Rules for Building an Accounting Index

A properly built accounting index enables the easy generation of meaningful financial reports for managers, without the need for manual processing

If account keys and their classification are built randomly, then the reports we produce will be cumbersome and will require manual work.

If account keys and their classification are built according to predefined rules, we can immediately understand which account it is, without even knowing its name.

Below is a suggested set of rules for building a smart accounting index:

Part A – Account Key

An account will contain 6 digits in an organization without branches.

[ ] [ ] [ ] [ ] [ ] [ ]

An account will contain 8 digits in an organization with branches; in positions 7-8, the branch number (bb) will be defined.

[ b ] [ b ] [ ] [ ] [ ] [ ] [ ] [ ]

Profit and loss accounts: in position 1, the following will be defined: 1 – Expenses, 2 – Revenue, 3 – Financing sources, 4 – Other income.

[ ] [ ] [ ] [ ] [ ] [ 1,2,3,4 ]

Balance sheet accounts: in position 1, the following will be defined: 5 – Customers, 6 – Suppliers, 7 – Institutions, etc.

[ ] [ ] [ ] [ ] [ ] [ 5,6,7,8,9 ]

Revenue accounts: in positions 2-4, the revenue type (xxx) will be defined.

[ 2 ] [ x ] [ x ] [ x ] [ ] [ ]

Revenue accounts: in position 5, the revenue subtype (y) will be defined.

[ 2 ] [ x ] [ x ] [ x ] [ y ] [ ]

Revenue accounts: in position 6, 0 or an adjustment to expense classifications (z) will be defined.

[ 2 ] [ x ] [ x ] [ x ] [ y ] [ z ]

Expense accounts: in positions 2-5, the expense type will be defined according to the corresponding revenue type above.

[ 1 ] [ x ] [ x ] [ x ] [ ] [ ]

Expense accounts: in position 5, the expense subtype (y) will be defined according to the corresponding revenue subtype above.

[ 1 ] [ x ] [ x ] [ x ] [ y ] [ ]

Expense accounts: in position 6, the expense classification (z) will be defined.

[ 1 ] [ x ] [ x ] [ x ] [ y ] [ z ]

Financing source accounts: in positions 2-4, the financing source type (iii) will be defined {positions 5-6 have no meaning}.

[ 3 ] [ i ] [ i ] [ i ] [ ] [ ]

Lists containing branches, revenue types, revenue subtypes, expense classifications, and financing sources should be published within the organization. Example:

Revenue types: 100 – Project A, 101 – Project B, etc.

Revenue subtypes: 1 – Implementation, 2 – Training, etc.

Expense classifications: 1 – Salaries, 2 – Activity, 3 – Equipment, 4 – Transportation, 5 – Salary via invoice, 6 – Computing, 7 – Advertising, etc.

Branches: 11 – Tel Aviv, 12 Jerusalem, etc.

Financing sources: 001 – Israel Innovation Authority, 002 – Bank loans, etc.

Example account: 11001312 – Equipment expenses for the implementation of Project A, Jerusalem branch

Part B – Classification Codes

(A classification code serves as a “title” for several accounts)

A classification code will contain 5 digits.

[ ] [ ] [ ] [ ] [ ]

In position 1, the accounting type will be defined: 1 – P&L, 2 – Balance sheet.

[ ] [ ] [ ] [ ] [ 1,2 ]

In positions 2-3, the department (dd) will be defined.

[ ] [ ] [ d ] [ d ] [ ]

In positions 4-5, the sub-department (ss) will be defined.

[ s ] [ s ] [ ] [ ] [ ]

Lists containing departments and sub-departments should be published within the organization. Example:

Department: 01 – Finance, 02 – R&D, etc.

Sub-department: 11 – Research A, 12 – Research B, etc.

Example classification code: 10211 P&L R&D Research A

Example classification code: 20010: Suppliers