Numbered Accounts

Allotment of Numbers to Accounts

The allotment of a series of numbers to a certain kind of accounts not only classifies them in an orderly manner by grouping them according to their resemblances and separating them according to their differences, but the notation also greatly facilitates locating them and saves much time and effort in indicating them on vouchers, journal entries, etc. Another advantage is that posting records may be checked as to their general correctness by an official who has only a general knowledge of the system. As an illustration, if the asset accounts have the general classification of 1 and the expense accounts have the general classification of 9, it needs only a cursory survey of voucher, or ledger posting data, to see whether an expense item has been charged to a capital account or vice versa.

The framework of the classification should be so constructed that any account, new or old, not already included in the scheme, can be inserted without disturbing the general order. If this is done, the system can never become obsolete in the sense of becoming impracticable, because changes can be inserted in their appropriate place as soon as they occur.

The different schemes or symbols which have been developed from time to time are the Dewey decimal system with its variations; the mnemonic system; and a combination of the two. The Dewey decimal system is undoubtedly the most complete and highly perfected in theory of any, and, as the name indicates, is a combination of figures and periods giving a symbol of almost unlimited expansion. The use of figures and symbols offers an infinite number of possible combinations, but the straight decimal system is in no way practical for general use, chiefly because a voluminous key is necessary even to interpret the symbol.

The mnemonic system, as its name indicates, was devised for the purpose of supplying a symbol which would be suggestive and which would indicate the object that it was intended to identify. The mnemonic symbol consists of a combination of letters and figures with the occasional use of a period or a dash. In order to classify completely any object in a large system, according to general classifications and special subdivisions, it is sometimes necessary to use five, six, or seven letters to identify one particular piece of machinery. In this case also, the use of a key becomes a necessity. The mnemonic system pure and simple is more often used for identifying machinery and tools or other stock, kept in a factory stock room. It is adapted also to the filing of correspondence.

The two advantages claimed for the mnemonic over the Dewey system are:

1. The letters of the alphabet are used and so give opportunity for a more rational classification than the ten possible groups of the decimal system.

2. A system consisting of letters may be made more easily mnemonic, each letter being, as a rule, the initial of the term symbolized, and may be recalled to mind more easily than a number arbitrarily chosen for that purpose.

The following example shows how easily a machine can be located and described. If:

then:

Where there are several styles of the same type of machine, numerals may be added, as MPR₁, MPR₂, etc.

A combination of these two systems which has been applied to large institutions is characterized by grouping all departments which perform the same class of service under one letter of the alphabet, and then numbering their functions. Frederick A. Parkhurst[72] has outlined a very useful system which may be used in a manufacturing or other plant somewhat as follows. Group A with subdivisions would include:

1A Accounting Room1B Sales Department
2A Cost Department2B Order Department
3A Credit Department3B Stenographic Department
4A Billing Department
5A Filing Department

Each department of the factory has an arbitrary letter allotted to it and is always referred to in all records by this letter and number.

The Interstate Commerce Commission uses a numerical system of numbering accounts by first grouping each class under “general accounts”; then under each group of general accounts, special accounts called “primary accounts” are numbered consecutively. These accounts have been analyzed so minutely that not much leeway is given for inserting new accounts and for this reason the method is not so elastic as a good classification requires. Thus, Operating Revenue accounts are classified generally into:

The primary accounts under these general subdivisions are numbered as follows:

Transportation—Rail Linefrom #101 to #116
Transportation—Water Linefrom 121 to 128
Incidentalfrom 131 to 143
Joint Facilityfrom 151 to 152

Operating Expense Accounts are classified under the following general accounts:

IMaintenance of Way and Structures
IIMaintenance of Equipment
IIITraffic
IVTransportation—Rail Line
VTransportation—Water Line
VIMiscellaneous Operations
VIIGeneral
VIIITransportation for Investment—Cr.

The primary accounts under these are numbered from 201 to 462.

Another numerical method which can be used for general businesses and which corresponds somewhat to the above is arranged as follows:

The even hundred accounts are the controlling accounts in the general ledger. The details are carried in subsidiary ledgers and are numbered consecutively from 101 to 199, etc.

This system also is not so elastic as one constructed on the theory of the Dewey decimal system, which may be expanded indefinitely without disarranging the system as a whole. First of all the general ledger accounts may be classified into nine fundamental groups as follows:

These general groups may be further subdivided indefinitely into groups of nine, keeping in mind continually that the process of division should be from general to special and that the progress should be gradual.

All accounts under 100 are general ledger accounts, and accounts over 100 are accounts kept in subsidiary records.

From this outline it is apparent that even though each series is limited to nine as in the Dewey decimal system, it may be indefinitely expanded to include a large number of accounts, and will be elastic enough to accommodate any number of future additions to the system. It also classifies accounts so definitely that errors in posting are very rare. A skilled bookkeeper would not be likely to post an income account in any account beginning with 9 for instance.

If this system is used by a large corporation or holding company which operates branches or factories in different sections of the country, all forming part of the general system, letters of the alphabet may be allotted to each factory or branch in addition to the numerical classification. By this means the accounts of each branch may be kept separate on the books of the head office, but the corresponding expense accounts will have the same numbers and may be incorporated in the head office books or balance sheet without any difficulty. This illustrates the principle of grouping all accounts belonging to the same classification and separating all accounts which belong to different units of the same organization.

In establishing a special system of classification for any purpose whatever, the main points to be kept in mind are that the following requirements shall be fully met:

1. To enumerate all the kinds of information which may be classified.

2. To group these items into a limited number of classes.

3. To give each class a definite and unchanging symbol.

4. To provide for expansion of the classification under each group, and symbolize each subdivision by an addition to the symbol for the group.

If these general rules are observed, the notation may be numerical or alphabetical, whichever serves the purposes noted above, and also is most easily memorized without the use of an elaborate key to interpret the system.