Since historical cost method is the dominant method used in my undergraduate accounting classes, I am not as familiar to fair value model as to historical cost. As far as I know, both historical cost method and fair value model have its merits and demerits, and users of financial reports hold different purposes. Thus, debates on using fair value accounting or historical cost method have lasted over a long time, and it seems like it is not possible to end. Historical cost method is criticized for being too conservative and failing in estimating current values of assets and liabilities, but it is more reliable in terms of finding supporting documents, such as contracts and receipt, to verify the amount and record time. On the other …show more content…
While accountants, who are usually trained to be more conservative in accounting for assets and liabilities, would like to make more reliable recognition (in my opinion, would prefer historical cost method), corporate management and investors may want more relevant information in order to make strategic or investment decision. Due to the conflicts of different parties’ needs, the choice between two accounting models may continue. Still, in addition to the choice of accounting model, the issue of information overload is getting more attention than before. Besides reliability and relevance of financial information, selection of information and the way to present it for users also matters since these factors affect the users’ ability to effectively utilize the …show more content…
That is, the accounting model requires the gains and losses to be recognized at that year. During financial crisis, many financial instruments suffered decreasing in fair value, resulting plenty of losses appeared in the income statement. The recognition of losses may lead investors to overreact, make the circumstances even worse, and then lead to the crisis. Yet, even if recognition of losses in fair value changes may reinforce investors’ overreaction during poor economic situation, fair value accounting is merely one of the accounting tools for entities to report their operation strategies, implementation and outcomes. I do not think it is fair to blame the method for the crisis. In fact, in my opinion, it is the people who involved in inappropriate activities that should be blamed. Banks, businesses and the authority could have had made better supervisions over loans and mortgage based securities transactions so that the crisis may not be so
The Commissioner of Internal Revenue (Commissioner) argued that Jim Turin & Sons, Inc. should have used the accrual method of accounting. By using the accrual method of accounting “you generally report income in the year earned and deduct or capitalize expenses in the year incurred. The purpose of an accrual method of accounting is to match income and expenses in the correct year.” (IRS, 2017).
B) assets are generally listed on the balance sheet at their historical cost, not their current value.
Financial and Managerial accounting are used for making sound financial decisions about an organization. They provide information of past quantitative financial activities and are useful in making future economic decisions. (Albrecht, Stice, Stice, & Skousen, 2002) The same financial data is used to derive reports for each accounting process yet they differ in some ways. Financial accounting primarily provides external reports for external users such as stock holders, creditors, regulating authority and others. (Garrison, Noreen, & Brewer, 2010) On the other hand Managerial accounting is concern with providing information that deals with the internal viability of the organization and is tailored to meet the needs of an individual organization. (Albrecht, Stice, Stice, & Skousen, 2002)
Stair, R.M., Reynolds, G.W., Gelinas, J.U. Jr., Sutton, S.G., Hunton, J.E., Albright, S.C., Winston, W.L. & Zappe, C. (2007) Accounting Information Systems and Financial Modelling, Thomson, South Melbourne, Victoria, Australia.
The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consideration of its costs and benefits of the system.
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
The conceptual framework identifies the primary users of accounting information as investors, creditors, and those who advise them. It also assumes a “prudent” investor; that is, an investor who takes the time to become reasonably well informed with respect to accounting theory and practice. Discuss this concept with respect to the current economic environment. Are different groups of investors “prudent”? According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006).
Cost Accounting: Its role and ethical considerations Introduction: Accounting is the process of identifying, measuring, and communicating economic information about an entity for the purpose of making decisions and informed judgements. The major areas of within the accounting are: Financial Accounting, Managerial Accounting/Cost Accounting and Auditing- Public Accounting Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of an entity and to support the management in planning and decision-making process. Cost accounting is the subset of managerial accounting and it helps management in determination and accumulation of product, process or service cost. Role of Cost Accounting: Increased competition and uncertain business conditions have put significant pressure on corporate management to make informed business decisions and maximize their company?s financial performance. In response to this pressure, a range of management accounting tools and techniques has emerged.
Others feel that ABC would be more widespread in industry if it were marketed better by the cost accounting profession itself [1]. As the dust has settled, ABC has turned out to be less a revolutionary technique than a useful refinement to proven systems. The costs of products and services must be accurate, or management can be misled. Decisions... ...
In 1973, there was a project initially commissioned by the Executive Committee of the American Accounting Association. The intention of that project was to ‘write a statement that would provide the same type of survey and distillation of current thinking on accounting theory as A Statement of Basic Accounting Theory (ASOBAT) provided in an earlier decade.’(p.ix) In 1977, Committee on Concepts and Standards for External Financial Reports wrote this book in response to that project. This book consists of five chapters. I would lay more emphasis on analyzing chapter 3 because I think these issues still apply in today’s accounting profession.
Historical cost is the initial or original amount/cost charged for an asset, as recorded in an entity's financial statements. (Bragg, 2010)
Accounting has been a living part of history since the Neolithic period and remains a prevalent and ever-evolving profession still to this day. This essay therefore proposes to look at the significance and role of history specifically related to the accountancy field. In order to substantiate this claim of the importance of accounting history, numerous benefits of accounting history will be presented. Factors such as the use of historical research and its availability thereof to constantly develop accounting policies will be discussed as well as how historical accounting practices can be used to understand current practice and assist in the training of individuals in the accounting field. Lastly, the importance of history in the development
Accounting dates back as far as first centuries, is the language of business. As everything has gone through many changes, accounting has also changed many times through out the centuries. It went from the use of abacus to the most advanced softwares, and computers. With these drastic improvements nowadays accounting, financial accounting and management are facing big challenges. From the presentation of the reports to communication to the users, investors, and owners, the accounting field has gained totally a new shape from two decades ago. Today with the dynamic change in every aspect of life, the accounting field has to act fast and be able to adapt these new changes and challenges in order to survive.
Accounting is concerned with past events and it requires consistency and comparability that is why it requires the accounting transactions to be recorded at their historical costs. This is called historical cost concept.
Nowadays with the implementation of new emerging technologies, the way businesses keep this financial information has become computerised. At the moment businesses use computers with a computerised accounting system in order to perform many other new activities than what they were able to do in the past. Businesses can access financial information from different department in the organisation, access to the information through computers and find financial data very fast, being more efficient. (Beliss, 2013)