Question

Method of Codification should be ______.

Options

• Such that it leads to the grouping of accounts.

• An identification mark.

• Easy to understand, cryptic, and leads to the grouping of accounts.

• None of the above.

Answer 1

Method of Codification should be such that it leads to the grouping of accounts.

Explanation:

The primary purpose of an account-codification scheme is to assign codes that reflect the hierarchy and grouping of account‑heads (for example using the first digit for top‑level groups like Equity & Liabilities, Assets, Revenues, Expenses) so that accounts are automatically classified for preparation of the Balance Sheet and Profit & Loss; although a code also serves as an identification mark, the codification method should be designed foremost to enable grouping and hierarchy for easy processing and reporting.