. In both cases, accountants didn’t wait for vendors to innovate, they created their own solutions. I think it’s time vendors caught up.
In my next post, I will examine how businesses outgrew GAAP financial reporting and how non-GAAP values unleash the true power of the general ledger.
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