Tip of the Day

Improve Expense Coding Consistency

In order to maintain consistency in the classification of expenses, responsible managers must ensure that they code consistently.  While most expenses are self-evident and easily classified, some unusual or one-time expenses require careful consideration.  For example:  poster board and magic markers purchased to make posters advertising upcoming events – should they be expensed to office supplies or marketing expense?   

Where they are expensed is not nearly as important as consistently classifying them in future periods.  When expenses are not consistently coded or miscoded, it misstates the performance of the department, is misleading when trying to identify problems, and will be misleading when using the misstated numbers as historical records to create the next year’s budget.  To ensure that expenses are classified consistently, the coding manager should create an Expense Dictionary. 

An Expense Dictionary is nothing more than an alphabetized journal (purchased from an office supply store) where the coding manager notes all expenses as classified.  In short order the Expense Dictionary will include all normal and ongoing expenses.  As unusual and one-time expenses are classified by account name and number, the manager will record the classification in the Expense Dictionary.  Should the same or similar expense be incurred in the future, the purchasing manager will refer to the Expense Dictionary and know exactly which account to code the new expense. 

In lieu of using an alphabetized journal, managers can record the same information in an MS-Excel spreadsheet alphabetically.  In either case, the Expense Dictionary is a handy reference to assist the coding manager in consistently coding expenses.