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Nominal Code v Department in Sage

Trying to explain to someone (who doesn't use the program) the difference

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I have just returned to using Sage, I understand the nominal codes and the relevance to the CofA. However i have never really used the departments. The company uses varies nominal codes on the sales ledger to split down the various activities 4000-4006 but only uses NC 5000 for purchases and Dept 1-4 to split things out. I dont think this gives a true refelction of the P&L for each area of the business. Please can someone either correct me or give me an explaination that I can use to make it clear. I hope that makes sense?

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Scalloway Castle
By scalloway
04th Aug 2020 19:46

Do you split sales by department?

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By JYirrell
04th Aug 2020 20:18

No they don’t!

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Replying to JYirrell:
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By thestudyman
04th Aug 2020 20:47

JYirrell wrote:

No they don’t!

Then probably not worth using it.

For costs it could be useful if you want to split between departments (e.g finance, matketing) or offices, and you can run a cost analysis against these split up costs. Depends on the complexity of the business. At the small end, I would guess most owners probably don't need much more detail than revenue and costs!

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By jonharris999
05th Aug 2020 07:01

A common (but by no means the only) way to think of this is to consider that purchase NCs can be used to match Cost of Sales to relevant sales, whereas Depts can be used to analyse either direct or indirect costs which benefit different types of sales.

Eg 4001 is for widget sales, 4002 is for banana sales; 5001 and 5002 corresponding purchases; but then to analyse 4100 Carriage, we could use Dept 1 for all hardware sales and Dept 2 for all fruit sales.

Many other practices out there as I say but I have seen this one used most commonly. It does of course require disciplined posting.

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Routemaster image
By tom123
05th Aug 2020 09:00

Be careful not to create a data monster that needs feeding.

I don't use Sage 50, but I apply this in any setting.

"Do not choose a coding system that cannot be objectively applied by finance staff based on information in the document in front of them"

Thus, an invoice for a hotel will always be for travel - ie "What was spent"

If you create departments you are in danger of needing to know "Why it was spent", and thus spend a lot of time trying to uncover information that may not be on the invoice itself.

Departments to me are the "Why" and nominal codes are the "What".

If you are not careful you will be apportioning electricity bills by floor area and software costs by headcount.

That may, or may not, give you useful information :)

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Replying to tom123:
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By JYirrell
05th Aug 2020 09:44

Thank you. I like why and what analogy

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