The Value of Dimensional Accounting
With today’s technological advancements, ERP systems and accounting software have given operational users and business managers access to a broader range of informational data. Although traditional monthly financial statements still play a major role in strategic decisions, daily operational decisions are becoming increasingly important in today’s hasty and ever-changing economy.
Consequently, more and more businesses require real-time information to speed-up their decision-making process, quickly react to market changes and create competitive advantage.
There is a well-known idiom that says: “A picture is worth a thousand words” representing the notion that a still image can convey more meaningful information than a wordy description. Similar to a picture, financial reports are a still image of your company, a snapshot of your organization’s records and daily transactions.
Traditionally, financial reports are produced on a monthly basis to summarize all the transactions recorded in the general ledger (GL) of the chart of accounts (COA). They are used by a multitude of stakeholders to determine the financial wealth of a company. Broken down by type and subcategories, the COA is the foundation of your company’s record keeping system. It’s a powerful tool that helps managers with strategic decisions to ensure profitability and continued success.
Although all transactions are recorded in the COA, detailed information is not always easily accessible. Some of the challenges that companies face are: input errors, undefined categories and subcategories, extensive manual calculations and missing or untraceable information due to the overwhelming amount of GL accounts. Once made available, the required information may lack detail or may have become obsolete, making it inaccurate for decision purposes. Being unable to extract meaningful and detailed information from your COA in a timely manner has major negative impacts on decision makers. That is the reason why in today’s rapidly changing economy, real-time information is becoming more and more critical to effective decision-making.
Sage Financials: Dimensional Accounting
New cloud-based financial systems such as Sage Financials have found a solution for this market requirement and have introduced a new accounting concept called "dimensional accounting" to handle this need for real-time information.
Simply explained, dimensional accounting allows the tagging of any transaction with dimensional values.
In Sage Financials, "dimensions" can be described as a grouping of related records while "tags" are the detailed records or data within the dimension. Although the concept sounds a little bit confusing, it is actually quite simple. Let me give you an example that will help you understand.
Imagine you have a room full of boxes. The room itself represents the system while the boxes represent the dimensions i.e. each box is a dimension. One of the boxes (dimension) is titled “Books” containing several titles, each one representing a tag.
Sage Financials comes with a number of default dimensions such as customers, suppliers and products. The system allows users to activate, inactivate, delete, edit or create an unlimited number of new dimensions and tags to meet their reporting needs. Once created, dimensions and tags are made available throughout the system for a multitude of purposes such as detailed reporting, product description, client information, data categorization, etc... Sage Financials was built around the concept of dimensions and tags allowing users to track an infinite amount of analytical data while simultaneously allowing them to expand beyond traditional accounting information.
How can Dimensional Accounting be Useful?
Without dimensional accounting and facing this ever-increasing need for real-time detailed information, users were forced to multiply the number of segments in their chart of accounts. Each company’s COAs differs greatly from one another and their content is in constant evolution to satisfy their organization’s changing needs. Over time, the number of GL Accounts continuously grew and without proper controls, what was meant to be a very useful tool turns into their biggest accounting nightmare. Additionally, many ERP systems limit the number of segments and sub-categories in their chart of accounts forcing users to turn to external software such as Microsoft Excel to analyze their data.
Sage Financials’ dimensional accounting allows users to reduce the number of segments in their chart of accounts without negatively impacting their reporting needs. The details and information available in reports are actually enhanced through the integration of an unlimited number of dimensions and tags. Although this sounds great, it is important to keep in mind that there is a cost associated to storing additional data. They include the cost of storage, the time required to input and analyse, and let’s not forget that with additional data input comes an increase in potential errors. Fortunately, Sage Financials allows companies to automate most of its data input by linking dimensions with one another. For example, you can associate a client account with pre-selected values of other dimensions such as Payment Terms, Region or Client Type. In return, when creating an invoice for an account, related dimensions are automatically populated by the system. Not only do you speed up the process as a whole but you also reduce the amount of manual input and the risk of error.
As previously mentioned, in today’s fast-paced economy and ever-changing market place, flexibility and quick reaction time are a strong competitive advantage. This is a major challenge for companies that have lost control over their chart of accounts. If you have ever worked for a company with an extensive chart of accounts, you certainly know that as soon as additional information is required to make a decision, making this adjustment to your COA is extremely time consuming. In addition, it multiplies the number of GL accounts worsening the situation! In Sage Financials, this concern is eliminated. You can easily create a new dimension with its related tags and link them to your transactions. In a few clicks, the information is made available for reporting and operational purposes. With minimal adjustments, as your business grows, Sage Financials grows too.
Using dimensions and tags in conjunction with validation rules is another interesting feature. Remember, data has a cost, therefore, it is important to ensure that any additional information is valuable, precise and complete. Sage Financials allows administrators to determine which dimensions are mandatory fields when recording a new object in the system. For example, an admin may decide that dimensions such as country, region and payment terms are all mandatory prior to saving a new client in the system. Once setup, the system will block users from saving a new client profile that does not satisfy those requirements. Similar validation rules can be applied to products, suppliers and sales transactions, among others.
Overall, dimensional accounting is a major new advancement that can help your organization get better access to the factors that impact your decision-making. As a system that leverages this new concept, Sage Financials will allow you to capitalize on its benefits. Not only does it allow companies to reduce the size of their chart of accounts, it's flexibility also supports continuous growth and market changes. For reporting purposes, this new concept is highly efficient giving managers access to a broader range of detailed information without overwhelming their employees with additional work.