Identifying Cost Elements
An Analysis Made for the Internal Accounting Structure
By: Emanuel Schwarz
March 8, 1999 (Pro2Net) If you had the opportunity to read my last article, I explained how to transfer external accounting's expenditure amounts to internal accounting's cost elements accounts.
The cost elements' classification of accounts is the very first structure in the internal accounting's chart of accounts.
From this first class of accounts (which will be identified with the number two), we shall begin. Consequently we must use great care to correctly identify the different amounts that will be incorporated in internal accounting, which then will help us to accurately establish the specific cost of production and the important appraisal of the cost of goods sold.
Let us start with a very basic first approach: We shall establish the code structure of our internal accounting's chart of accounts.
Class of Accounts. This is expressed by the first digit of the code. The cost elements class will be designated with the number two.
Group of Accounts. This is the identification by the next digit of the code. I recommend the use of only one digit in this position, for a total of nine groups in each class of accounts.
Main Accounts. These numbers should have only two digits, which will make it possible to create a total of roughly 90 main accounts. In my experience, I believe it is adequate to designate up to 90 main accounts within each group of accounts.
Sub Accounts. These should have a total of three digits. With a capacity of up to 900 sub accounts for each of the 90 main accounts within each group of accounts, we have created an adequate quantity of sub accounts for the code structure of the internal chart of accounts.
Sub-Sub Accounts. In case there is a need to increase the chart of accounts, we may allocate four digits for these sub-sub accounts, which would then increase the capacity of each sub account with some 9,000 accounts.
The code structure within the internal chart of accounts will be identified in following way.
With this planned structure, we will now develop the following group of accounts.