Item Codes – Fundamental Understanding

There is a vast misunderstanding related to item codes and their use with accounting. Item codes serve two different purposes, one is to track types of sales and the other is track costs. It is best to categorize item codes into two subgroups of sales codes and cost codes. Both systems are pinned to the use of unique identifiers for parts of a larger product or service. With sales codes, customarily with retail, they are used to track sales of inventory items and their corresponding revenue generated. Think of inventory as a single product and the sub components are parts with item codes assigned. Cost codes are similar, they are used to breakdown the finished project or service into components for cost accounting or production analysis. Cost codes are most commonly used with cost accounting in the following industries:

  • Manufacturing
  • Construction
  • Professional/Contractual Service Firms

You will rarely find item codes in highly homogenous industries such as transportation, traditional service sector (cleaning, salons, food service) real estate, mining, agriculture, restaurants, media, utilities. This doesn’t mean they don’t use item codes, it just means that the use of item codes has less value related to cost accounting purposes or tracking of revenue. To appreciate item codes, the reader must understand both types and how they generate informational value. Other articles on this site in the accounting technology category will explain both types in more detail. Another article illustrates how item codes are used with construction to illustrate their respective importance.

Most industries use revenue codes to identify what was sold. For example a fast food restaurant will differentiate between a traditional burger and a chicken sandwich using a revenue code at the register. This code has no application in determining the underlying cost elements to prepare the entree’, it is simply used to determine the numerical count of the types of products sold. Item codes are used in cost accounting to track and compare the components of an assembly or a contract. Most basic accounting software programs such as QuickBooks, Sage and so on use the term ‘Item Codes’ for both purposes. Advanced accounting software programs will differentiate between cost codes and sales codes.

Item codes can be used with the service industry, but due to the nature of customized needs, they tend to be cumbersome and lack the flexibility needed in the service industry.

Do not confuse the use of item codes for financial accounting, item codes are strictly designed to assist management with evaluating sources of revenue and with cost (managerial) accounting. There is a difference, financial accounting is designed to evaluate overall performance, cost accounting is designed to evaluate actual results against a standard at the single unit level. ACT ON KNOWLEDGE.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

Please Signup
Username can not be left blank.
Please enter valid data.
This username is already registered, please choose another one.
This username is invalid. Please enter a valid username.
First Name
First Name can not be left blank.
Please enter valid data.
This first name is invalid. Please enter a valid first name.
Last Name
Last Name can not be left blank.
Please enter valid data.
This last name is invalid. Please enter a valid last name.
Website (URL)
Website (URL) can not be left blank.
Invalid URL
Invalid URL
Email Address
Email Address can not be left blank.
Please enter valid email address.
Please enter valid email address.
This email is already registered, please choose another one.
Password can not be left blank.
Please enter valid data.
Please enter at least 6 characters.
    Strength: Very Weak
    Select Your Payment Gateway
    How you want to pay?
    Payment Summary

    Your currently selected plan : , Plan Amount :
    , Final Payable Amount:
    error: Content is protected !!