The number of digits used to describe each account in a chart of accounts drives the level of detail that can be recorded. A five digit chart of accounts is used by organizations that want to track information at the departmental level. With a five-digit code, they can produce separate income statements for each department. This format duplicates the account codes found in a three digit chart of accounts, but then adds a two-digit code to the left, which indicates specific departments. The three-digit codes for expenses (and sometimes also revenues) are then duplicated for each department for which management wants to record information.
A typical structure for a five-digit chart of accounts is as follows:
Digits 1-2: Identifies the department, such as the accounting department or engineering department.
Digits 3-5: Identifies the account, such as accounts receivable, inventory, or accounts payable.
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A sample of the five digit chart of accounts format follows, using the accounting and production departments to show how expense account codes can be duplicated.
