Chart of accounts numbering involves setting up the structure of the accounts to be used, as well as assigning specific codes to the different general ledger accounts. The numbering system used is critical to the ways in which financial information is stored and manipulated.
The first type of numbering to determine for a chart of accounts involves their structure. This is the layout of an account number, and involves the following components:
Division code - This is typically a two-digit code that identifies a specific company division within a multi-division company. It is not used by a single-entity company. The code can be expanded to three digits if there are more than 99 subsidiaries.
Department code - This is usually a two-digit code that identifies a specific department within a company, such as the accounting, engineering, or production departments.
Account code - This is usually a three digit code that describes the account itself, such as fixed assets, revenue, or supplies expense.
For example, a multi-division company with several departments in each company would probably use chart of accounts numbering in this manner: xx-xx-xxx
As another example, a single-division company with multiple departments could dispense with the first two digits, and instead uses the following numbering scheme: xx-xxx
As a final example, a smaller business with no departments at all could just use the three digit code assigned to its accounts, which is: xxx
Once the coding structure is set, the numbering of accounts can take place. This is the three-digit coding referred to previously. A company can use any numbering system that it wants; there is no mandated approach. However, a common coding scheme is as follows:
Assets - Account codes 100-199
Liabilities - 200-299
Equity accounts - 300-399
Revenues - 400-499
Expenses - 500-599
As a complete example of the preceding outline of numbering, a parent company assigns the "03" designator to one of its subsidiaries, the "07" designator to the engineering department, and "550" to the travel and entertainment expense. This results in the following chart of accounts number: