Classification is a very important step when designing an efficient accounting system. Append below are some basic principles used in the classification of Accounts:-
Basic Principles In The Classification Of Accounts |
- The classification should be governed by the form in which financial and operating statements are to be presented
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- Each ledger account should be given a title which is self-descriptive and which clearly indicates the purpose for which is it intended
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- The classification should be sufficiently detailed so that each item representing an asset, liability, expense or revenue should find its place in a single account
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- Groupings of balance sheet and revenue statement items should be clearly defined so that various classes may be distinguished.
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- The classification of revenue accounts should if possible be designed to facilitate the preparation of taxation and similar government returns;
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- The classification should be sufficiently flexible to permit of the introduction of new accounts
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