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How the sequence of Automatic Contract Numbering decided

I have done the required configuration to enable automatic numbering of 'InterProject Type Contracts'. Contract numbers are now getting generated automatically however I am not sure how the numbering sequence is being decided. The first contract number that I generated was 1 and then the next contract number was 1001 then 1002 then 1003 and after that numbering jumped to 2001. I want to understand on what basis the numbering is being decided.

Please see the attached document for the configuration and contract numbering screenshot.


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