SOURCE DOCUMENTS AND

CODING
LESSON 5
 CODING
• For elements of cost and income to be correctly
analyzed, classified and recorded they must initially
be correctly coded for entry into the accounting
records.
• In many organizations, income and expenditure
items are coded before they are included in the
accounting records. Coded means giving something a
code.
• A code is a system of words, letters, figures or
symbols used to represent others.
 CODING
• Most organisations use computers to record their
accounting transactions because they have the following
advantages
1. they record and retrieve information quickly and easily
2. they are automatically accurate and have built in
checking facilities
3. they can file a large amount of information in a small
space
4. they are capable of sorting information in many
different ways.
 CODING
• Management information is only one part of the organisation’s information
system, which will be based on transaction processing(data processing).
Other applications can be built on top of the basic information system, and
spreadsheets can be used in conjunction with it for reporting purposes.
• The information system will also support the needs of the financial accounts
which, as we have explained , are subject to external regulations. Under the
law directors are responsible for ensuring that accounting records do the
following:
1. show an analysis of all income and expenditure
2. Show the financial position of the company at any particular moment in
time
3. Record all assets and liabilities of the company(including inventory where
applicable)
• Accounting records must be retained for future reference.
 CODING
FEATURES OF A GOOD CODING SYSTEM.
A good coding system will possess both of the
following features:
• Items each have a unique code
• Codes are uniform in structure and length
TYPES OF CODES
Here are some examples of codes:
 CODING
(a) Sequncial (or progressive) codes
Numbers are given to items in ordinary
numerical sequence, so that there is no obvious
connection between an item and its code. For
example
000042 4 cm nails
000043 Office stapler
000044 Hand wrench
 CODING
(b) Block (or group classification) codes
These are an improvement on a simple sequences
codes, in that a digit (often the first one) indicates
the classification of an item. For example:
4NNNNN Nails
5NNNNN screws
6NNNNN Bolts
(Note. N stands for a digit; NNNNN indicates there
five further digits in the code.)
 CODES
© Faceted codes
These are a refinement of block codes, in that each digit of the code gives
information about an item. For example:
(i) The first digit:1 nails
2 screws
3 bolts
(ii) The second digit: 1 steel
2 brass
3 copper
(iii) The third digit: 1 50 mm
2 60 mm
3 75 mm
 CODING
A 60 mm steel screw would have a code of 212

(d) Mnemonic codes

Meaning of mnemonic is a learning technique to aid the
memory. Under this type of coding the codes means
something. It may be an abbreviation of the object being
coded. A well known example of this type of code is the
three letter coding used for airports. For example
LAX Los Angeles SIN Singapore
CAI Cairo LHR London Heathrow
 CODING
(e) Hierarchical codes
This is a type of faceted code where each digit
represents a classification, and each digit further
represents a smaller subset than those to the left.
For example:
3 Screws
31 Flat headed screw
32 Round headed screw
322 steel(round head) screws and so on.
 CODING
THE ADVANTAGES OF A CODING SYSTEM
(a) A code is usually briefer than a description,
thereby saving clerical time in a manual
system and storage space in a computerized
system
(b) A code is more precise than a description and
therefore reduces ambiguity.
(c) Coding facilitates data processing,
DOCUMENTS FOR BUYING AND SELLING
• When goods are required by a business the person
requiring the goods must normally complete a purchase
requisition which must be authorized by an appropriate
manager.
• The documents involved in buying and selling are prime
sources of cost and revenue information. Their number
and complexity will depend on the type and size of both
the organisation and the purchase. In this section we will
look at the typical administrative procedure for the
purchase of 25 desks by Abacus Ltd, a retailer of office
furniture.
 PURCHASE REQUISITION
• A purchase requisition is prepared by the person who
identifies a need for the goods to be bought, such as the
storekeeper, and then it must be counter signed
(authorised) by the supervisor or departmental head who
is responsible for the department’s budget.
• The purchase requisition is then passed to the purchasing
department who will decide on the most appropriate
supplier. The purchasing department will find out about
the supplier, prices and delivery times. They will select a
supplier from their list of suppliers if they have any or
approach some suppliers.
PURCHASE REQUISITION
  PURCHASE REQUISTION  
  Number: 62
  Date: 02.05.2018

suppliers
Catalogue Purchase
Quantity Description No order No Supplier
25Executive desks BX 320 480JJ Ltd
   
Signed: …………. Approved:……………….  
Authorised: ………………..      
 QUOTATION/ ESTIMATE
• If the purchasing department does not have already
a list of suppliers, they will approach possible
suppliers for a quotation or estimate which may
include either trade discount or cash discount.
• The different suppliers might respond with a
catalogue and a price list(for standard goods), a
quotation( for non-standard goods) or a letter of
reply. For services such as building works or repairs,
an estimate will usually be provided.
 QUOTATION/ ESTIMATE
• The buyer must select an appropriate supplier based on
the information received. If discounts are offered they may
be of two types.
(a) A trade discount is given for large orders or special
customers and will be shown as a deduction on the invoice.
(b) A cash discount is usually given for prompt payment
within a stated period( for example payment within 7 days
gives a 3% discount). It can not be shown as a deduction until
payment is made. If VAT(or sales tax) is payable, discounts
are deducted from the cost of goods before the sales tax is
calculated and added to the invoice.
 PURCHASE ORDER
Once a supplier has been selected, the buyer will
prepare a purchase order to ask for the goods to be
supplied. Copies of the order are sent to the following:
• The supplier- to ask for goods.
• The accounts department-for checking against the
invoice when it arrives
• The stores section- for updating the inventory records
• The goods received section- so that they expect the
goods.
 PURCHASE ORDER

PURCHASE ORDER      
   
ZCAS ltd  
Dedan kimathi Rod Order Number: 489  
Box 35243 Date: 2.5.2018  
Lusaka  
   
Tel 232093  
   
To: JJ Ltd  
Plot 1  
SOWETO RD  
Lusaka  
   
Please supply  
25 Executive Desks Catalogue number BX320 Price $200
   
  signed:………………………………..  
      (Buyer)      
 DELIVERY NOTE
• The goods will be sent normally accompanied with a
delivery note, and when received by the business a goods
received note will be completed.
• The customer’s copy of the delivery note confirms that
goods have been delivered.
GOODS RECEIVED NOTE
When the desks arrive at the goods received section of ZCAS
Ltd, a goods received note is prepared and sent to other
departments so that they know that goods have arrived. An
example of a goods received note is shown below:
 GOODS RECEIVED NOTE
  GOODS RECEIVED NOTE WAREHOUSE COPY

DATE:………………………………… TIME:………………………………… NO 5565  

OUR ORDER NO………………………………….. WAREHOUSE A  

SUPPLIER AND SUPPLIER ADVICE NOTE NO:………………………….  

   

QUANTITY CAT NO DESCRIPTION      

             

       

       

       

             

RECEIVED IN GOOD CONDITION:     (INITIALS)

 GOODS RECEIVED NOTE
Copies of the goods received note are sent to the
following:
• The accounts department- to check against the
invoice
• The stores section-for updating inventory records
• The buyer- to confirm that the goods ordered
have arrived
• The goods received section will keep a record on
file.
 PURCHASE INVOICE
• Finally, a purchase invoice will be received by
the business from the supplier detailing the
amount that is due to be paid-the net of sales
tax amount must be coded to ensure that it is
correctly recorded in the accounting records as
must the sales tax.
• The supplier’s sales department will send the
customer an invoice detailing the amount that
they need to pay for the desks.
 INVOICE

  INVOICE  
From: JJ Ltd number: 1340  
  Plot 1 Date: 2.5.2018  
  SOWETO RD sales tax reg. 67543890  
  Lusaka  
Tel: 232456  
   
To: ZCAS ltd  
  Dedan kimathi Rod  
  Box 35243  
  Lusaka your order NO. 489  
Quantity Description price $
25 Executive desks number BX320 $200 each 5,000.00
  VAT@ 17.5% 875
  total due 5,875.00

  terms: Payments in 30 days  

  delivered 2.5.2018    
 DOCUMENTS FOR RECORDING
MATERIALS
• The physical quantity of each line of inventory will
often be recorded on a bin card in the stores
department and a similar document known as the
stores ledger account will be kept by the accounts
department which also includes inventory values.
• An important item purchased by a manufacturing
business is materials. These are generally kept in a
warehouse or inventory room, which is usually
referred to as the stores department. The
storekeeper will keep an eye on the inventory of raw
materials, and raise a purchase requisition when the
stores run low.
 DOCUMENTS FOR RECORDING
MATERIALS
• Most businesses will keep track of the quantities of
materials that they have in inventories held by
maintaining an inventory record for each type of material
held. This will be updated each time material is received
into or issued from, stores and a new balance of
inventories held can be calculated. This is known as
perpetual inventory system, and it can be a manual or
computerised. There are two types of inventory record
which may be kept, and sometimes they will both be
used. These are bin cards and stores ledger accounts.
BIN CARDS.
These are manual records that are written up and kept in
the stores department.
 BIN CARD
BIN CARD          

Description: reels(30 cm diameter) Bin No. 232

Code No: R4089  

Stock units: units          

             

Receipts Issues Balance

Date Reference Quantity Date Reference Quantity Quantity

2003            

1-May           40

5-May GRN0067 200       240

      7-May MR 296 30 210

      10-May MR 304 20 190

      11-May MR 309 50 140

13-May MRN 127 10       150

 BIN CARDS
• The information on the bin card gives all the details the
storekeeper needs to know.
(a) Description: of the inventory item for which this is a
record.
(b) Inventory code: for unambiguous identification and for
ease of updating computerised inventory records, a
code is essential.
(c) Inventory units: the units in which the material is
measured eg metres, kilograms, boxes etc.
(d) Bin Number: the location of the items in the store.
 BIN CARDS
(e) Issues to production: date, quantity and a reference
to the materials requisition(MR), the document which
the production department use to request material
from stores.
(f) Receipts: date, quantity and details of the GRN for
goods delivered to the business or materials return
note (MRN) for goods returned to inventory when they
have not been used in production.
(g) Balance: the balance of inventory on hand after
each inventory movement.
 STORES LEDGER ACCOUNT
The stores ledger accounts are very similar to bin cards. They carry
all the information that a bin card does and they are updated from
the same sources: GRNs, MRs and MRNs. But there are two
important differences.
• Cost details are recorded in the stores ledger account, so that
the unit cost and total cost of each issue and receipt is shown.
The balance of inventory after each inventory movement is also
valued. The value is recorded as these accounts form part of the
costing bookkeeping records.
• The stores ledger accounts are written up and kept in the costing
department, or in a stores officer separate from by a clerk
experienced in cost book keeping.
 STORES LEDGER ACCOUNT
Stores ledger accounts are very often
computerised, and this would enable the amount
of free inventory to be monitored. At any point in
time the amount of free inventory can be
calculated as inventory on hand plus inventory on
order less inventory that has been scheduled for
use.
Free inventory is inventory on hand + inventory on
order – inventory that has been scheduled for use.
 STORES LEDGER ACCOUNT
EXAMPLE
Suppose that a company currently has a stock of 10,000 kg of
material X. it has ordered another 2,500 kg and 5,000 kg have
been committed for future use. The free inventory of X is
10,000 + 2,500 – 5,000 =7,500 kg
Sometimes, inventory that is physically present in the stores,
or even inventory that has not been received into stores yet,
will already be allocated to a job or a department. Of course,
it is helpful to take this into account when monitoring
inventory levels, as only free inventory is free to be issued to
other jobs or departments.
 STORES LEDGER ACCOUNT
Because bin cards and stores ledger accounts
are independent, they can be used as a control
to check the accuracy of the records.
Theoretically, the quantities of inventory
recorded should be the same, if they are not,
this would be investigated and the appropriate
adjustment made.
 MATERIAL REQUISITION
A material requisition will be completed when materials
are needed from stores by the production department.
An official from production will sign the form to authorize
it, and stores will issue the materials when the form is
given to them. It is then used as a source document for
(a) Updating bin card in stores
(b) Updating the stores ledger account in the costing
department; and
(c) Charging the job, overhead or department that is using
the materials.
 MATERIAL REQUISITION
MATERIAL REQUISITION        
Material required for: Job 1478     No 309
Department: Assembly       Date: 11 May 2004
   

Price per
Quantity Description   Code No unit $
5030 cm diam reels   R4089    
           
           
           
Foreman: D Jameson        
 MATERIAL REQUISITION
The price details and value will be filled in by the cost
department prior to updating the stores ledger accounts
and charging the relevant job/overhead/department.
A materials returned note will accompany any unused
material back to stores. This will contain the same
details as the materials reqisition, and will be used as
the source document to update the same records. This
time, though, the material will be a receipt into
inventory and a deduction from the job originary
charged with the material issued.
 Flow chart
Purchase requisition

Quotation from supplier

Purchase order

Delivery Note

Goods received note

Purchase invoice Material requisition

Materials returned note

 DOCUMENTS FOR LABOUR COSTS
• Hourly paid workers are generally paid a flat rate per hour
with a premium for overtime hours. The hours worked are
often recorded on clock cards, job cards or time sheets.
• Labour costs are an important element of total costs.
Labour costs include wages(usually weekly) and salaries
(usually monthly) paid to employees, and other payments
such as agency workers or contractors who supply labour.
• Records showing how each individual’s pay has been
calculated are known as payslips. Records of total labour
costs paid to employees are known as the payroll.
 RECORDING OF EMPLOYEE TIME AND TIME
SHEETS
The bare minimum record of employees time is a
simple attendance record showing days absent
because of holiday, sickness or other reasons.
Some workers earn a flat rate per hour or week
or month, while others may a normal hourly rate
and special overtime rates. Workers who are paid
hourly often record their hours by using a clock
card to show the times at which they arrived and
left work each day. An example is shown below.
RECORDING OF EMPLOYEE TIME AND TIME
SHEETS
No       Ending  
Name          

  HOURS RATE Amount Deductions  

Basic       Income tax  

O/T       Benefits  
Others       Other  
           
Total   Total  
Less: deductions      
Net due      

  Time Day   Basic Time Overtime

  910M    
  1700M    
  803T    
  1700T    
  840W    
  1740W    
  902th    
  1648th    
  848F    
  1622F      
Signature …………………………………………………………
RECORDING OF EMPLOYEE TIME AND
TIME SHEETS
Where repetitive work is carried out it might not be
practical to record the details. There are several ways in
which employee time can be recorded.
(a) Daily timesheets. A time sheet is filled in by the
employee as a record of how their time has been
spent. The total time on the time sheet should
correspond with time shown on the attendance
record.
(b) Weekly timesheets: these are similar to daily
timesheets but are passed to the cost office at the
end of the week. An example of the weekly
timesheet is shown below:
RECORDING OF EMPLOYEE TIME AND
TIME SHEETS
  Time sheet No…………………………………………………………………..  

Employee name: …………………………………. Clock code………………………  

Date………………………….. Week No…………….. Dept……………….  

Job No. Start time Finish time Qty Checker Hrs Rate Extension

               

               

               

               

               
RECORDING OF EMPLOYEE TIME AND
TIME SHEETS
Time sheets may be used for hourly paid and salaried
staff. The purpose of time sheets are as follows:
(a) Time sheet provide management with
information(eg product costs) for further analysis.
(b) Timesheet information may provide a basis for
billing for services provided(eg service firms where
clients are billed on the number of hours work
done)
(c) Timesheets are used to record hours spent and so
support claims for or authorise overtime payments.
 JOB CARD
Job cards can be prepared for each job or batch.
When an employee works on a job, he or she
records on the job card the time spent on that
job. Job cards are therefore likely to contain
entries relating to numerous employees. On
completion of the job, it will contain a full record
of the times and quantities involved in the job. A
typical job card is shown below:
 JOB CARD
      JOB CARD        

Department:…………………………………. Job No. ………………………………………………..

Date……………………………………… Operation no…………………………………………

Time allowance…………………………………………. Time started………………………………………….

  Time finished………………………………………..

  Hours on the job…………………………………..

Description of job     Hours Rate cost  

           

                 

Employee no……………………………………. Certified by……………………………………………

Signature……………………………………………………..