The usual account code structure includes a four or five digit code that represents the main account, a hyphen, and then a two or three digit code that represents a department or subsidiary. Common usage states that these department and subsidiary codes be numeric. For example, the travel expense code might be 63000, with additional department digits that look like this:
- 63000-100 = Travel expense, administration department
- 63000-200 = Travel expense, engineering department
- 63000-300 = Travel expense, sales department
Alternatively, for a "flat file" chart of accounts that contains multiple companies, the travel expense code might look like this:
- 63000-100 = Travel expense, Gerber Geriatrics
- 63000-200 = Travel expense, Highline Supplies
- 63000-300 = Travel expense, Innovative Solutions
In both cases, the person entering journal entries or transactions must know the meaning of the department or subsidiary codes, which are not entirely obvious. Sure, the accounting software may reveal the account name in a byline, but the data entry person has to glance at the byline to see it. If the person does not verify the accuracy of her entry, then it's entirely possible that she will code the transaction into the wrong department or subsidiary. While most companies avoid this difficulty by assigning specific expense codes to vendor files and by using pre-built recurring journal entries, there is still a significant risk that the use of purely numeric codes will result in incorrect charges to the wrong departments or subsidiaries.
The solution is simple enough. Many accounting software packages allow for the use of alphanumeric account codes, which allows one to assign meaning to a code. Even contracting a department name into a three-digit code leaves lots of room for meaning. To use the previous example for department coding, 63000-100 becomes 63000-ADM; unless you employ admirals, the obvious implication is that this is the administration department. Similarly for the subsidiary coding example, the obscure 63000-300 becomes 63000-INN, which would lead a user to conclude that it involves the Innovative Solutions subsidiary.