Codes for accounts

Codification means giving each account a code. The book defines a code as 'a system of letter or figure with arbitrary meaning for brevity and for machine processing of information'. In short, it is an identification mark made of numbers, letters or symbols.

Account codes follow the grouping hierarchy. The first digit is the main group: 1 Equity and Liabilities, 2 Assets, 3 Revenues, 4 Expenses. The second digit is the sub-group: 11 Shareholders' funds, 13 Non-Current Liabilities, 14 Current Liabilities, 21 Non-Current Assets, 23 Current Assets. Notice the gaps (13 comes after 11): they leave room to add groups later.

Because the codes follow the hierarchy, listing them in ascending order puts every account in the right place for the Balance Sheet and the Statement of Profit and Loss automatically.

There are three kinds of code. Remember them by what they do:

• Sequential codes follow a sequence: numbers or letters given one after another. Customers might be CL001, CL002, CL003; the next new one gets CL004. They suit documents like cheques and invoices, because a missing number shows up at once and every document can be traced.
• Block codes split a range of numbers into sub-ranges, one block per group. A shop might use 1000-1999 for televisions, 2000-2999 for mobile phones and 3000-3999 for refrigerators. The book's example: 100-199 for small pumps, 200-299 for medium pumps.
• Mnemonic codes are short forms made of letters, easy to remember: SJ for Sales Journal, HQ for Head Quarters. Railway station codes are mnemonic: NDLS for New Delhi, TVC for Thiruvananthapuram.