It is not uncommon for a business unit to appear on the chart of accounts twice. For example, if you have a manufacturing facility that also provides engineering services and both are considered separate units of work, then it would make sense to list each one separately on your accounting records. But what about when they share the same cost center? That is where things can get tricky. A lot of people might think that because two units share the same cost center (and therefore some expenses), they should also be listed together in the chart of accounts as well.
This may seem reasonable at first glance – but there’s actually an important reason why this isn’t best practice: differentiating between costs and revenues related to each unit becomes difficult when everything is lumped into one section.
The reason that earnings are divided between two units is that they have different costs and revenues relative to each other, so it makes sense for them to be listed separately on the chart of accounts as well. So when does this make a difference? Take manufacturing facilities vs. sales offices, for example: if you were able to combine these in your accounting records, then it would be difficult – if not impossible – to accurately tell how much profit was generated by each division. But with everything separated out into their respective sections on the chart of acts, this becomes an easy task! It also allows you more options later on when deciding which business unit should get funding or start new projects first and all.
