Chart of account segments; Balance sheet vs P&L

Chart of account segments; Balance sheet vs P&L

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Hello,

In accounting software such as SAP / Oracle, it is possible to apply segments or account structures to your Chart of accounts.

In most instances I have seen the usage of segments differ between Balance sheet and P&L accounts. The usage of segments tends to be heavier on the P&L side whilst being limited to three or four segments on the balance sheet accounts.

Can someone please explain the logic behind this CoA design? Also, what potential problems might there be through the over use of segments on balance sheet accounts.

Many thanks in advance,

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By tom123
03rd Aug 2015 18:42

P&L is where the action is.

I know this is an old unanswered thread, but here goes:

The P&L is, for most trading companies, where the action lies. It shows the sales and profits by product lines or sectors, and also where most of the money is being spent.

A lot of the balance sheet content is largely only of interest to the finance team. No one else really cares about the historic cost of the furniture, or the brought forward reserves etc. These items should not really be used to drive decision making.

Also, if you divide the balance sheet up too much, you can lose sight of the wood for the trees. Splits can often end up being a bit contrived, and so you end up having to manage them using further spreadsheets.

Not to say BS reconciliations are not essential, just don't create a monster you don't want to feed. For example, just have one account for prepayments (in my view) rather than prepayments for rent / insurance etc. Also try and avoid arbitrary splits. Take my rent example - don't try and split prepaid rent by department, as you will sometimes forget, then need to double up the next month, and it will soon be overly complex for no real purpose.

In my company we have cost centres and departments for all P&L accounts, but the whole BS is company wide. This is in the context of a business turning over a few million - but I still worked in a similar fashion with a £40m company.

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