# Chart of Accounts Numbering System

Each account in a general ledger chart of accounts is allocated a code depending on the chart of accounts numbering system used by a business. The purpose of the chart of accounts numbering system is simply to group similar accounts together and to provide an easy method of remembering and referring to an account when preparing journal entries.

The code used will depend on the complexity of the business and the amount of detail required from its financial reporting system. Although any combination of alphanumeric characters can be used it is normally better to use codes containing numbers only, as this speeds up the entering of double entry bookkeeping transactions using the numeric keypad on a typical computer keyboard.

Typically the chart of accounts numbering logic will follow either a three, five, or seven digit pattern as described below.

## 3 Digit Chart of Accounts Numbering System

For a small business without the need to identify departmental or divisional information a simple 3 digit chart of accounts numbering system can be used.

The accounts codes structure seeks to organize the general ledger by grouping similar account types together in ranges. Normally for ease of use the groupings follow the accounts used in a typical balance sheet layout followed by those used in a typical income statement layout.

### 3 Digit Account Code Structure Example

So for example the following ranges might be allocated.

3 Digit Chart of Accounts Numbering System
Account Code
Assets 100 – 199
Liabilities 200 – 299
Equity 300 – 399
Revenue 400 – 599
Expenses 600 – 799

The general format of the 3 digit chart of accounts numbering system is XXX. In the above table expenses has been allocated the range 600-799, so as an example the wages expense might be given the code 620. The three digit chart of accounts numbering system allows for up to 1,000 (0-999) separate general ledger accounts.

Grouping the account codes into ranges provides an easy method of remembering and referring to an account when preparing journal entries. For example in the above table the range 100-199 allows for 100 separate asset accounts and the range 600-799 allows for a total of 200 expense accounts.

Depending on the type of business smaller or larger ranges can be allocated to each account type to allow for expansion. In addition it is always good practice to leave spaces between allocated account codes to allow room for additional codes to be inserted at a later stage.

Although the 3 digit chart of accounts numbering system is commonly used there is nothing to stop a business opting for a 4 digit account code structure allowing for up to 10,000 (0-9,999) separate accounts.

## 5 Digit Chart of Accounts Numbering System

As a business develops and grows it establishes departments such as, for example, production, design, sales & marketing, and accounting departments. In order to record accounting information by department a further two digits are used to form a department code. The department code is then added to the current three digit account code to create a 5 digit chart of accounts numbering system.

The general format of the 5 digit chart of accounts numbering system is therefore XX-XXX where the first 2 digits are the department code and the last three digits as before represent the account code. For example by adding the relevant department code to the wages expense account code 620 referred to above, a separate account is created which will identify the wage expense for that specific department.

### 5 Digit Account Code Structure Example

Suppose the business has two departments, a production department and a marketing department, and wants to be able to identify its expenses between the two. All other account types (assets, liabilities, equity, and revenue) are not separated and are to be recorded in a default code referred to as the General department. The two digit department codes allocated are the Production Department 01, and the Marketing Department 02 with the default department being the General Department 00.

The 5 digit chart of account numbering system for the wages expense account can be set out as follows.

5 Digit Wages Expense Account Numbers
Account Code
Production wages 01-620
Marketing wages 02-620
General wages 00-620

It should be noted that the account code is still 620 which represents the wages expense. Each department now has its own account and the total of the three accounts will represent the total wages expense.

The 5 digit chart of accounts numbering system allows for up to 100 departments (0-99) each with 1,000 accounts. Of course it is not necessary to divide every account into 100 departments. A business might for example want to separate its expense accounts by department as demonstrated above, but leave its balance sheet and revenue accounts with the default department code of 00.

## 7 Digit Chart of Accounts Numbering System

When the business develops and grows further it establishs separate trading divisions for example an electronics business might have a semiconductors division, mobiles division, and a consumer electronics division or perhaps separate geographical divisions. In order to record accounting information by division an additional two digits are used to form a division code. The division code is then added to the current five digit code to create a 7 digit chart of accounts numbering system.

The general format of the 7 digit chart of accounts numbering system is therefore XX-XX-XXX where the first two digits are the division code, and as before the next two digits are the department code and the final three digits are the account code. For example by adding the relevant division code to the production department wages expense code 01-620 referred to above a separate account is created which will identify the production department wage expense for that specific division.

### 7 Digit Account Code Structure Example

Suppose our business has two divisions, the semiconductor division and the mobile division, and wants to be able to identify its expenses between the two. All other account types (assets, liabilities, equity, and revenue) are not separated and are to be recorded in a default code referred to as the Head Office division. The two digit division codes allocated are Semiconductor Division 03, and Mobile Division 04 with the default division for all other entries being the Head Office Division 00.

The 7 digit chart of accounts numbering system for the wages expense account is then as follows.

7 Digit Wages Expense Account Numbers
Account Code
Semiconductor general wages 03-00-620
Semiconductor production wages 03-01-620
Semiconductor marketing wages 03-02-620
Mobile general wages 04-00-620
Mobile production wages 04-01-620
Mobile marketing wages 04-02-620

It should be noted that the account code is still 620 and the department code is still either 01 or 02.

### Analysis Using Department and Division Codes

Each division now has its own account and the total of the all accounts will represent the total wages expense. Likewise it is now possible to use the seven digit account code to analyse by department code or division code.

For example the mobile division wages expense is given by summing the following account codes.

Mobile Division Wages Expense Accounts
Account Code
Mobile production wages 04-01-620
Mobile marketing wages 04-02-620
Mobile general wages 04-00-620

The division code remains fixed at 04 (mobile division) whereas the department code changes to either 01, 02, or 00.

Likewise the production department wages are given by summing the following three accounts

Production Department Wages Expense Accounts
Account Code
Semiconductor production wages 03-01-620
Mobile production wages 04-01-620