Question

Elaborate with the help of examples on how the transaction will be shown in the chart of accounts by hierarchical grouping.

Answer 1

Hierarchical grouping means organising accounts from broad main categories down to specific sub-accounts using unique numerical codes to record transactions systematically.

Examples of Hierarchical Grouping:

1. Cash Deposited into the State Bank of India

• Major Head (Assets): 1
• Sub-Head (Current Assets): 11
• Minor Head (Cash & Bank Balances): 111
• Detailed Ledger Account: 1112 - State Bank of India Account

2. Cash Paid for Office Stationery

• Major Head (Expenses): 4
• Sub-Head (Operating Expenses): 41
• Minor Head (Office & Administrative Expenses): 412
• Detailed Ledger Account: 4121 - Stationery Account

Chart of Accounts Table:

Major Code	Sub-Code	Minor Code	Account Code	Account Name
1	11	111	1112	State Bank of India Account
4	41	412	4121	Stationery Account