Accountancy Part COverview of Computerised Accounting System

What is the role of codification in the grouping of accounts within a…

What is the role of codification in the grouping of accounts within a CAS?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → To maintain hierarchical relationships between groups and subgroups

Accounts in a CAS are arranged in groups and sub-groups (for example, Expenses → Salary and Wages, Depreciation, Interest). Codification gives each account a code built on this grouping, so the hierarchy between a group and its sub-groups is kept and the accounts fall neatly into the Balance Sheet and the Statement of Profit and Loss.

NCERT (2026-27 edition):
Grouping of Accounts – “… There is a hierarchical relationship between the groups and its components. In order to maintain the hierarchical relationships between a group and its sub-groups, proper codification is required to ensure neatness of classification.”