Decision-makers are under constant pressure to steer their companies in the right direction. Multi-dimensional accounting can help decision-makers by providing an accurate and complete view of their company's performance.
By organizing data and transactions into dimensions, this type of accounting allows for consolidated financials across multiple entities, driving comprehensive information and analysis of financial performance.
Read on to learn about the benefits of Dimensional Accounting and how it could help you effectively manage your company's financial reporting.
What is Multidimensional Accounting?
Some organizations, for example, break down expenses by department. Others may need to keep track of expenses on a per-location basis. The only way to do this with conventional accounting software is to create customized accounts in your Chart of Accounts. This substantially increases the number of accounts required.
Multidimensional accounting is a method for classifying transactional data into dimensions, allowing for a more thorough and accurate evaluation of results. This kind of accounting enables a consolidated "master" control and visibility into performance on a per entity basis.
"When using Dimensions, the additional information (like location and department) can be stored separately at the transaction level rather than within the account structure itself. Transactions are "tagged" with the dimension values, meaning that the actual Account exists as one, single, account number. The user can then assign the location and department at the transactional level."
Jeff Land, Vice President of Technical Support, BCS ProSoft
Dimensional accounting can be incredibly helpful to businesses, especially companies with the need to manage financials across multiple entities.
Here are our seven reasons why multidimensional accounting can benefit your firm:
1. Simplify Your Chart of Accounts
As the number and complexity of account codes rise, it can be increasingly difficult to navigate the general ledger. Eventually, this can lead to frustration and errors.
Multidimensional accounting eliminates the need for complex account codes, with a consolidated "master" view that can be filtered by dimension.
This can help you manage your multidimensional chart of accounts more effectively in the following ways:
Less confusion when a user is required to manually select an account
Define a dimension with a full description, rather than numbers or abbreviations
Easier to add accounts to the system
Easier to add dimension values (additional accounts do not need to be created)
No more complicated overhaul or restructuring when adding additional accounts
It's much easier to make dimensions inactive when no longer needed
Financial reporting packages don't have to be changed when additional dimensions are added
Specific values for Header and Line entries provide for more granular reporting
If you have any questions, contact a BCS ProSoft consultant today.
2. Allocate Payments to the Correct Entity
Since dimensional accounting uses account values that are assigned at the transaction level, you can be sure that each value is being allocated to the right entity.
For instance, you could allocate an insurance payment to two different locations within an organization such as a corporate office (60%) and a satellite office (40%). With dimensional accounting, you would not have to set up two separate insurance payment accounts.
3. Get Accurate and Consolidated Reporting
Because dimensional accounting organizes data and transactions into dimensions, financial statements are consolidated and reporting can be filtered based on the dimension values, allowing for more granular reporting.
Similarly, transactional data can be reported without using complicated formulas to extract the segment of the G/L Account they've been assigned. In many cases, the report results of a dimension value are placed in separate columns, allowing for simple comparisons.
4. Simplify Intercompany Transactions
Dimensional accounting can simplify the process of allocating intercompany expenses.
In dimensional accounting, each company has its own unique combination of dimension values. When an expense is incurred by one company and paid by another, the system creates traceability by automatically assigning the expenditure to the appropriate entity and tagging both with a "Due to" and "Due from" for easy reference later.
5. Highly Secure With a Robust Audit Trail
Dimensional accounting provides an audit trail for every transaction, allowing you to track who made what changes and when. This can be helpful in instances where questions arise about the accuracy of financial statements or there are concerns about fraud.
Another benefit of dimensional accounting is that it can help businesses effectively manage their entity structure, by giving access to only the users who need access to certain entities, departments, or locations.
An example of this would be setting a Department and/or Location value at the Employee record and then restricting the role to only allow an assigned user to see information within the system for those dimensions.
This could be used for a multi-location business where users processing orders would be restricted to seeing only the transactions for their assigned location.
6. Reconcile Bank and Credit Card Transactions
Dimensional accounting can help businesses reconcile bank and credit card transactions quickly and easily.
When a dimensional account is used for recording bank or credit card transactions, the system automatically creates traceability between the two entries. This makes it easy to see which transactions have been reconciled and which ones have not.
This can be helpful in reporting employee expenses to the appropriate entity and managing expenses across varying entities from one system.
7. Identify Trends in Your Business Data
Multidimensional accounting can help you identify trends in your business data that may not be visible with traditional accounting methods.
For example, dimensional accounting can reveal how different departments or locations are performing relative to each other in a nice and concise format. This information can help you make better decisions about where to allocate your resources in order to improve your bottom line.
Overall, if you are looking for a way to more precisely and comprehensively track the performance of your multi-entity business, a system that supports dimensional accounting may be the solution for you.
If you are seeking new ways to optimize your accounting operations, upgrading to a system like Oracle NetSuite or Sage Intacct could help your business to react quickly when changes are needed to overall financial and operational reporting requirements.
Choosing the best system for your requirements can be challenging. To learn more about choosing the best system for your business needs, and how dimensional accounting practices could benefit your business, get in touch with our team of experts today.
Frequently Asked Questions
What is a dimensional chart of accounts?
A dimensional chart of accounts is a system that organizes financial data into dimensions. It allows for a more precise and comprehensive evaluation of performance. Dimensional accounting can help business owners optimize their financial reports and performance by providing a more detailed view of how each entity is performing individually and collectively.
By identifying the root cause of performance issues, dimensional accounting can help business owners make more informed decisions about where to allocate resources in order to improve financial outcomes.
What is an account numbering system?
An account numbering system is a method of representing and identifying accounting transactions by assigning each transaction a unique number.
This number helps to keep track of all financial activity relating to a specific account. Transaction numbers are used to identify journal entries, invoices, and other accounting documents like a balance sheet or a profit and loss statement. Most businesses use a double-entry bookkeeping system, which requires two numbers for every transaction- one for the debit and one for the credit.
What are the dimensions in a general ledger?
Dimensions in a general ledger are categories that help to organize financial data.
Some examples of dimensions in a general ledger are time period, product or service, customer, location, and type of expense. This multidimensional chart allows companies to better understand their balance sheet, track revenue, and understand their additional accounts and cost center in a more comprehensive way.
One of the advantages of dimensional accounting is that it can help businesses better manage their multi-entity structure. For example, if a company has multiple locations, dimensional accounting can help track revenue and expenses at each location separately. This can be especially helpful for businesses with more than one main account and multiple subsidiaries.