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Management accounting is concerned with which kind of decision
Management accounting is concerned with which kind of decision
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Introduction Financial reporting is intended to provide users with meaningful information in order for them to make an informed decision about providing their scarce resources to an entity. However, for financial statements to be informative to users, the information on the financial statements is required to be presented clearly and fully. Managers, however, sometimes control outcomes based on accrual based accounting to show their performances with well-made the financial statement. Because of this, some have argued which method, accrual based or cash based accounting, is better for investors, creditors, other users and firms. Under U.S. GAAP, the cash basis is a method of recording accounting transactions for revenue and expenses only …show more content…
For example, a firm purchases an expensive machine that the firm intends to use over the next 15 years. Under accrual based accounting, the machine cost will be spread over the period of use while the firm acquires benefits as revenue after sales of the product that the machine produces. Also, another example of appropriate matching of expense against revenues would be found from our chosen firm, ExxonMobil. As oil and gas company, oil and gas reserve quantities are used as the basis to calculate units of production depreciation rates. The calculation of units of production depreciation is a critical accounting estimate that measures the depreciation of upstream assets. It is the ratio of actual volume produced to total proved reserves or total proved developed reserves. This method matches the depreciation expense on the reserves to the revenues that are created as a result of production. Under cash based accounting, however, the entire cost or depreciation expense of the machine would be recorded in the book whenever the cash spent or …show more content…
Under U.S. GAAP, rules regarding revenue and expense recognition are complicated, and they cost small firms in particular to utilize accountants in order to record transactions clearly and fully in their books. According to Wall Street Journal, the study builds on earlier research by Criterion that showed companies that use more accruals underperform companies with fewer accruals. In that report, Criterion screened 3,500 nonfinancial companies over 40 years and found that those using the most accruals had poorer forward earnings and stock returns and also had more earnings restatements and Securities and Exchange Commission enforcement actions. But cash based accounting is simpler and it costs less. Because of the advantage of cash based accounting, it gives some benefits to small businesses with regard to tax purposes. For instance, cash based accounting ensures that firms are not required to pay for tax on money that have not been received yet. It strengthens cash flow and it establishes that funds are available for tax expenditures . For companies indulging in great deal of cash business and not maintaining large inventories, cash accounting can prove to be a reliable and convenient method of tracking profits and expenses without demanding a good deal of book keeping (Accounting,
As a paving company Jim Turin & Sons, Inc. purchases asphalt from its supplier. Jim has worked it out with the manufacturing company to deliver the material hours before the job since the properties of the asphalt may render it useless if delivered too soon. “Once a job is completed, [Jim Turin & Sons, Inc.] is generally paid within 10 to 30 days of billing” (Justia, 2000).
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...
The majorities of financial advisers do not have a formal accounting or tax background and thus have some challenges to overcome when reading tax returns of their clients. However they are still asked to help their clients in future planning. Since most accounting is to be done based on compliance with GAAP it would make sense to think that tax accounting should also be done this way, however both the IRS and the courts have stated that compliance with GAAP is of little significance when dealing with the objectives of tax accounting. The objectives of both accounting methods are simply different, because the primary goal of financial accounting is to provide useful information to all stakeholders and the primary goal of the income tax system is the equitable collection of revenue. Because of these differences it can be said that the users of accounting information are different for both methods. The assumption for financial accounting is the going-concern and the tax accounting system ignores this assumption. These differences give us the concept of timing differences and permanent differences. Understanding...
When a business follows the accounting cycle they are making the correct steps towards a successful business. The accounting cycle makes sure that every transaction is recorded. For three months Peyton approved journalized to track transactions. An accounting cycle has ten steps, in steps 1-4 journal entries and T-accounts are prepared. In steps 5-7 the trial balance and adjusted entries are completed and in the final steps, 8-10 the income statement, a statement of retained earnings, a balance sheet, the closing entries, the post closing trial balance, and reversing entries are completed. Peyton Approved promotes operation efficiency, and it ensures accurate and reliable accounting records by following the Accrual basis of
Among other things, when the FASB created the statement of cash flows a vital part, it permitted either the direct or indirect approach/method. However, if the direct approaches are picked, the FASB demands that it be helped by a schedule of the adjustments that make up earnings to cash on the condition that it’s used by operating activities. This particular schedule can be shown as either in the footnotes on the financial statement or on the cover of the statement. In addition, commonly allowed accounting principle ask for that under either approach or method cash figures paid out for things like taxes and interest must be made known
Tax Law and Accounting In today's society, income taxes are something that almost everyone is familiar with. However, the tax law and general purpose of income taxes is something in which the general society gives little thought. In addition, few tax preparers are aware that differences exist between the Generally Accepted Accounting Principles (GAAP) and tax accounting, not to mention the ramifications of avoiding or evading to properly complete the reporting of income taxes. This paper will discuss the objectives of modern tax law, the differences between Generally Accepted Accounting Principles (GAAP) and tax accounting, as well as the differences between tax evasion and tax avoidance.
According to Marshall, McManus and Viele (2004), accounting is “the process of identification, measurement, communication of information about a business for the purpose of making decisions and informed judgment” (p.3). Decision makers look at balance sheets, income statements, changes in the owner’s equity and cash flow statement as documentation of the viability of an entity. Misrepresentation of the financial statements can place doubt of profitability in any company. The need for accountability and regulation of accounting practices is important in preserving trust in the business community.
Dutta, Sunil, and Stefan Reichelstein. Accrual Accounting for Performance Evaluation. Research Paper Series 1886 (2005): 1-35. Print.
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)
Two methods of depreciation are used straight line and reducing balance method. Assessing the useful life (UL) and residual value (RV) of an asset is extremely subjective. It will only be known for certain after the asset is sold or scrapped, and this is too late for the purpose of computing annual depreciation. Hence, it is required that the estimates should be reviewed at the end of each reporting period. If either changes significantly, then that change should be accounted for over the remaining estimated useful economic life.
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). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
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.
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a company's financial statements. And even though variations might exist, one can make realistically confident conclusions when comparing one company to another, or when comparing one company's financial statistics to the statistics for the industry as a whole. Over the years the generally accepted accounting principles have become more multifaceted because financial transactions have become more intricate (Accounting Principles, 2011).
The success of a company is very dependent upon its financial accounting. In accounting there are numerous Regulatory bodies that govern the accounting world. These companies are extremely important to a company because they set the standards when it comes to the language and decision making of a company. These regulatory bodies can be structured as agencies, associations, commissions, and boards. Without companies like the Security and Exchange Commission (SEC), The Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), Internal Accounting Standards Board (IASB), Internal Revenue Service (IRS), and other regulatory bodies a company could not make well informed decisions. In this paper the author will look at only four of them.