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Cost accounting
Historical cost versus fair value accounting
Cost accounting
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Introduction
People usually thought that accounting is reckoned in terms of money. However, accounting can also be recorded in terms of the number of labour hours, alternative units and others. The objective of accounting measurement is to give a better insight on the status of the organisation by permitting different ways of evaluation and judgement. It has always been an issue as there is no specific indication to show that a measurement is ideal to apply. Thus, it is frequent that in every situation an accountant may encounter with an option of several measurements.
Discussion
A number of accounting measurements can be utilised by accountants to the distinctive components in the accounting records. The purpose of each measurement is to
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This is the reason why it requires certain accounting transaction to be measured at its historical costs. Historical cost can be defined as a degree of value utilised in accounting in which the cost of an asset is based on the original price when the asset is obtained by the organisation. For instance, 200 units of an item were bought two months back that cost $10 per unit. However, the current price is $12 per unit. Hence, the inventory will show at a cost of $2000 instead of $2400 on balance sheet. The advantage of employing historical cost is because it can be accepted by most of accountants due to its nature as it is supported by transactions that have been completed and it is easily understandable to its users (Diana, …show more content…
It is the measurement that indicates the costs should be paid for an asset, the date of the use, its use at the date of the balance sheet or sale if the asset is not yet owned. In example, the current acquisition cost of an entity or the current cost to create an entity will be used as the current cost of an entity (e.g. inventories). Thus, the current (replacement) cost is more accurate in order to value an asset instead of using the original cost paid for the asset. The benefit of employing current cost is it provides more reliable measure of efficiency of the organisation. Besides, it splits the profit of an asset into that part which from keeping the asset before it is sold. This division shows the outcomes of asset management decisions and the impact on transactions. Moreover, the different reporting of holding gains allow users of financial statements to have a deeper insight on the organisation’s operating performance. However, Abu Bakar and Mohd Said (2007) states that current cost tends to be subjective as it is hard to find the precise current
B) assets are generally listed on the balance sheet at their historical cost, not their current value.
Management accounting in organisation is very important for decision-making and to make the business more efficient and therefore increasing its profits. Is the process of preparing accounts that can help managers to make day-to-day and short-term decisions, by providing them with accurate and timely key financial and statistical information...
Marshall, D.H., McManus, W.W. & Viele, D.F. (2011). Accounting: What the numbers mean (10 ed). New York, NY: The McGraw-Hill Companies, Inc.
This case assignment will discuss managerial accounting and different income statements a business owner may use internal to the company. Divided into two parts, part one will discuss and analyze the difference between managerial and financial accounting, the needs for financial information used for internal purposes. Additionally, it will focus on the managerial accounting profession and how its roles have changed in today’s business. Expanding on the profession, it will comment on the Certified Management Accountant (CMA) certification and how it differs from the CPA certification. Part two of this assignment
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
It was the year 1987 when the Gartner Group popularized the form of full cost accounting named Total Cost of Ownership (TCO)(author, Gartner Total Cost of Ownership). Originally TCO was mainly used in the IT business sector. This changed in the 1980’s when it became clear to many organizations that there is a distinct difference between purchase price and full costs of a products ownership. This brings us towards the main strength of conducting a TCO analysis, besides taking the purchase costs into account, which consist of the amount a money an organization pays for the required service, product or capital outlay. It also considers 1. Acquisition costs; these can consist of sourcing, administration, freight, and taxes. 2. Usage costs, which consists of the costs associated with converting the given product or service into a finished product. And finally 3. End of life cycle costs; the costs or profits incurred when disposing of a product. TCO can be seen as a form of full cost accounting; it systematically collects and presents all the data for each proposed alternative.
Albrecht, W. S., Stice, J. D., Stice, E. K., & Skousen, k. F. (2002). Accounting Concepts and Applications. Cincinnati: South-Western.
In its current practice, the roles and functions of cost accounting includes additional functions. More specifically, it can be described as more than an inventory tracking system. This is because cost accounting entails defining the charges of activities and goods (Horngren & Srikant, 2000). Because of its many roles and functions, this accounting method has been of great help to growth and expansion of business planning and management. Again, the reports offer assistance in the planning and growth projections for different business functions and units within the organization. The information cost accountants offer different uses, some of which aid in the controllership function, as well as the industrial
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.
Accounting is the pillar of every company to measure its growth, loss, revenue , capital, its really specify the real terms in foam of figures and sometimes in tables, in accounting there are certain rules are obtained to make more accuracy while playing with figures.
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.
The accounting cycle is a series of steps starting with recording business transactions and leading up to the preparation of financial statements. This financial process demonstrates the purpose of financial accounting–to create useful financial information in the form of general-purpose financial statements. In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner’s equity, and statement of cash flows.
Accounting aids the government and organisations in decision making for their financial stability. This numerical data helps solve real life problems and contributes to how the economy and businesses perform.
The revenue/cost period-: Revenue and the cost period in accounting that the company get income from normal business activities. It’s referred to normal business income that the company got by selling their product and service.
The Resources Group, 2012, Components Of A Computerized Accounting System. Available at: . [Accessed 12 November 2013]