Basically there are two approaches to prepare the chart of account of a company.
1) In the first approach, cost heads are separately opened for the cost of goods, administrative expenses,
.marketing and business promotion expenses. In this case grouping of chart of account is kept in mind at the time of data entry and the list of chart of account also becomes lenghty.

2) In the second approach, cost heads are not repeated. A generic list of cost heads are prepared and these are linked with the departments and products / projects. Software itself pick the relevant department and product / projects to prepare the desired grouping. In this approach data entry operator is not required to look at the groupoing because it is processed by system itself.

Kindly provide your comments that which one of the approach is the best one with its justification.

And which one approach is being used in the current scenartios by large organizations.


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Each method has its own merits and demerits.

In the first approach, the account heads are being repeated and always there is a chance for errors. (Salary for Admin. employee may get posted to Salary - Marketing). But analyzing the accounts will be very easy. If you want to know how much is the cost for Mktg. you can stright away go to the G.L accounts without looking into to the cost center.

In the second approach, chance of errors are very minimal as the heads are not repeated. But when you analyse the G.L account, you need to consider the cost center as well.

Hope this helps

savin.yakeep@yahoo.com

I agree with you herrcui! You done a good job!