Accounting dimensions are the relevant dimensions that are applied to each transaction in order to organize and analyze financial data. This ensures your Chart of Accounts stays pure and enables you to manage each segment independently, which reduces the overall maintenance required for General Ledger (GL) accounts.
Consider this example:
Let’s say you have two employees, Frank and Jake, working for you in your organization. You wish to track their profitability. For this, you would have to first record the sales invoice and expense entry for each of the employees:
Frank Sinatra
Sales invoice (income): $8000
Expense: $4000
Profit: $8000-$4000=$4000
Jake R
Sales invoice (income): $7000
Expense: $2000
Profit: $7000-$2000=$5000
In this instance, the accounting dimension provides a clear picture of each employee’s profitability. It can be applied to resource allocation, performance appraisal, and making smart choices on employee-related costs.
Users can define and make use of dimensions with ERPNext. Dimensional accounting enables more thorough and personalized financial reporting and analysis. Using dimensions is faster than data entry since data entry requires users to select multiple dimensions. However, the extra investment of time pays off as you do not have to manually prepare separate reports for each dimension. Users can make use of existing dimensions available and define custom accounting dimensions as per their requirements.
To create a custom dimension on ERPNext, simply:
- Click on New under the accounting dimension.
- Specify the reference document to be used as your custom dimension.
- Give a name to the dimension.
- Mention the default dimensions related to the company in the Dimension Defaults table, which is automatically retrieved for the transaction involving that particular company.
- Check the “Mandatory” checkbox if you would like the transactions to require the dimension.