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Pass transistor logic (PTL) circuits are known for their smaller silicon area usage, low power consumption and reduced delay advantages. The 123 decision diagram is a very effective PTL synthesis tool based on binary decisions. It realizes a logic function using NMOS pass transistors with CMOS restoring buffers. At the same time, layout of the circuit for a two metal process is obtained by this diagram. A special coding is required to apply the 123 decision diagram. Until now, the coding for the diagram has not been explained. In this paper, a very easy and effective coding method for circuit synthesis and simplification with 123 decision diagrams is proposed.