Page 107 - Accounting Information Systems

78 PART I Overview of Accounting Information Systems

first digit indicates that this account is an operating expense. As new types of expense items are incurred
and have to be specifically accounted for, they may be added sequentially within the 600 account classifi-
cation. This three-digit code accommodates 100 individual items (X00 through X99) within each block.
Obviously, the more digits in the code range, the more items that can be represented.

DISADVANTAGES. As with the sequential codes, the information content of the block code is not
readily apparent. For instance, account number 626 means nothing until matched against the chart of
accounts, which identifies it as advertising expense.
Group Codes
Numeric group codes are used to represent complex items or events involving two or more pieces of
related data. The code consists of zones or fields that possess specific meaning. For example, a depart-
ment store chain might code sales order transactions from its branch stores as follows:

Store Number Dept. Number Item Number Salesperson
04 09 476214 99
ADVANTAGES. Group codes have a number of advantages over sequential and block codes.
1. They facilitate the representation of large amounts of diverse data.
2. They allow complex data structures to be represented in a hierarchical form that is logical and more
easily remembered by humans.
3. They permit detailed analysis and reporting both within an item class and across different classes of
items.
Using the previous example to illustrate, Store Number 04 could represent the Hamilton Mall store in
Allentown; Dept. Number 09 represents the sporting goods department; Item Number 476214 is a hockey
stick; and Salesperson 99 is Jon Innes. With this level of information, a corporate manager could measure
profitability by store, compare the performance of similar departments across all stores, track the move-
ment of specific inventory items, and evaluate sales performance by employees within and between stores.

DISADVANTAGES. Ironically, the primary disadvantage of group coding results from its success as a
classification tool. Because group codes can effectively present diverse information, they tend to be over-
used. Unrelated data may be linked simply because it can be done. This can lead to unnecessarily com-
plex group codes that cannot be easily interpreted. Finally, overuse can increase storage costs, promote
clerical errors, and increase processing time and effort.
Alphabetic Codes

Alphabetic codes are used for many of the same purposes as numeric codes. Alphabetic characters may
be assigned sequentially (in alphabetic order) or may be used in block and group coding techniques.

ADVANTAGES. The capacity to represent large numbers of items is increased dramatically through the
use of pure alphabetic codes or alphabetic characters embedded within numeric codes (alphanumeric
codes). The earlier example of a chart of accounts using a three-digit code with a single blocking digit
limits data representation to only 10 blocks of accounts—0 through 9. Using alphabetic characters for
blocking, however, increases the number of possible blocks to 26—A through Z. Furthermore, whereas
2
the two-digit sequential portion of that code has the capacity of only 100 items (10 ), a two-position
2
alphabetic code can represent 676 items (26 ). Thus, by using alphabetic codes in the same three-digit
coding space, we see a geometric increase in the potential for data representation

(10 blocks 100 items each) ¼ 1,000 items
to

(26 blocks 676 items each) ¼ 17,576 items