Purpose of accounting The primary purpose of accounting is to provide information which is useful for decision making. It provides reliable information about the sources & trends of revenues of an enterprise. It provides authenticate information about the economic resources & obligations of a business. It provides reliable information about the changes in financial and …
Month: December 2018
Functions of accounting The functions of accounting are: Managing Resources The first function of accounting is to manage the resources held by specific entities. Reflection of Claims Its purpose is to reflect the claims on business. Measurement of Changes Its purpose is also to measure the level of changes in the claims against the business. …
Those people, who have little knowledge about accounting, are often confused in understanding the difference between Bookkeeping and Accounting. Bookkeeping is a small part of Accounting. Bookkeeping represents the recording phase of an accounting system. So we can say that the process of Accounting begins where the process of Bookkeeping ends. Accounting not only includes …
Bookkeeping Definition Bookkeeping is the art of recording business transactions in a systematic manner. However, bookkeeping has been defined in a variety of ways by different authors. Some of the definitions are given below: Bookkeeping is an activity concerned with the recording of financial data related to the business operations in a significant and orderly …
Investment tax credit (ITC) can be defined as the direct reduction of income taxes arising from the acquisition of depreciable assets.
inventoriable costs can be defined as all costs of a product that are regarded as an asset for financial reporting under generally accepted accounting principles.
Internal rate of return method can be defined as discounted cash-flow capital budgeting method. It is the rate of interest at which the present value of expected cash inflows from a project equals the present value of expected cash outflows of the project. Also called time-adjusted rate of return.
Internal failure costs are the category of costs in a cost of quality program incurred nonconforming product is a detected before its shipment to customers.
Intermediate product is a product transferred from one segment of an organization to another segment of the same organization.
Inflation can be defined as a decline in the general purchasing power of the monetary units.
Indirect labor costs can be defined as all compensation other than direct labor compensation.
Indirect costs are the costs that cannot be identified specifically or traced to a given cost object in an economically feasible way.
Incremental unit-time learning model can be defined as Learning curve model in which the incremental unit time (the time needed to produce the last unit) is reduced by a constant percentage each time the cumulative quantity of units produced is doubled
Incremental cost common allocation method is a common cost allocation method that requires that one user be viewed as the primary party and the second user be viéwed as the incremental party.
Incremental approach is the approach to choosing among projects that includes only those cash outflows and inflows that differ between the two projects.
Idle time can be defined as represents wages paid for an unproductive time caused by machine breakdowns, material shortages, sloppy production scheduling, and the like.
Hybrid costing is a costing system with blends of characteristics from both job costing and process costing.
Homogeneous cost pool is a cost pool in which each activity whose costs are included in it as the same or a similar cause and effect relationship between the cost driver and the costs at that activity.
High-low method is a method of estimating a cost function that uses only the highest and values of the cost driver within the relevant range.
Goal congruence exists when individuals and groups work towards the organization goals that top management desires.
Functional authority is the right to command action laterally and downward with regard to a specific function or specialty.
Full cost is the sum of all the costs in all the business function (research and development, product design, manufacturing, marketing, distribution, and customer service).
Flexible-budget variance is the difference between actual results and the flexible budget amounts for the actual output achieved. Also called, for brevity, budget variance.
Fixed-price contract is the Contract reimbursement method in which the price the contractor receives is established at the outset.
Mathematical statement of the relationships among all the operating activities, financial activities, and other major internal and external factors that may affect decisions is called Financial planning model.
Financial accounting can be defined as the focuses on how accounting can serve external decision makers. Heavily constrained by generally accepted accounting principles. Contrast with management accounting.
External failure costs is a category of incurred cost in a cost of quality program when a nonconforming product is detected after its shipment to customers.
Expected variances are the variances that are specified in the budget for cash planning.
Expected value of perfect information (EVPI) is the difference between the expected value with perfect information and the highest expected value with existing information.
Expected monetary value can be defined as the expected Value measure where the outcomes are measured in monetary terms
Executive compensation plan can be defined as one component of the reward system of a management control system. Includes the diverse set of short-run and long-run plans that detail the conditions under which, and the forms in which, compensation is to be made to executives of the organization.
Excess present value index can be defined as the total present value of future net cash inflows divided by the total cash outflow.
Excess materials requisition is a form necessary to obtain any materials needed in excess of the standard amount allowed for the scheduled output.
Equivalent units can be defined as a measure of the output in terms of the quantities of each of the factors of production that have been applied.
Dual-rate method is a method of allocating costs in which two cost functions are used. Typically, the two functions are a fixed-cost function and a variable-cost function.
Dual-pricing is a transfer-pricing approach that uses two separate transfer-pricing methods to price each inter-division transaction.
Double-declining balance (DDB) is a form of accelerated depreciation in which first-year depreciation is twice the amount of straight-line depreciation when a zero terminal disposal price is assumed.
Direct materials yield variance is the variance used to analyze effect of changes in material yield on materials cost. Formula Direct materials yield variance can be Computed as: (Actual units of material inputs used – Standard units of material inputs allowed for actual outputs) x (Standard average price per unit of material inputs).
Direct materials inventory can be defined as Direct materials on hand and awaiting use in the production process.
The acquisition costs of all materials that are identified as part of the cost object and that may be traced to the cost object in an economically feasible way is called direct material cost.
Direct material mix variance is the variance used to analyze effect of changes in the mix of materials used on direct materials cost. Formula Direct material mix variance can be computed as: [(Actual material mix percentage – Standard material mix percentage) x (Actual total units of material inputs used)] x (Standard individual price per unit …
Definition Direct labor yield variance is the Variance used to analyze effect of changes in labor yield on labor cost. Direct labor yield variance can be computed as: Formula (Actual units of labor inputs used – allowed for actual outputs) x (Standard average price per unit of labor input).
Variance used to analyze effect of changed in the mix of labor on erect labor cost. Computed as: [(Actual labor mix Standard labor mix percentage – Standard labor mix percentage) x (Actual total units of labor inputs used)] x (Standard individual price per unit of labor input – Standard average price per unit of labor …
Direct allocation method is a method of allocating service department costs that ignores any service rendered one service department to another; it allocates each service departments total cost directly to the production department. Also called direct method.
Dependent variable is the variable to be predicted in a cost function (or regression equation).
The preselected production volume level used to set a budgeted fixed-factory-overhead rate applying costs to inventory. Also called denominator activity or denominator level.
Decision unit is the lowest unit in an organization for which a budget is prepared.
Decision table is a summary of the events, actions, contemplated probabilities, and outcomes. Also called a payoff table or payoff matrix.
The freedom to make decisions. Total decentralization in an organization means minimum constraints and maximum freedom for managers to an organization.
Currently attainable standards are standard costs that are achievable by a specified level of effort and allow for normal spoilage, waste, and nonproductive time.