Item codes are unique identifiers assigned to inventory or services rendered. It is comprised of both revenue and cost codes depending on the respective function. They are used with both financial and cost accounting.
A common problem for contractors is setting up item codes in their accounting software. Most accountants and bookkeepers fail to fully understand the concepts behind item codes and how it works with the construction industry. This article is designed to explain to you the underlying concepts and how to set up item codes for contractors.
Cost codes are unique identifiers assigned to items in an inventory sold individually or as a part of an assembly. The goal is to track the final outcome of the item(s) sold against the original estimated cost of the item. It is used in both financial and cost accounting.
Revenue (sales) codes are unique identifiers for products sold or services rendered. They are used to organize information so management can better understand customer demands and the company’s profitability related to the items sold.
Item codes are broken out into two distinct types: Sales (Revenue) and Cost Codes. The primary purpose is group values and units together in an account for evaluation purposes.
