Question

Discuss some of the problems associated with general ledger systems that do not have datacoding schemes. 

Answer 1

Uncoded data takes a great deal of recording space, is time-consuming to record and is prone to many types of errors. Consider a firm that manufactures bicycles and carries in its inventory reflector lights. The lights come in six sizes,  2 colors, and 4 different grades of material. Thus, 48 different varieties of reflector light are held (6x2x4). Every time lights are purchased, the description would need to be included rather than a code. For example if 100 units of one type of reflector light were purchased, and 200 units of another were purchased from Collins Manufacturer in Roanoke, Virginia, the journal entry would be:

Inventory-2”, yellow, metal reflector light 75

Inventory-3”, orange, plastic reflector light 120

A/P-Collins Mnf-Roanoke, VA                 195

 

Some problems this approach may produce are

1. the sales staff will have a more tedious job in writing up orders, and more errors may occur (i.e. what if they forget to write the color or material type?),

2. the warehouse personnel will have a more difficult time locating and picking the goods for shipment, and again more errors may occur, and 3. the accounting personnel will also have a more tedious job posting to the subsidiary ledgers and errors may occur.