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Coding & costs The allocation of costs and the use of coding to determine the cost.

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Presentation on theme: "Coding & costs The allocation of costs and the use of coding to determine the cost."— Presentation transcript:

1 Coding & costs The allocation of costs and the use of coding to determine the cost

2 Methods of coding Methods of coding can be: – Alpha – all letters – Numeric – all numbers – Alpha-numeric – letters then numbers We use coding in customer, supplier and nominal records Also used to identify which cost centre the charges relate to- function What the charge relates to – element and nature

3 General ledger coding structure Income accounts – Sales – Revenues Expense accounts – Materials – Labour – Overhead Asset accounts – Current & non-current assets Liabilities account – Current & non current liabilities Capital accounts

4 Examples Cost analysis for Jacksons Sheds Details Jackson manufactures Garden sheds and Summerhouses, there are 10 staff members working in the production. The cost centre and costs are shown as: Production 100 – Cutting 01 – Manufacturing 02 – Preserving 03 – Installation 04 Sales & distribution 200 Admin 300 Finance 400

5 Coding the elements In the bookkeeping process the materials are analysed as purchases for production(5000) This value is shown in the financial statement (profit & loss) In the management accounts you need to identify which cost centre the purchases are being used in Note: incomes against profit centres

6 Example Jacksons Sheds Invoice coding Supplier details Jackson ShedsInvoice 544 Date Details£ 300 metres spruce pine1200.00 40ltrs fern green preserve230.00 1430.00 VAT @20%286.00 Invoice total1716.00 The pine is recorded to the cutting cost centre 100/01/5000 The preserve is recorded to the preserving cost centre 100/03/5000

7 Coding the elements Labour is analysed to the relevant cost code and analysed as either a direct or indirect cost In the bookkeeping system labour would be analysed to 6000 (direct) and 7000 (indirect) Overheads must be coded to the cost centres and are shown as indirect costs In the bookkeeping system overheads would be analysed to 8000

8 Example Jacksons Sheds Labour coding Jack Kingsley cuts the wood in the production process Norbert Stephens installs the clients buildings and works in the sells department the remaining time Harriet works as the bookkeeper at Jacksons Sheds Jack’s hours are direct labour so all hours are analysed as 100/01/6000 Norbert’s hours are analysed as direct labour on the installation 100/04/6000 and indirect labour in the sells department 200/7000 Harriet’s hours are indirect labour in the finance dept 400/7000

9 Example Jacksons Sheds Overhead coding The business insurance & rent is analysed to each of the departments by floor area The power used by the business is apportioned to the cost centres by percentages The coding for the insurance charges on the preserving dept would be 100/03/8000 Power for the Sales & distribution would be charged as 200/8000

10 Sales income All income has to be recognised For the coding process you need to identify: – the cost centre which would be known as the profit centre – The sale type In the bookkeeping system incomes/sales would be analysed to 4000

11 Example Jacksons Shed Sales coding Jacksons Shed sells at two sites (profit centre) The analysis of sales are – Shed – Summerhouse – Lodge – Installation The income would be analysed as: 100/02/PC/4000- 4004


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