Acclunting Concepts and Applications

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Accounting Concepts and Applications

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Rationale

Learning Objectives and Outcomes

Teaching and Learning Resources

 

Case Studies

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Assignments, Assessments

 

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Accounting Concepts and Applications

 

 

Rationale

Financial Accountancy (or Financial Accounting) is the branch of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, government agencies, owners, and other stakeholders. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.

What is Accounting?

 

Financial accountancy is used to prepare accounting information for people outside the organisation or not involved in the day to day running of the company. Managerial accounting provides accounting information to help managers make decisions to manage the business.

Financial accountancy is governed by both local and international accounting standards.

 

 

See also

 

External links

Financial Accounting Framework

 

 

 

Learning Objectives and Outcomes

 

This is a non-taught unit designed for self-directed study by those intending to enhance their professional or managerial competence, knowledge, understanding, and skills in business finance.

Knowledge

After completing the course, student will understand

1. foundations, principles and contents of management accounting

2. concepts, rules, and processes of financial statements

3. how accountants analyse business activity

4. the primary financial statements and their interrelationships as well as the underlying accounting procedures used to produce those statements

5. the role of financial reporting within the firm and its business environment

 

Skills

After completing the course, student will be able to

1. apply accounting concepts and principles

2. make decisions using relevant information

2. use financial accounting information in making business decisions

3. evaluate accounting information systems software

4. participate in strategic and financial analysis and planning

 

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Teaching and Learning Resources

 

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Learning Contents Tutorials and Lectures Assignments Recommended Texys Readings Learner Support Discussion Forums Workshops Web Cases Case Studies Resources Staff Development Subject Reviews

 

Financial Reporting and the Accounting Cycle

Tutorials

Accounting Flow

 

Readings

An Accounting Information System (AIS) is the system of records a business keeps to maintain its accounting system. This includes the purchase, sales, and other financial processes of the business. The purpose of an AIS is to accumulate data and provide decision makers (investors, creditors, and managers) with information to make decisions. While this was previously a paper-based process, most modern businesses now use accounting software.

In an Electronic Financial Accounting system the steps in accounting cycle are dependent upon the system itself. Example: some systems allow direct journal posting to the various ledgers and others do not.

External links

 

 

Non-stop Accounting Operations

 

 

Operating Activities

Tutorials

Transforming vision into revenue

 

Readings

Inventory is a list of goods and materials held available in stock by a business.

 

Inventory Control

 

See also

 

External links

 

 

Your Customers

 

Investing and Finance Activities

Tutorials

 

Readings

Investment or investing[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. Literally, the word means the "action of putting something in to somewhere else" (perhaps originally related to a person's garment or 'vestment').

 

See also

 

 

 

External links

 

 

Mezzanine Capital - Instruments

 

Enterprise debt and equity financing

 

 

Other Dimensions of Financial Reporting

Tutorials

 

Readings

Cash flow is an accounting term that refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project. Measurement of cash flow can be used to evaluate the state or performance of a business or project.

Cash flow measurement can be used to determine problems with liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable. Cash measurement can be used to generate project rate of returns. The time of cash flows into and out of projects are used as inputs to financial models such as internal rate of return, and net present value.

Cash flow is used to examine income or growth of a business when it is believed that accrual accounting concepts do not represent economic realities. Alternately, cash flow can be used to 'validate' the net income generated by accrual accounting.

 

Projected Cashflows


Foundations

Tutorials

 

Readings

 

Management Accounting is concerned with the provisions and use
of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. Unlike financial accountancy information
(which, for the most part, is public information), management accounting information is used within an organisation (typically for decision-making) and is usually confidential and access to which is only available to a select few.

 

Management Accounting and Control

See also

PART 1. FOUNDATIONS

 

PART 2. PLANNING.

 

PART 3. CONTROL

 

PART 4. EVALUATION

 

 

 

Cost-Volume-profit (CVP), in managerial economics is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions.

Cost-volume-profit (CVP) analysis expands the use of information provided by breakeven analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this breakeven point (BEP), a company will experience no income or loss. This BEP can be an initial examination that precedes more detailed CVP analysis.

Cost-volume-profit analysis employs the same basic assumptions as in breakeven analysis. The assumptions underlying CVP analysis are:

The behaviour of both costs and revenues is linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.) Costs can be classified accurately as either fixed or variable. Changes in activity are the only factors that affect costs. All units produced are sold (there is no ending finished goods inventory). When a company sells more than one type of product, the sales mix (the ratio of each product to total sales) will remain constant.

Objectives of CVP analysis

In order to forecast profits accurately, it is essential to ascertain the relationship between profit and cost on one hand and volume on the other.

CVP analysis is helpful in producing a flexible budget

This will help in determining the pricing decisions that should be made for the product.

The components of Cost-Volume-Profit Analysis are:

 

Main tools

The main tools used for a CVP analysis are

 

Accounting Cost-Volume-Profit Analysis

 

Approaches to CVP analysis

Cost and revenue equations contribution margin profit graph

 

Financial Graphs

 

 

Planning

Tutorials

 

Readings

Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time.[1] In contrast putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or gambling.

Investment is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments.

 

To avoid speculation an investment must be either directly backed by the pledge of sufficient collateral or insured by sufficient assets pledged by a third party.

A thoroughly analysed loan of money backed by collateral with greater immediate value than the loan amount may be considered an investment. A financial instrument that is insured by the pledge of assets from a third party, such as a deposit in a financial institution insured by a government agency may be considered an investment. Examples of these agencies include, in the United States, the Securities Investor Protection Corporation, Federal Deposit Insurance Corporation, or National Credit Union Administration, or in Canada, the Canada Deposit Insurance Corporation.

Promoters of and news sources that report on speculative financial transactions such as stocks, mutual funds, real estate, oil and gas leases, commodities, and futures often inaccurately or misleadingly describe speculative schemes as investment.

Investment: thorough analysis and security. Speculation: analysis and some risk. Gambling: lack of analysis and lack of safety.

 Capital Investment Decisions

 

See also

 

External links

 

 

A financial planner or personal financial planner is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes: cash flow management, education planning, retirement planning,
investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).

 

Financial planning process

 

The work engaged in by this professional is commonly known as personal financial planning. In carrying out the planning function, he is guided by the financial planning process to create a financial plan; a detailed strategy tailored to a client's specific situation, for meeting a client's specific goals. The key defining aspect of what the financial planner does is that he considers all questions, information and advice as it impacts and is impacted by the entire financial and life situation of the client.

 

See also

 

External links

 

 

In economics, Return on Capital, also known as return on invested capital, is a non-GAAP financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. It is defined as Net operating profit less adjusted taxes divided by invested capital and is usually expressed as a percentage.

 

Optimizing Return on Capital Employed on Risk Transfer

 

Optimizing Return on Capital Employed on Risk Transfer

 

When the return on capital is greater than the cost of capital (usually measured as the weighted average cost of capital), the company is creating value; when it is less than the cost of capital, value is destroyed.

 

External links

 

Budget (from French bougette) generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods.

 

 

See also

 

External links

Stanley Financial Solutions

 

Control

Tutorials

 

Readings

Business Performance Management (BPM) is a set of processes that help organizations optimise their business performance. It is a framework for organizing, automating and analysing business methodologies, metrics, processes and systems that drive business performance.[1]

BPM is seen as the next generation of business intelligence (BI). BPM helps businesses make efficient use of their financial, human, material and other resources.[2]

 

Business Performance Management

 

See also

 

External links

 

 

Activity-based costing (ABC) is a method of allocating costs to products and services. It is generally used as a tool for planning and control. This is a necessary tool for doing value chain analysis.

 

Cost Monitoring

The concepts of ABC were developed in the manufacturing sector of the U.S. during the 1970s and 80s. During this time, the Consortium for Advanced Manufacturing-International, now known simply as CAM-I (www.cam-i.org), provided a formative role for studying and formalizing the principles that have become more formally known as Activity-Based Costing.

Robin Cooper and Robert Kaplan, proponent of the Balanced Scorecard, brought notice to these concepts in a number of articles published in Harvard Business Review beginning in 1988. Cooper and Kaplan described ABC as an approach to solve the problems of traditional cost management systems. These traditional costing systems are often unable to determine accurately the actual costs of production and of the costs of related services. Consequently managers were making decisions based on inaccurate data especially where there are multiple products.

Instead of using broad arbitrary percentages to allocate costs, ABC seeks to identify cause and effect relationships to objectively assign costs. Once costs of the activities have been identified, the cost of each activity is attributed to each product to the extent that the product uses the activity. In this way ABC often identifies areas of high overhead costs per unit and so directs attention to finding ways to reduce the costs or to charge more for costly products.

 

Activity Based Costing

 

External links

 

Quality Management is a method for ensuring that all the activities necessary to design, develop and implement a product or service are effective and efficient with respect to the system and its performance.

 

ISO 9001 quality management system

 

 

See also

 

External links

Diving deeper into ISO 9001:2000 and the role of Quality Management Systems in Clinical Laboratories

Evaluation

Tutorials

 

Readings

Decision making is the cognitive process leading to the selection of a course of action among alternatives. Every decision making process produces a final choice. It can be an action or an opinion. It begins when we need to do something but we do not know what. Therefore, decision making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions.

 

Ttough_decission
Magnify-clip

 

Common examples include shopping, deciding what to eat, when to sleep, and deciding whom or what to vote for in an election or referendum.

Decision making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behaviour that a decision has been made. Therefore, we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to affect the action.

Structured rational decision making is an important part of all science-based professions, where specialists apply their knowledge in a given area to making informed decisions. For example, medical decision making often involves making a diagnosis and selecting an appropriate treatment. Some research using naturalistic methods shows, however, that in situations with higher time pressure, higher stakes, or increased ambiguities, experts use intuitive decision making rather than structured approaches, following a recognition primed decision approach to fit a set of indicators into the expert's experience and immediately arrive at a satisfactory course of action without weighing alternatives.

Due to the large number of considerations involved in many decisions, computer-based decision support systems have been developed to assist decision makers in considering the implications of various courses of thinking. They can help reduce the risk of human errors. The systems which try to realize some human/cognitive decision making functions are called Intelligent Decision Support Systems (IDSS), see for ex. "An Approach to the Intelligent Decision Advisor (IDA) for Emergency Managers, 1999".

 

See also

 

A continuous improvement process (CIP or CI) is an ongoing effort to improve products, services, or processes. These efforts can seek "incremental" improvement over time or "breakthrough" improvement all at once.[1] Delivery (customer valued) processes are constantly evaluated and improved in the light of their efficiency, effectiveness and flexibility.

 

Some see it as a meta-process for most management systems (Business Process Management, Quality Management, Project Management). Deming saw it as part of the 'system' whereby feedback from the process and customer were evaluated against organisational goals. The fact that it can be called a management process does not mean that it needs to be executed by 'management' merely that it makes decisions about the implementation of the delivery process and the design of the delivery process itself.

Some successful implementations use the approach known as Kaizen (the translation of kai (“change”) zen (“good”) is “improvement”). This method became famous by the book of Masaaki Imai “Kaizen: The Key to Japan's Competitive Success.”

1.The core principle of CIP is the (self) reflection of processes. (Feedback)

2. The purpose of CIP is the identification, reduction, and elimination of suboptimal processes. (Efficiency)

3. The emphasis of CIP is on incremental, continuous steps rather than giant leaps. (Evolution)

 
Continuous Improvement Process

 

Some see it as a meta-process for most management systems (Business Process Management, Quality Management, Project Management). Deming saw it as part of the 'system' whereby feedback from the process and customer were evaluated against organisational goals. The fact that it can be called a management process does not mean that it needs to be executed by 'management' merely that it makes decisions about the implementation of the delivery process and the design of the delivery process itself.

Some successful implementations use the approach known as Kaizen (the translation of kai (“change”) zen (“good”) is “improvement”). This method became famous by the book of Masaaki Imai “Kaizen: The Key to Japan's Competitive Success.”

 

 

See also

 

 

Kaizen (改善, Japanese for "change for the better" or "improvement", the English translation is "continuous improvement", or "continual improvement.") is an approach to productivity improvement originating in applications of the work of American experts such as Frederick Winslow Taylor, Frank Bunker Gilbreth, Walter Shewhart, W. Edwards Deming and of the War Department's Training Within Industry program by Japanese manufacturers after World War II. The development of Kaizen went hand-in-hand with that of quality control circles, but it was not limited to quality assurance.

 

Continuous Improvement of Student Learning

The goals of kaizen include the elimination of waste (defined as "activities that add cost but do not add value"), just-in-time delivery, production load levelling of amount and types, standardized work, paced moving lines, right-sized equipment, etc. In this aspect it describes something very similar to the assembly line used in mass production. A closer definition of the Japanese usage of Kaizen is "to take it apart and put back together in a better way." What is taken apart is usually a process, system, product, or service.

Kaizen is a daily activity whose purpose goes beyond improvement. It is also a process that, when done correctly, humanizes the workplace, eliminates hard work (both mental and physical), and teaches people how to do rapid experiments using the scientific method and how to learn to see and eliminate waste in business processes.

"Kaizen" is the correct usage. "Kaizen event" or "kaizen blitz" are incorrect usage.

Kaizen is often misunderstood and applied incorrectly, resulting in bad outcomes including, for example, layoffs. This is called "kaiaku" - literally, "change for the worse." Layoffs are not the intent of kaizen. Instead, kaizen must be practiced in tandem with the "Respect for People" principle. Without "Respect for People," there can be no continuous improvement. Instead, the usual result is one-time gains that quickly fade.

Importantly, kaizen must operate with three principles in place: process and results (not results-only); systemic thinking (i.e. big picture, not solely the narrow view); and non-judgmental, non-blaming (because blaming is wasteful).

Everyone participates in kaizen; people of all levels in an organization, from the CEO on down, as well as external stakeholders if needed. The format for kaizen can be individual, suggestion system, small group, or large group.

The only way to truly understand the intent, meaning, and power of kaizen is through direct participation, many, many times.

 

See also

 

External links

 

Lean manufacturing and just in time production are related concepts.

 

 

Recommended Text

 

Accounting Concepts and Applications

Accounting Concepts and Applications, 9e

Albrecht, W. Steve
Brigham Young University
Stice, James D.
Brigham Young University
Stice, Earl Kay
Brigham Young University
Swain, Monte
Brigham Young University

 

Check the availability and buy your books from our Bookshop.

 

 

Management Accounting

Management Accounting, 3e by Swain, Albrecht, Stice, Stice

 

Check the availability and buy your books from our Bookshop.

 

Accounting Information Systems

Accounting Information Systems
Gelinas & Sutton, Sixth Edition

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Resources

 

Accounting, Audit & Tax Resources

 

 

 

 

Investing

From Wikibooks, the open-content textbooks collection:

 

Investing
Stock market | Mutual funds | Bonds | Real estate | Rental properties | Starting a business | Insurances Tax advantaged investing

 

Investing involves using your money (or borrowed money that you control) to earn more money.

Before proceeding, make sure that you understand the concepts of Personal Finance. Topics covered here are:

 

Online Resources

Many excellent resources available on the web:

 

 

 

 

 

Accounting Concepts

 

Basic Accounting

 

Bookkeeping | Auditing | Cost of goods sold | Public accountancy | Internal accountancy | External accountancy | Accountant | Financial audit | Balance Sheet | Income statement | Cash flow statement | Financial accountancy | Management accounting | Cost accounting | Certified Public Accountant | General Ledger | Bank reconciliation | Trial balance | Debits and credits

 
Other

 

Invoice | double-entry book-keeping | Standard accounting practices | Cash basis and accrual basis | Fund Accounting | GAAP | Forensic accounting | Tax Accounting | Accounting education | Accountancy qualifications and regulation | Sarbanes-Oxley Act | Big Four auditors | FIFO and LIFO accounting | Environmental accounting