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Cost classification

Cost coding

A code is a system of symbols designed to be applied to a classified set of items, to
give a brief accurate reference, which helps entry into the records, collation and
analysis.

7.1 Sequential code

This is the most basic type of code. It simply means that each code follows a
numerical or alphabetical sequence. Planning is needed to determine how many
codes might be needed in total.

7.2 Block code

Block codes are often used to categorise sequential codes together. For example, an
accounting system might have the following block codes:

Code Item

0000 Expenses

1000 Revenue

2000 Non-current assets

3000 Current assets

4000 Long term liability

7.3 Hierarchical code

Each digit in the code represents a classification. As the code progresses from left to
right each digit represents a smaller subset. For example, codes for sales for an
international electronics retailer could have the hierarchy:

1 represents revenue

1.1 Revenue from the UK (.1)

1.2 Revenue from the USA (.2)

1.3 Revenue from China (.3)

This allows for infinite expandability.

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