Chart of Accounts Numbering – Meaning, Importance, And More

A Chart of Accounts lists all the accounts in the general ledger. The purpose is to organize the accounts and group similar ones together. Every account in the general ledger is assigned a specific code, and this is what we call a chart of accounts numbering. The chart of accounts is very crucial for a company’s accounting system.

Understanding the chart of accounts and its purpose is a must for numbering. We recommend reading the chart of accounts article prior to beginning with the chart of account numbering.

You can see it as a cabinet system, where each cabinet has a different set of files. Each set of files contains a different set of accounting information. To differentiate the cabinet or to easily identify which cabinet contain which file, we number files in a particular series. This is what companies do in the chart of account numbering.

CoAs are easily customizable to reflect the company’s operations. However, a company must prepare them according to the Generally Accepted Accounting Principles (GAAP) and Financial Accounting Standards Board (FASB) guidelines.

Chart of Accounts Numbering Approach

Division Code

It is usually a two-digit code that defines the specific company division within an organization. A company could define its divisions on the basis of its products, different geographies, etc. A company with a single division does not require division coding. This code is usually a two-digit number but can be three digits depending on the number of divisions a firm has.

Department Code

Like the division code, the department code is usually a two-digit code. It defines various departments within a division. A division will usually have various departments such as accounting, production, engineering, and so on. In order to identify the departments in a division, an account manager can use two to three-digit codes.

Account Code

These are the codes defined for the ledgers. Most organizations keep this as a three-digit code and assign these to the accounts such as assets, liabilities, expenses, revenue, and so on.

For instance, a multi-division company would have a chart of accounts numbering in the following manner: ZZ-AA-123.

• The ZZ represents division.
• AA is for the department.
• 123 is for accounts (general ledgers).

If the company is a single division with multiple departments, the number pattern could be something like AA-123. Finally, a small business with no departments at all could have only a three-digit code assigned to its accounts, such as 123.

What Should be the Code?

The code depends on the complexity of the business and the details that the accounting manager wants from the financial reporting system. These codes are usually numeric but could be alphanumeric as well. There is no strict rule on the code pattern, but usually, the numeric codes work best because of the simplicity of feeding it into the normal keyboard.

After setting the coding pattern, the companies move on to assigning the numbers to the division, department, and accounts.

Accounts and their Numbers

Let’s focus on account codes in this section. In the chart of accounts, companies usually list accounts in the order they appear in the financial statements. The first is the balance sheet accounts, followed by the income statement. Many companies, however, structure the chart of accounts in a way that all departments have the same set of expense accounts. The management always wants the numbering to be consistent so as easily compare the performance of different years.

When an accounts manager lists the accounts in the CoA, there should be a numbering system to ensure easy identification. While bigger businesses usually stick with four or five-digit numbers, small businesses use three-digit numbers. A company may leave additional space at the end for future transactions.

Following are the usual accounts that get the numbering.

Assets

Assets usually fall into two categories – current assets and fixed assets. One can easily convert current assets into cash, such as checking accounts, savings account, money market, accounts receivables, inventory, and so on. Current assets normally get the codes from 10000 to 14999, but again there are no hard rules for the same. Fixed assets, on the other hand, get codes from 15000 to 17999. The range for intangible assets could be 18000 to 19999. The table below is an example of how companies number their assets.

Account Group Description	Account Number
	From	To
ASSETS
Current Assets
Cash & Cash Equivalents	10000	10999
Accounts Receivable	11000	13999
Inventories	14000	14999
Property and Equipment
Land & Building	15000	15999
Plant & Machinery	16000	16999
Furniture	17000	17999
Intangible Assets
Trademark	18000	18999
Patent	19000	19999

Equities & Liabilities

Similar to the numbering done for assets, liabilities also get numbering on the basis of current and non-current liabilities. Look at the table below to know how companies number the accounts under equities & liabilities.

Account Group Description	Account Numbers
	From	To
EQUITIES & LIABILITIES
Share Capital	20000	20999
Accounts Payable	21000	24999
Other Current Liabilities	25000	27999
Long Term Liabilities	28000	29999

Revenues

Account Group Description	Account Numbers
	From	To
Revenues
Revenue from Operations	30000	35999
Other Income	36000	39999

Expenses

Account Group Description	Account Numbers
	From	To
EXPENSES
Cost of Revenue	40000	42999
Service and Others	43000	43999
General and Administrative	44000	45999
Sales and Marketing	46000	46999
Research and Development	47000	47999
Other Expenses	48000	48999
Provision for Income Taxes	49000	49999

Best Practices

A company can improve the chart of accounts numbering by following the below points;

Consistency

One must try to create a chart of accounts that would not change frequently. This allows the company to compare the results over a multi-year period

Numbering

Avoid concurrent numbers for your accounts because you may have to add more accounts in the future. If you don’t make provisions for future accounts now, you may not be able to add new accounts in the correct order.

Easy Consolidation

If a company has subsidiaries, then it should make them follow the same pattern for the chart of accounts. This makes it easier to consolidate the results of all companies.

Periodical Review

It is important that a company reviews the chart of accounts from time to time. This will allow the company to weed out unused accounts and consolidate duplicate accounts. Such a periodical review helps the company keep a check on the number of accounts.

Also, refer to our article Chart of Accounts Example to get the essence of the whole numbering process.