Chartered institute of Management Accounting defines a code 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.”

A cost cording system is therefore based on the selected cost classifications. It is provides a way of expressing the classification of each cost in a shortened symbolized form.

Composite codes:

The Chartered Institute of Management Accounting terminology describes the use of composite symbols in codes.

For example-
symble892.113 means
8-labour
9-semi skilled
2-grade 2

THESE CODES ARE SHOWING THIS WAS SEMI SKILLED LABOUR

1-indirect cost
1-east factory
3-finishing department

THIS CODE SHOW US THIS LABOUR EXPENDITURE IS TO BE CHARGED AS INDIRECT LABOUR TO THE FINISHING DEPARTMENT IN THE EAST FACTORY.

The advantages of a coding system

some of the advantages of a well-designed coding system are as follows

1. More suitable than a description in computerized system.
2. A code reduces ambiguity.
3. A code is usually briefer than description.

The requirements for an efficient coding system

• Should be unique & certain.
• Should be comprehensive & elastic.
• Should be as brief as possible.
• To minimize errors.
• The maintenance of the coding system should be centrally controlled.
• All codes should be of the same length.(wherever possible)

Concepts of Capital Maintenance and the Determination of Profit

Accountants can choose to maintain financial capital in either nominal monetary units or constant purchasing power units.

Physical capital is maintained when productive capacity at the end is greater than at the start of the period.

The main difference between the two concepts is the way asset and liability price change effects are treated.

Profit is the excess after the capital at the start of the period has been maintained.

When accountants choose nominal monetary units, the profit is the increase in nominal capital.

When accountants choose units of constant purchasing power, the profit for the period is the increase in invested purchasing power. Only increases greater than the inflation rate are taken as profit. Increases up to the level of inflation maintain capital and is taken to equity