B1: 2.09 Coding of documents

All financial documents include codes or references. These codes can help businesses identify:

  • A particular document
    • For example, a customer with a query about an invoice will refer to the invoice number when speaking to the supplier so that both can then refer to their copy of the invoice
  • A particular supplier or customer
    • For example, a business might have several customers all named John Smith. The use of unique customer references will enable the business to avoid referring to the wrong customer account
  • A particular product
    • For example, a business might have product codes for different items of inventory. These can then be used to both help keep track of changes in the quantities of inventory held and in recording items sold on delivery notes, invoices, credit notes and so on
  • If documents or transactions are missing
    • For example, a business should number its invoices and credit notes sequentially, (i.e. 1 followed by 2 followed by 3 etc.). This makes it straightforward to identify whether an invoice or credit note is missing from its books

Using codes or references reduces the risk of errors being made by a business when dealing with customers and suppliers.

Types of codes and references

The codes or references used by businesses tend to fall into three main types:

  • Alphabetic
    • The codes use only letters and are then stored alphabetically. For example, a business might use references for the different accounts in its general ledger based on the first five characters of the ledgers’ names. The purchases account would have a reference of “PURCH”, the postage account would be “POSTA” and so on
  • Numeric
    • The codes use only numbers and are recorded sequentially. For example, a business might number its sales invoices sequentially. So its first invoice would be 001, the second 002 and so on
  • Alpha-numeric
    • The codes use a mixture of letters and numbers. For example, a business might use alpha-numeric references to identify its credit customers. If it used the first 3 letters of the customer’s surname followed by a three digit number starting at 001 increasing sequentially for any further customers whose surname starts with the same three letters. Examples of the customer references might include the following:
      • Joy Small: reference SMA001
      • Adam Smith: reference SMI001
      • David Smith: reference SMI002
      • Leanne Smith: reference SMI003
      • and so on

When deciding on a coding system, a business must consider how it will be used and the number of codes that are likely to be needed.

Codes recorded on financial documents

The codes or references that are recorded on financial documents will depend on whether the documents have been prepared by the business itself or has been received from a supplier, customer, bank or other organisation.

Codes on a business’ own documents

Where a document is prepared, the designer of the document can ensure that there are spaces available for all the codes and references it needs to use. For example, a template for a business’ sales invoices might include spaces for the customer reference, the invoice number, the purchase order number, the delivery number as well product codes.

Codes on documents received from others

When a document is received by a business we should remember that the codes and references recorded on it will, for the most part, have been created to be useful for the business that prepared the document. These references will fit in with their coding system and might not fit with system used by the business that has received it.

As a consequence, when a document such as a supplier’s invoice is received a business will typically record its own codes onto the invoice. These will make it easier for the business to record information from the document into their own records as well as to identify and retrieve the document at a later point. A list of codes that many businesses add to the invoices received from suppliers is shown below.

Example of codes added that could be added to an invoice received from a supplier

Each individual financial document should include its own unique code and when information from that document is recorded in one of the books of prime entry a bookkeeper should ensure that the reference is also recorded. This means that if there is a subsequent query regarding the transaction we can easier trace the record in the business’ books back to the original document.