Sub Heads Grouping of Accounts Revenue Liabilities Assets Expenses Fixed Assets Current Assets Capital Non-current liabilities Current liabilities Sales Other income Direct Expenses Indirect Expenses . . Grouping of accounts In any organisation, the main unit of classification is the major head which is further divided into minor heads. Each minor head may have number of sub-heads.
After classification of accounts into various groups namely, major, minor and sub-heads and allotting codes to each account these are programmed into the computer system. A proper codification requires a systematic grouping of accounts. The major groups or heads could be Assets, Liabilities, Revenues and Expenses. The sub-groups or minor heads could be capital, non-current liabilities, current assets, sales and so on.
In general, the basic classifications of different accounts embodied in a transaction are resorted through accounting equation. Assets = Liabilities + Capital + (Revenues – Expenses) Each component of the above equation can be divided into groups of accounts as follows: Accountancy A. Liabilities and capital Capital • Capital • Reserves and surplus Non-Current Liabilities • Long-term borrowings • Other long-term liabilities Current liabilities • Short term borrowings • Trade payables • Other current liabilities B. Assets Fixed tangible assets • Land and building • Plant and machinery • Furniture and fixtures Intangible assets • Goodwill • Copyright • Patents Current Assets • Short term investments • Inventories • Trade receivables • Cash and cash equivalents • Short term loans and advances • Other current assets C.
Revenues • Sales • Other income D. Expenses • Material consumed • Wages • Manufacturing expenses • Depreciation • Administrative expenses • Interest • Selling and distribution expenses, etc. Accountancy . .
Codification of accounts Code is an identification mark. Generally, computerised accounting involves codification of accounts. Codification of accounts is needed where there are numerous accounts heads in an organisation. There is a hierarchical relationship between the groups and its components.
In order to maintain the hierarchical relationships between a group and its sub-groups, proper codification is required. The coding scheme of account