Combination Codes

Types Of Codes

(f) Combination Coding System
While it might appear that you have to select one type of coding system to use for your chart of accounts this is not necessarily the case. Unless the accounting software you plan on using dictates a specific coding system that has to be used , you can use numbers and/or alphanumeric characters and a combination of hierarchical codes, block codes, faceted codes, and mnemonic codes to develop your chart of accounts.

Mixed codes can sometimes offer more understandability and flexibility than using one type of coding system by itself.

Actually, we've already used a combination coding system for our above simple chart of accounts. We first set up our mnemonic codes that identified and defined information about our accounts and then combined the pieces of information (facets).

Coding Summary

Using codes is not a difficult concept. After becoming familiar with the codes, they allow us to convey a lot of meaning with just a few characters. Think of them as an abbreviation for something. My full name is David William Marshall but my name can be conveyed to those who know me using DWM, a code called initials.

Codes when used with a chart of accounts identify and convey all the attributes (characteristics) of an account that are either needed or required for reporting on and controlling the financial activities of a business. In general, an attribute is a property or characteristic. Color, make, and model, for example, are all attributes of a car. Some attributes that may be assigned to an account are the account name, account description, type of account, normal balance type - debit or credit, etc.

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Code Types Video