What is the best way to track/prepare product line profitability statements?
Any limitations with using "company/product code" designation within GL account number to track by product? Or do you recommend maintaining an entirely separate GL for key product groups?
Which types of items are allocated vs. tracked directly? Do you produce the same or different data for various users?
Answers (4)
I am used to keeping a separate GL for product groups, but really doesn't provide the needed detail. We use Cognos cubes to individually track sku's within company/product group, etc.
Reuven I. R
Owner - Reuven I Rubinson, CPA
Best Answers in: Accounting (4), Financial Regulation (1), Risk Management (1), Using LinkedIn (1)
Julia:
Your question is too complicated to be fully answered here. You first need to determine what are you trying to accomplish and how are you going to use the data. When I am setting up an accounting system for a client, I am often asked what is the "right chart of accounts?" I tell them there is no right one; that it all depends on how you plan to use the information. Too many accounts will be a waste of time. Too little will not give you enough information to run the business.
Having said that, my first thought would be for you to use classes, rather than account numbers to track the major groups of product you sell. If you need more information, than you can modify it later.
As far as tracking, you track whatever you need to make an informed decision. Please talk to a good business consultant so they can help you determine your needs. Or you could use someone like me to do it over the phone, at least for the initial sorting out of requirements.
Good luck. Reuven
Barrett P
C.P.A., Senior Financial Executive in Accounting, Finance and Treasury, IT, M&A, and Management Consulting Professional
Best Answers in: Quality Management and Standards (2), Supply Chain Management (2), Event Marketing and Promotions (1), Accounting (1), IPO (1), Economics (1), Organizational Development (1), Planning (1), Manufacturing (1)
Use a categorization field other than the ledger account number - as you might for a department - and assign direct costs, including direct marketing, sales, and administrative costs. Summarize on the codes in the field used.
Barrett Peterson, CPA
Howard F
Experienced CFO with an operational focus
Best Answers in: Accounting (1), Budgeting (1), Venture Capital and Private Equity (1), Mergers and Acquisitions (1), Planning (1)
When designing financial systems, it is best to understand the informational needs of the users first. Once those needs are determined, then one can assess how to capture the data in the financial systems. Often there is a need for information by location, by natural revenue or expense classification, and by product. If the general ledger set-up is sufficiently flexible, then a chart of accounts can be designed to meet these needs. However, at times the general ledger does not have enough fields and/or the chart of accounts has already been established. In both cases, some creativity may be needed to meet the reporting needs.
Another important consideration is whether the source data can be classified and/or allocated to a particular product. The arbitrary allocation of shared costs can lead to poor decisions about contribution margin, especially in low-margin environments. It would be a terrible mistake to believe that a product with positive contribution margin should be terminated due to the allocation of fixed costs that make it appear to have a negative contribution margin. It's not just a question of the mechanics of the financial systems, but it is much more important to understand the desired information and how it will be used.
