Scribd
Upload
226 views3 pages

Coding Systems

Trainee certified bookkeepers need to understand coding systems to effectively classify revenues and expenses. The document presents a case study of a coding system used by Hawthorne Restaurants to track costs and revenues across its four restaurant locations. The six-digit coding system identifies the profit center, cost center, and expense/revenue type. For example, the cost of fillet steaks for the Scarborough restaurant would be coded as 100/182, indicating the profit center (Scarborough), cost center (Kitchen), and expense type (Foodstuffs). Coding systems provide a standardized way to organize financial data and facilitate analysis.

Uploaded by

Manea Radu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
226 views3 pages

Coding Systems

Trainee certified bookkeepers need to understand coding systems to effectively classify revenues and expenses. The document presents a case study of a coding system used by Hawthorne Restaurants to track costs and revenues across its four restaurant locations. The six-digit coding system identifies the profit center, cost center, and expense/revenue type. For example, the cost of fillet steaks for the Scarborough restaurant would be coded as 100/182, indicating the profit center (Scarborough), cost center (Kitchen), and expense type (Foodstuffs). Coding systems provide a standardized way to organize financial data and facilitate analysis.

Uploaded by

Manea Radu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Coding Systems

Editorial

The trainee Certified Bookkeeper needs an understanding of the use and application of an effective coding
system, whether the accounting records are either computer based or manual.

Here, through the use of a case study the structure of a coding system used in practice is illustrated and I hope
that you can use the practical application of this in your daily routines in business.

For those of you sitting the February examinations ---- Best Wishes for every success.

Dr Philip Dunn

Editor

Trainee Certified Bookkeepers need to recognise cost centres, elements of cost and the coding of income and
expenditure.

To report meaningful financial information to management costs and revenues need to be identified with profit
centres, cost centres and cost units.

In order to do this we need to classify cost by cost centres and type of expense and revenue by profit centres.
A system of cost codes is often used to aid this process.

A cost code is defined by CIMA as "A system of symbols designed to be applied to a classified set of items to
give a brief accurate reference, facilitating entry, collation and analysis."

Codes are designed to assist analysis and classification of the costs and revenues of an organisation in a
manner most appropriate to the organisation.

The Advantages of a Coding System Include:

 Codes are usually briefer than descriptions. This saves time in a manual system and is most
appropriate to computer based files.
 Codes may reduce ambiguity, use of a standardised code eliminates the use of alternative
descriptions.
 Codes are most suitable in computerised systems, and facilitate electronic data processing.

Characteristics of an Efficient Coding System:

 Each code is unique and certain.


 The system must be comprehensive and flexible so that it can be extended to include new items for
analysis.
 Codes should be kept as brief as possible.
 The design and maintenance of the system must be centrally controlled.
 Codes should be of the same length as this assists in identifying error.

Before considering a full example of a coding system I will define two terms used earlier, both of which are
most relevant when reporting information to management.

Profit Centre

"A part of a business accountable for costs and revenues. It may also be called a business centre or business
unit". (CIMA)

Cost Centre
"A production or service location, function, activity or item of equipment whose costs may be attributed to cost
units". (CIMA)

Case Study Example

Harry Dunn is the owner manager of Hawthorne Restaurants an SME operating in the North East.

The business has four licensed restaurants Scarborough, Whitby, Malton and York. It has an office in Whitby
where the accounts are dealt with.

Each restaurant is a profit centre and are coded as:

100 Scarborough
110 Whitby
120 Malton
130 York

Each has a separate bar area.

Its business income is coded as:

001 Bar Resturant


002 Resturant
010 Malton

and the cost centres at each include:

150 Reception Area and office (resturant manager's cost centre)


160 Bar area
170 Resturant area
180 Kitchen (all costs relating to preparation of food)

Costs are classified as:

001 Wages and salaries


002 Foodstuffs
003 Bar supplies
004 Heat and light
005 Cleaning materials
006 Insurances other than motor insurance
007 Motor vehicle running costs
008 Repairs and maintenance
009 Capital expenditure
011 VAT Input Tax

The system is based on a six-digit structure.

Turnover is analysed to restaurant and business income type, the first three digits identify the responsibility
centre and the second three category of business.

Costs are identified to profit centre the first three digits, cost centre next two digits and expense type third
digit.

For example, bar income at the York Restaurant would be coded as:
Thus the cost of the chef’s salary at the Whitby restaurant would be coded:

Having considered the structure, complete the following short task. The answers are given below.

(1) Fillet steaks from local butcher for Scarborough restaurant.

(2) Bar supplies York restaurant.

(3) Insurance, restaurant manager’s car, Malton restaurant.

(4) Painting and decorating costs Whitby restaurant.

(5) Restaurant income, York restaurant.

Answers:

(1) 100 / 182

(2) 130 / 163

(3) 120 / 157

(4) 110 / 178

(5) 130 / 002

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy