Tag: Accounting

What are the different types of Financial Accounting?

The different types of Financial Accounting; Financial accounting classifies under the head of accounting functions that specifically maintain the financial transactions of companies; Accounting essay; Financial accounting explains the different types with their objectives or intentions or motives. The guidelines under accounting use to summarize and classify all transactions; It also involves preparing the financial statements of a company which gives an overview of the economic stability of a company to its investors.

This article can explain the Financial accounting different types with their objectives or intentions or motives.

This pertains to the recording of all business transactions in the books of prime entry, posting them into respective ledger accounts, balancing them, and preparing a trial balance, from and out of which a profit and loss account showing the results of the business and also a balance sheet depicting assets and liabilities of the business concern is prepared. This in turn forms the basis for analysis and interpretation for furnishing meaningful data to the management.

The Accounting essays in types of accounting are part, both methods rely on the same conceptual framework of double-entry accounting for recording and reporting analysis data at the end of a certain period; Two types or methods of financial accounting are cash and accrual or remedial account; Although they differ, both methods rely on the same conceptual framework as double-entry accounting for recording, analyzing, and reporting at the end of a given period of time; Such as a month, quarter or financial year.

The information generated by accounting is used by various interested groups such as individuals, managers, investors, creditors, government, regulatory agencies, taxation authorities, employees, trade unions, consumers, and the general public. Depending on the purpose and method, accounting can be broad of three types; 1] financial accounting, 2] cost accounting, and 3] management accounting. Financial accounting is mainly concerned with the preparation of financial statements. It is used on some well-defined concepts and conventions and helps formulate comprehensive financial policies.

Cash Account:

If you are the owner of a business, by adopting cash accounting you can only focus on corporate transactions involving cash. Other economic events with no monetary input do not matter because they do not make it to the financial statements. The business prefers to go for the cash accounting method only to focus on cash transactions that involve cash. Any other transaction that does not include any monetary value does not go into the financial statements.

Under this method, all-cash credit cash entries are based on the number of related loans and transactions carried out. Under the cash accounting method, a corporate bookkeeper always debits or credits the cash account in each journal entry on a transaction basis. For example, to record customer remittances, the bookkeeper debits the cash account and credits the sales revenue account. Do not mistake cash debit accounting for banking debit. The former means an increase in the company’s money, while the latter reduces the money in the customer’s account.

Accrual Account:

The records of the company maintain the transaction under all modes irrespective of any monetary value. It also involves making entries about cash which is beyond other transactions that do not include monetary transactions. The method acquired in financial accounting is depositing an item and recording it legally when a cash transaction occurs. Under the contingency method of accounting, a company records all transaction data regardless of monetary inflows or outflows.

In other words, this accounting type incorporates the cash accounting method but takes into account all transactions that carry out the operating activities of the corporation. In a financial dictionary, “earned” means an item to store and record as legally binding, even if there is no cash payment.

The phrases “accounts payable” and “accounts receivable” perfectly illustrate the concept of pronunciation. The accounting, also known as the payable seller, represents the amount of money that the seller of a business paid at a given point in time. The entity accrues the debtors until it settles the underlying debts. The same analysis applies to customers. Receivables are another name for accounts receivable that represent the money customers pay to a business.

What are the different types of Financial Accounting? Image from Pixabay.

Objectives or intentions or motives of financial accounting:

What are the intentions or motives of financial accounting? Knowing the goals of financial accounting can have the effect of being an accountant and truly understanding what your business is doing. Accounting Objectives; Accounting norms can appear to be unfamiliar and discretionary; however, by learning the calculated structure you will have a reasonable foundation to comprehend the hypothesis of accounting rules without falling back on repetition retention. The goal of financial accounting is to give data to the end-client; however, the calculated system, or Statements of Financial Accounting Concepts (SFAC), mentions to us what characteristics that data must-have.

Significance:

For data to be valuable to end-clients, it must be important. That implies that it must assistance a financial assertion peruser to settle on choices about the financial prosperity of the organization. For financial specialists, this verifiable think back serves to help settle on venture choices. To be important, data should likewise be current. Organizations report financial outcomes on a quarterly or yearly premise to fulfill this target. End-clients need the latest data conceivable to settle on the best choices.

Unwavering quality:

Accounting data must be solid. If an organization doesn’t create dependable financial proclamations, at that point speculators can’t pick up the data they have to decide. Dependable data can check, is liberated from predisposition, and isn’t deceiving. To assist organizations with meeting this goal, public bookkeepers will freely confirm accounting medicines and exchanges and issue conclusions dependent on these reviews. This makes end-clients more all right with their dependence on financial data.

It is both Reliability and Relevance; A significant target is to get ready for such financial proclamations that are dependable, and choices can found on it. For this reason, such Accounting should speak to a dependable portrayal of exchanges and occasions embraced by the business, ought to speak to in their genuine substance and monetary reality point of view.

Straightforward:

Among all the goals examined above, it is the essential target that Financial Accounts are set up so that they are effectively justifiable by proposed clients. Nonetheless, while meeting this goal as a primary concern; it must be similarly fundamental to guarantee that no material data discard because it will be mind-boggling and unwieldy to comprehend for different clients. To put it plainly, endeavors must make to plan Financial Accounts simply to know at every possible opportunity.

Similarity:

An auxiliary nature of financial data is that it must be equivalent. This is the reason we have a setup arrangement for recording and detailing accounting data. Financial specialists regularly are given decisions on where and when to contribute. By having tantamount information, these speculators can make relative decisions about their venture openings. Nonetheless, similarity, being an auxiliary quality, must take on a supporting role to pertinence and dependability.

Consistency:

Consistency is another auxiliary nature of financial data. Since end clients are frequently given financial data that traverses different timeframes; these clients should have the option to look at data across financial periods. As guidelines change, and as organizations change, it won’t generally be conceivable to have totally steady data. Be that as it may, when accounting data isn’t steady, norms require the revelation of the irregularity. This is a case of the essential nature of dependability taking a front seat to the optional nature of consistency.

Meeting the Objective of Various Stakeholders:

Another fundamental target is addressing the requirements of different partners, which are related to the business. Various partners have various purposes, for example; loan specialists to the business mean to evaluate the ability of the business to pay interest and head; which loan to the business or planned moneylenders; so they are more intrigued by the dissolvability of the business and spotlight on that perspective. Additionally, clients are keen on knowing the development and steadiness of the business and spotlight more on income explanations; and, financial articulations to decide the capacity of the business to give better business terms and a reliable gracefully of products and enterprises.

September 28, 2020
Trial Balance: Meaning, Objectives, Advantages, and Limitations
Understand the concept of Trial Balance [In Hindi]. Learn about its meaning, definition, objectives, advantages, methods, and limitations. It is a listing of all the accounts and their respective balances. It is a statement of debit balance and credit balance extracted from ledger accounts on a particular date. This article explains Trial Balance with the topic of Introduction, Meaning, Definition, Objectives, Advantages, Methods, and Limitations. It is a two-column schedule listing the titles and balances of all the accounts in the order in which they appear in the ledger. The debit balances lists in the left-hand column and the credit balances in the right-hand column. In the case of General Ledger, the totals of the two columns should agree.

Here is the article explaining Trial Balance with the topic of Introduction, Meaning, Definition, Objectives, Advantages, Methods, and Limitations in accounting.

We, now, know the fundamental principle of the double-entry system of accounting where for every debit, there must be a corresponding credit. Therefore, for every debit or a series of debits given to one or several accounts, there is a corresponding credit or a series of credits of an equal amount given to some other account or accounts and vice-versa. Hence, according to this principle, the total of debit amounts must equal the credit amounts of the ledger at any date. If the various accounts in the ledger are balanced, then the total of all debit balances must be equal to the total of all credit balances.

If the same is not true then the books of accounts are arithmetically inaccurate. It is, therefore, at the end of the financial year or at any other time, the balances of all the ledger account extract and record in a statement known as Trial Balance and finally totaled up to see whether the total of debit balances is equal to the total of credit balances.

Meaning of Trial Balance:

They may thus define as a statement of debit and credit totals or balances extracted from the various accounts in the ledger books to test the arithmetical accuracy of the books. The agreement of the Trial Balance reveals that both the aspects of each transaction have been recorded and that the books are arithmetically accurate. If both sides of Trial Balance do not agree with each other, it shows that there are some errors, which must detect and rectify if the correct final accounts are to prepare.

Thus, Trial Balance forms a connecting link between the ledger accounts and the final accounts. It is a statement of debit and credit balances taken out from all ledger accounts including cash books. The golden rules that “Accounting equation remains balanced all the time” and “For every business transaction there is an equal debit and credit” shall always prevail in the whole accounting theory. Therefore, the total of all debit balances must be equal to the total of all credit balances. To verify this, a schedule known as they prepare.

Balances of debits and credits are to extract from all ledger accounts, including cash books, and shown in this schedule. This schedule prepares to assure the management of the arithmetical accuracy of books of accounts. This schedule facilitates the preparation of final accounts. Generally, it prepares at the end of each accounting year; however, it can prepare at the end of each month, quarter, or the end of any chosen period.

Definition of Trial Balance:

It is a list of debit and credit balances of all the ledger accounts extracted on a given date. Following are the main definitions of the trial balance;

Accounting in the first definition is as,

“Trail balance is the list of debit and credit balances, taken out from the ledger, it also includes the balances of cash and bank taken from the cash book.”

Accounting in the second definition is as,

“The statement prepared with the help of ledger balances at the end of the financial year (or at any other date) to find out whether debt total agrees with credit total is called a trial balance.”

When one account debit, another account credit with an equal amount. Therefore, it is quite evident that the total of debit balances of the ledger accounts of given transactions will be equal to the total of the credit balances. It must state here that the total of the debit balance column must be equal to the total of the credit balance column. This is so because under the double-entry system, for each item of debit there is a corresponding credit, and secondly all the transactions recorded in the books of original entry transfer to the ledger.

Objectives of Trial Balance:

The following are the main objectives of preparing the trial balance:

1] To check the arithmetical accuracy of books of accounts:

According to the principle of the double-entry system of book-keeping, every business transaction has two aspects, debit and credit. They base on the double-entry principle of debit equals credit or credit equals debt. As a result, the debit and credit columns of they must always be equal. If they do, it assumes that the recordings of financial transactions are accurate.

Conversely, if they do not, it assumes that they are not arithmetically accurate. Therefore, one important purpose of preparing trial balance is to provide a check on the arithmetical accuracy of the recordings of the financial transactions. So, the agreement of the trial balance is proof of the arithmetical accuracy of the books of accounts. However, it is not conclusive evidence of their accuracy as there may be certain errors. Which they may not be able to disclose.

2] Helpful in preparing final accounts:

They record the balances of all the ledger accounts at one place which helps in the preparation of final accounts, i.e. Trading and Profit and Loss Account and Balance Sheet [Hindi]. But, unless they agree, the final accounts cannot prepare. Final accounts prepare to show profit and loss and the financial position of the business at the end of an accounting period.

These accounts prepare by using the debit and credit of all ledger accounts. Therefore, since the trial balance is a statement of the debit and credit balances of the ledger accounts, it provides the basis for the preparation of the final accounts. So, if the trial balance does not agree, errors locate and necessary corrections are made at the earliest. So, that there may not be unnecessary delay in the preparation of the final accounts.

3] To serve as an aid to the management:

By comparing the trial balances of different years changes in figures of certain important items such as purchases, sales, debtors, etc. ascertain and their analysis make for taking managerial decisions. So, it serves as an aid to the management.

4] To Summarize the financial transactions:

A business performs several numbers of financial transactions during a certain period. The transactions themselves can not portray any picture of the financial affairs of the business. For that purpose, a summary of the transactions has to draw. They prepare to intend to summarize all the financial transactions of the business.

5] To Help to detect accounting errors:

Since the trial balance indicates if there is any error committed in the journal and the ledger. It helps the accountant to locate the error because the starting point of locating errors is trial balance itself. It has been pointed out in an earlier paragraph that if they not agree, the accountant must locate such errors.

The accountant must give equal emphasis or weight-age to both small and wide differences found in a Trial Balance. Because there may be several errors that have practically compensated the effect of one another producing a small difference.

Advantages of Trial Balance:

The important advantages of a trial balance are;
- To help of summarizes all the financial transactions of the business. Also, presents to the businessman a consolidated list of all ledger balances.
- It is the shortest method of verifying the arithmetical accuracy of entries made in the ledger.
- If the total of the debit side/column is equal to the total of the credit side/column, the trial balance says to agree. Otherwise, it implies that some errors have been committed in the preparation of accounts.
- It helps in the preparation of the final accounts i.e., Trading a/c. Profit and loss a/c and Balance Sheet.
- To help in locating or detecting errors in accounting balances. As well as, helps the accountant to locate the error. Because, the starting point of locating errors is trial balance itself.
- They serve as a summary of all the ledger accounts and provides a complete summary report of each account in the ledger.
Methods of Trial Balance:

A trial balance can prepare by the following three methods;

1] Total method:

In this method, the debit and credit totals of each account are shown in the two amount columns (one for the debit total and the other for the credit total). Under these methods, the trial balance prepares by taking up the total of debits and credit of all ledger accounts.

2] Balance Method:

In this method, the difference of each amount extracts. If the debit side of an account is bigger in amount than the credit side. Also, the difference is put in the debit column of the Trial Balance and if the credit side is bigger. The difference writes in the credit column of the Trial Balance. Under these methods, only the balances of all the ledger accounts take up to prepare the trial balance.

3] Compound Method:

The compound method is the combination of both the methods, total method, and balance method. Thus, the compound method also knows as a total cum balance method.

Limitations of Trial Balance:

The following are the main limitations of the Trial Balance;
- They can prepare only in those concerns where the double-entry system of accounting adopts.
- Though trial balance gives arithmetic accuracy of the books of accounts but there are certain errors. Which not discloses by the trial balance. That is why it says that trial balance is not conclusive proof of the accuracy of the books of accounts.
- If the trial balance does not prepare correctly then the final accounts prepared will not reflect the true and fair view of the state of affairs of the business. Whatever conclusions and decisions are made by the various groups of persons will not be correct and will mislead such persons.
- When the accountant makes an excess debit; or, excess credit entry although the same being neutralized by excess credit; or, excess debit respectively in the same or another account, such error recognizes as an error of compensation.
- When if the wrong amount writes at the initial stage then also the error can not disclose through the totals of trial balance are agreed upon.
April 14, 2020
Explain Prevention with Techniques of Forensic Accounting
Forensic accounting is a branch of accounting that focuses on investigating the business and financial records to determine if fraud, money laundering, or other crime has occurred. The article is explaining Prevention with Techniques of Forensic Accounting, also studies along with the Advantages and Disadvantages of Forensic Accounting. “Forensic” means “belonging to or suitable to use in a court of law”, which is why forensic accountants strive to produce findings that can use in court.

Here is Explaining the Advantages, Disadvantages, Prevention with Techniques of Forensic Accounting.

These professionals are also calling on to give evidence during trials. Forensic accounting offers several benefits at first glance but, if you look closer, you’ll see that it also has its drawbacks. A forensic accountant can assist in the areas of Bankruptcy, Economic Damages, Family Law, Valuation and Fraud Prevention/Detection.

Specialized skill sets and knowledge needs for the practitioner to be effective. Because of what is required of a forensic accountant in these areas it is also important for them to be effective communicators to assist the attorney to accomplish their objective [1].

Forensic Accounting as Prevention [2]:

As respects a suitable reaction to a misrepresentation that has been distinguished, each foundation requires an incorporated corporate methodology. An irreverent business environment defiles genuine representatives. The economy can’t manage the cost of business to wind up a facilitator for wrongdoing and unscrupulousness, simply because it has ended up helpful not to convey guilty parties to equity.

In building up a fitting misrepresentation reaction arrangement, a foundation must consider the accompanying strides:
- What are the association’s real hazard ranges and what is its arrangement position on culprits of misrepresentation?
- To whom is the duty regarding dealing with the reaction apportioned? What is the level of extortion mindfulness inside an association?
- Are controls powerful?
- Are clients or exchanging accomplices mindful of the organization’s strategy on misrepresentation?
- Do representatives comprehend the organization’s state of mind to misrepresentation and contemptibility?
- Can representatives report misrepresentation secretly? Is enrollment hones perfect with a legit workforce?
- Do disciplinary procedures apportion equity fairly and all the more vitally, are then seen to do as such?
Techniques of prevention of Forensic Accounting (Fraud) [2]:

The customary bookkeeping and evaluating with the assistance of various bookkeeping devices like proportion procedure, income strategy, a standard measurable device examination of proofs are all a player in legal bookkeeping.

In cases including critical measures of information, the present-day legal bookkeeper has innovation accessible to acquire or source information, sort and investigate information and even evaluate and stratify comes about through PC review and different strategies. Smith (2005), Gavish(2007), Dixon (2005), Frost (2004), Cameron (2001) had suggested some of the methods require in Forensic Accounting to inspect the cheats are:

Benford’s Law:

In 2000, Mark Nigrini distributed a critical book called “Advanced analysis using Benford’s Law”. Nigrini (2000). Even though Benford’s Law is presently exceptionally old and was examined in extortion writing. Slope (1995); Busta (1998); Nigrini(1999) before the book, Nigrini’s work acquainted the procedure with the substantial group of onlookers of reviewers.

It is a numerical instrument and is one of the different approaches to figure out if variable under study is an instance of inadvertent blunders (missteps) or extortion. On distinguishing any such marvel, the variable under study subjects to a definite examination. The law expresses that manufactured figures (as a marker of extortion) have an alternate example from irregular figures.

Meaning and Definition:

The means of Benford’s law are extremely basic. Once the variable or field of budgetary significance chooses, the left-most digit of the variable under study separate and compress for the whole populace. The rundown finishes by grouping the main digit field and ascertaining its watched check rate. At that point, Benford’s set connects. A parametric test called the Z-test completes gauging the criticalness of fluctuation between the two populaces, i.e.

Benford’s rate numbers for the first digit and watched rate of the first digit for a specific level of certainty. On the off chance that the information affirms to the rate of Benford’s law, it implies that the information is Benford’s set, i.e. there is 68% (right around 2/third) risk of no blunder or extortion. The principal digit may not generally be the main pertinent field.

Benford has given separate sets for second, 3rdand for the last digit also. It likewise works for blend numbers, decimal numbers, and adjusted numbers. There are numerous preferences of Benford’s Law like it not influence by scale invariance and is of help when there is no supporting archive to demonstrate the legitimacy of the exchanges.

Theory of Relative Size Factor (RSF):

It highlights every strange variance, which might steer from misrepresentation or certified blunders. RSF measures the proportion of the biggest number to the second biggest number of the given set.

Practically speaking there exist certain cutoff points (e.g. budgetary) for every element, for example, merchant, client, worker, and so on. These points of confinement might characterize or investigate from the accessible information if not characterize.

On the off chance that there is any stray occasion of that is route past the typical extent, then there is a need to examine further into it. It helps in the better discovery of peculiarities or outliners.

In records that fall outside the endorsed extent are associated with blunders or extortion. These records or fields need to identify with different variables or components to discover the relationship, consequently setting up reality.

Computer-Assisted Auditing Tools (CAATs):

CAATs are PC programs that the reviewer use as a major aspect of the review methods to process information of review criticalness contained in a customer’s data frameworks, without relying upon him. CAAT helps reviewers to perform different evaluating methodologies; for example, 1) Testing points of interest of exchanges and adjusts; 2) distinguishing irregularities or huge changes; 3) Testing general and application control of PC frameworks; 4) Sampling projects to concentrate information for review testing, and; 5) Redoing figuring performed by bookkeeping frameworks.

Data mining techniques:

Black (2002); Paletta (2005); Lovett (1955) It is an arrangement of help strategies intended to consequently mine substantial volumes of information for a new, cover-up or unforeseen data or examples. Information mining procedures are arranged in three ways: Discovery, Predictive displaying and Deviation, and Link examination.

It finds the typical learning or examples in information, without a predefined thought or theory about what the example might be, i.e. with no earlier information of fraud. It clarifies different affinities, affiliation, patterns and varieties as the contingent rationale. In prescient displaying, designs found from the database utilizes to foresee the result and to figure information for new esteem things.

In Deviation examination the standard discovers initially, and after that those things are recognizing that go amiss from the typical inside an offered edge (to discover abnormalities by removed examples). Join disclosure has risen as of late to detect a suspicious example. It, for the most part, uses deterministic graphical strategies, Bayesian probabilistic easygoing systems. This technique includes “design coordinating” calculation to “concentrate” any uncommon or suspicious cases.

Ratio Analysis:

Another helpful fraud recognition procedure is the figuring of information investigation proportions for key numeric fields. Like money related proportions that give signs of the monetary soundness of an organization, information investigation proportions report on the extortion wellbeing by distinguishing conceivable side effects of fraud.

According to the perspectives by Albrecht, et. Al (2009) three generally utilized proportions are:
1. The proportion of the most noteworthy quality to the least esteem (max/min).
2. The proportion of the most astounding quality to the second most noteworthy worth (max/max2), and.
3. Also, the proportion of the present year to the earlier year.
Utilizing proportion investigation, a money related master concentrates on connections between indicated expenses and some measure of creation, for example, units sold, dollars of offers or direct work hours. For instance, to touch base at overhead expenses per direct work hour – Total overhead expenses may isolate by aggregate direct work hours. Proportion investigation may help forensic accountants to gauge costs.

Explain Prevention with Techniques of Forensic Accounting, Cryptocurrency Bitcoin finance #Pixabay.

Advantages of Forensic Accounting [3]:

After Prevention and Techniques, The following three advantages of Forensic Accounting below are;
1. It helps to solve financial crimes: As mentioned above, forensic accounting can greatly help in solving financial crimes. These can involve bribery within government offices as well as fraud and money laundering within business organizations. Forensic accounting not only helps with gathering evidence for crimes but can also use in detecting and identifying crimes.
2. It helps monitor professionals: Forensic accounting can use to assess the work of professionals, including accountants themselves. The findings from this assessment, in turn, can use to file professional negligence claims against those who have been proving to have made critical errors (whether intentionally or not).
3. Also, it helps businesses with their finances: Businesses can use forensic accounting to detect anomalies among their staff and with third parties they’re working with. For instance, a company can ask a forensic accountant to check an employee’s purchasing records to see if all of his purchases were for business use or if he diverted some for his personal use.
Disadvantages of Forensic Accounting [3]:

The following three disadvantages of Forensic Accounting below are;
1. It takes a lot of time: Forensic accounting is never easy. It requires accountants to go through every piece of document to ensure that their investigation is complete and that they’ll uncover every evidence that will solve the case. This can take many days and can even stretch to many weeks or months, depending on the magnitude of the case; the size of the organization involved, and the number of documents to review.
2. They can be expensive: Because of the lengthy period need, forensic accounting can turn out to be expensive. This isn’t a problem for huge corporations that have more than enough funds; but, it can be an issue for smaller businesses that have limited budgets.
3. Also, it can be distracting: Forensic accounting can cause a distraction among employees, particularly when outside accountants are brought in. The process can disrupt the staff’s normal routine and cause their productivity and efficiency to suffer.
Reference:
1. https://www.sbrn.org/kb-article/what-is-forensic-accounting
2. https://shodhganga.inflibnet.ac.in/bitstream/10603/148390/10/10_chapter%201.pdf
3. https://connectusfund.org/7-advantages-and-disadvantages-of-forensic-accounting
October 21, 2019
Forensic Accounting: Definition, Concept, Need, and Practice

What is Forensic Accounting? The application of accounting skills to provide quantitative financial information about matters before the courts. This article explains to Forensic Accounting definition along with their practice and also need to know about by concept. The series of accounting scandals in the early years of the 21st century led to profound changes and transition in the accounting profession, laws, and regulations. Among these developments was the emergence of forensic accounting.

Forensic Accounting: Definition, Concept, Need, Practice, Role, and significance.

Forensic accounting frequently uses on construction claims, financial contract disputes, environmental claims, government contract claims, and fraud investigations, among others. Professionals involved in this field are often engaged in examination and evaluation of financial evidence; the advancement and improvement of computer applications; that will aid and support the forensic accountants in analyzing and presenting financial evidence; providing services and support in legal proceedings. Also, Forensic accounting is the study of financial fraud and misconduct.

The Association of Certified Fraud Examiners described financial accounting as;

“A set of skills used in potential or actual civil or criminal cases, including generally accepted accounting and auditing ones; determining loss of profits, revenues, property, or damage; and assessment of internal controls, fraud, and everything else that leads to the applying of accounting knowledge to the legal system.”

As well as, Forensic accounting is an integration of auditing, accounting, and investigative skills, and presents an accounting evaluation; that is appropriate and acceptable to the court; which will then establish the basis for discourse, debate, and the settlement of arguments.

Definition of Forensic Accounting:

The definition of forensic accounting is changing in response to the growing needs of corporations.

Bologna and Lindquist had defined forensic accounting as;

“The application of financial skills, and an investigative mentality to unresolved issues, conducted within the context of rules of evidence. As an emerging discipline, it encompasses financial expertise, fraud knowledge, and a sound knowledge and understanding of business reality and the working of the legal system.”

According to AICPA as;

“Forensic accounting is the application of accounting principles, theories, and discipline to facts or hypotheses at issues in a legal dispute and encompasses every branch of accounting knowledge.”

Forensic accounting defines by Zia as,

“The science that deals with the relation and application of finance, accounting, tax, and auditing knowledge to analyze, investigate, inquire, test and examine matters in civil law, criminal law, and jurisprudence in an attempt to obtain the truth from which to render an expert opinion.”

Concept of Forensic Accounting:

After definition, the principle point of forensic accounting [Are from, for a support article] is not just to see how extortion was submitted, however, to report it with the most astounding conceivable precision. As indicated by Gomide, a great Forensic accounting consolidates accounting examination furthermore requires great accounting and investigative aptitudes.

In the talk, EFG refers to that;

“It falls under general data or certain points, or subjects as it can sort general articulations that individuals make to portray the subject, as investigative accounting or even Forensic auditing”.

Forensic accounting can characterize as help with a question in regards to assertions or suspicion of extortion; which are liable to include case, master assurance, and inquiry by a fitting power, and examinations of suspected misrepresentation, abnormality or indecency which could prompt common, criminal or disciplinary procedures.

The emphasis is basically on accounting issues; however, the part of the forensic bookkeeper may stretch out to more broad examination which incorporates proof social affairs. It is a result of the way that by definition, forensic assignments are identified with a legal or semi-legal debate determination; that the Forensic specialist requires a fundamental comprehension of the material statutory and customary law, the law of confirmation and the law of methodology.

The most skilfully led examination will be of no quality to the customer ought to the confirmation accumulated rule to forbid or the master accounting witness find to miss the mark in appreciation of the necessities of ability, believability, or autonomy.

Why need to know about Forensic accounting? or Need for Forensic accounting.

Forensic accounting identifies with the use of accounting ideas and systems to lawful issues. Measurable accountants for the most part research and archive money related extortion and cushy wrongdoings. The result of the measurable examination, including appraisals of misfortunes, harms, and resources would utilize as prosecution backing to lawyers and law requirement staff.

They offer imperative help for legitimate cases in numerous regions of the law; for example, securities exchange controls, value altering plans, item risk, shareholder debate, and breaks of agreement. Forensic accounting, forensic auditing or financial forensics is the forte practice range of accounting that depicts engagements; that outcome from genuine or expected debate or suit.

First Things:

“Forensic” signifies “appropriate for use in a courtroom”, and it is to that standard and a potential result that legal accountants, for the most part, need to work. These accountants, additionally alluded to as Forensic examiners or investigative evaluators, frequently need to give master proof at the inevitable trial. Crumbley, D. Larry; Heitger, Lester E.; Smith, G. Stevenson (2005) All of the bigger accounting firms, and also numerous medium-sized and boutique firms, and different Police and Government organizations have pro Forensic accounting divisions.

Inside these gatherings, there might be further sub-specializations: some forensic accountants may, for instance, simply represent considerable authority in protection claims, individual harm claims, extortion, development. Cicchella, Denise (2005). Alternately sovereignty reviews. Parr, Russell L.; Smith, Gordon V. (2010).

Second Things:

“While Forensic Accountants (“FAs”) typically don’t give assessments, the work performed and reports issued will frequently give answers to the how, where, what, why and who. The FAs have and are keeping on advancing as far as using innovation to help with engagements to distinguish oddities and irregularities. Remember that it is not the Forensic Accountants that decide misrepresentation, but rather the court.” Bhasin Madan(2007).

Also, Forensic accountants have been depicting as experience evaluators, accountants, and specialists of legitimate and money related reports that are employed to investigate conceivable suspicions of false movement inside an organization; or are procured by an organization that may simply need to keep deceitful exercises from happening. They likewise give administrations in zones, for example, accounting, antitrust, harms, investigation, valuation, and general counseling.

Third Things:

Forensic accountants have likewise been utilized as a part of separations, protection claims, individual damage claims, fake cases, development, sovereignty reviews, and following psychological warfare by exploring monetary records. Numerous forensic accountants work intimately with law requirement faculty and legal counselors amid examinations and frequently show up as master observers amid trials.

It is an amalgam of forensic science and accounting. Even though the instituting of the term Forensic Accounting says to go back to 1946, the practice is moderately new in Nigeria. Hopewood, A.G.(2009). The requirement for a forensic accountant has been attributed to the way that the review framework in an association has neglect to recognize certain mistakes in the administrative framework.

Forth Things:

Forensic Accounting is examination accounting which includes breaking down, testing, asking and looking at the common and criminal matters lastly giving an impartial and genuine report. Pretty much as forensic examinations and lab reports are requires in the court to understand the homicide and dacoit puzzles; correspondingly forensic accounting assumes a key part in following the financial fraud and clerical wrongdoings.

Be that as it may, forensic accounting covers an extensive variety of operations of which misrepresentation examination is a little part where it is generally predominant. There are two noteworthy angles inside legal accounting hone; prosecution benefits that perceive the part of a Chartered Accountant as a specialist or expert and investigative administrations that make utilization of the Chartered Accountant’s abilities, which could prompt court declaration.

The practice of Forensic Accounting:

Arnoff, Norman B., and Sue C. Jacobs. (2001) had clarified the administrations rendered by the forensic accountants are in incredible interest in the accompanying territories;

Fraud detection where employees commit Fraud:

Where the employee enjoys fake exercises; Where the representatives are gotten to have submitted misrepresentation the forensic accountant tries to find any benefits made by them out of the assets defalcated; then take a stab at questioning them and attempting to discover the concealed truth.

Criminal Investigation:

Matters identifying with money related ramifications the administrations of the forensic accountants are benefited of. The report of the accountants considers getting ready and present as proof.

Outgoing Partner’s settlement:

If the active accomplice is not upbeat about his settlement he can utilize a forensic accountant; who will accurately evaluate his contribution (resources) and also his liabilities effectively.

Cases relating to professional negligence:

Proficient carelessness cases are taken up by the forensic accountants. Non-adaptation to Generally Accepted Accounting Principles (GAAP) or rebelliousness to examining hones or moral codes of any calls; they are expected to gauge the misfortune because of such expert carelessness or deficiency in administrations.

Arbitration service:

Forensic accountants render assertion and intercession administrations for the business group since they experience extraordinary preparing in the region of option question determination.

Facilitating settlement regarding the motor vehicle accident:

As the forensic accountant is very much familiar with the complexities of laws identifying with engine vehicles; and, other applicable laws in power, his administrations get to be vital in measuring monetary misfortune when a vehicle meets with a mishap.

Settlement of insurance claims:

Insurance agencies connect with forensic accountants to have a precise evaluation of cases to settle. Also, policyholders look for the assistance of a legal accountant; when they have to challenge the case settlement as worked out by the insurance agencies. A legal accountant handles the cases identifying with significant misfortune arrangement, property misfortune; because of different dangers, devotion protection and different sorts of protection cases.

Dispute settlement:

Business firms connect with legal accountants to handle contract debate, development claims, item risk cases, and encroachment of patent and trademarks cases; obligation emerging from the break of agreements et cetera.

Matrimonial dispute cases:

Forensic accountants engage cases relating to matrimonial disputes wherein their part simply restricts to following, finding and assessing any type of advantage included.

Aside from learning of accounting, law, and criminology, a forensic accountant likewise should acquaint with corporate financial management and administration. He additionally needs PC aptitudes, great correspondence and meeting abilities.

Forensic Accounting: Definition, Concept, Need, and Practice. Coin Money Business #Pixabay.

Role and significances of Forensic Accounting and fraud examiner [Are from, for a support article]:

Forensic accounting is a legal term. It is in its simplest form application of accounting techniques and concepts in issues concerning legal matters. The requirement comes due to the high rate of white-collar crimes like embezzlement, fraudulent financials, and various other financial wrongdoings.

As well as, Forensic Accountant calls upon to investigate various financial frauds by the employees, clients, Customers either independently; or in collusion one another and misappropriating the assets of the company.

Forensic Accountants also help the Government in the enforcement of regulatory requirements. Many bank fraud is common with the collusion of the borrower and bank staff etc.; where the expertise of the Forensic Accountant comes in unfolding the fraud and helping the corporates nail the fraudsters.

Also, Forensic Accountants help needs in price fixations, stock market manipulations and at times even manipulation of the financial figures by the managements to window dress; the balance sheet and profit and loss account figures to hide real facts from the stakeholders and general public; for the funds misused or misappropriated by the top management.

October 21, 2019
How to the Classification of Cost according to 4 functions?
Classification of Cost according to 4 functions: This is a traditional classification. A business has to perform several functions like manufacturing, administration, selling, distribution, and research.

This article explains the topic of the Classification of Cost according to 4 functions.

Cost may have to ascertain for each of these functions.

On this basis, costs are classifying into the following groups:

How to the Classification of Cost according to 4 functions?

Manufacturing costs:

This is the cost of the sequence of operations. Which begins with supplying materials, labor, and services and ends with the completion of production. What are the manufacturing costs? Manufacturing costs are the costs of materials plus the costs to convert the materials into products. Manufacturing costs are the costs incur during the production of a product.

The costs are typically present in the income statement as separate line items. An entity incurs these costs during the production process. Direct material is the materials uses in the construction of a product. Direct labor is that portion of the labor cost of the production process that assigns to a unit of production. Manufacturing overhead costs are applying to units of production based on a variety of possible allocation systems. Such as by direct labor hours or machine hours incurred.

Administration costs:

This is general administrative cost and includes all expenditure incurs in formulating the policy, directing the organization and controlling the operations of an undertaking. Which is not directly related to production, selling and distribution, research and development activity or function.

Define administrative costs as the costs not directly related to operations. Generally, they are incurring in the process of directing a company. These costs, though indirect, are still important because they assist those who operate and sell company products by making their work more efficient.

Selling and distribution costs:

Selling cost is the cost of seeking to create and simulating demand and securing orders. Distribution cost is the cost of a sequence of operations. This begins with making the packed product available for despatch and ends with making the reconditioned returned empty package for re-use. There are some overhead about them;
- What is Selling Overhead? Selling overhead is the indirect expenses incur for seeking to create and stimulate demand for the product and up to the stage of securing orders.
- What is Distribution Overhead? Distribution overhead is the expenses incurred in connection with the execution of an order. It begins with making the packed product available for dispatch and ends with making the reconditioned empty package, if any, available for re-use.
The various items included in manufacturing administrative, selling and distribution costs ate available in Table:

Functional Classification of Costs – Table.

Research and development costs:

Research cost is the cost of searching for new or improved products or methods. It comprises wages and salaries of research staff, payments to outside research organizations, materials used in laboratories and research departments, etc. After completion of research, the management may decide to produce a new improved product or to employ a new or improved method.

Development cost is the cost of the process which begins with the implementation of the decision to produce a new product or to employ a new or improved method and ends with the commencement of formal production of that product or by that method. Pre-production cost is that part of the development cost which incurs in making in trial production run preliminary to formal production.
August 11, 2019
What is the Cost concepts in Cost accounting? Discussion
Top 17 Cost concepts in Cost accounting: They are; 1) Product and period costs, 2) Common and joint costs, 3) Short-run and long-run costs, 4) Past and future costs, 5) Controllable and non-controllable costs, 6) Replacement and Historical Costs, 7) Escapable and unavoidable costs, 8) Out of pocket and Book Costs, 9) Imputed and Sunk Costs, 10) Relevant and Irrelevant Costs, 11) Opportunity and Incremental Costs, 12) Conversion cost, 13) Committed cost, 14) Shutdown and Abandonment costs, 15) Urgent and Postponable costs, 16) Marginal cost, and 17) Notional cost.

Here are important topic or questions is Discussion; What is the Cost concepts in Cost accounting?

A clear understanding of various cost concepts is essential for the study of cost accounting and cost systems.

Top 17 Cost concepts in Cost accounting – List

The description of these cost concepts follows now for cost accounting.

1] Product and period costs:

First Cost concepts; The product cost is the aggregate of costs that are associated with a unit of product. Such Costs may or may not include an element of overheads depending upon the type of costing system in force-absorption or direct. Product costs are related to goods produce or purchase for resale and are initially identifying as part of the inventory.

These products or inventory costs become expenses in the form of the cost of goods sold only when the inventory sales. Product cost associated with the unit of output. The costs of inputs informing the product viz., the direct material, direct labor, factory overhead constitute the product costs. The period cost is a cost that tends to be unaffecting by changes in the level of activity during a given period. What is the importance of Cost accounting?

The period cost associative with a period rather than manufacturing activity and these costs deduct as expenses during. The current period without have been previously classifying as product costs. Selling and distribution costs are period costs and are deducting from the revenue without their existence regard as part of the inventory cost.

2] Common and joint costs:

The common cost is an indirect cost that incurs for the general benefit of several departments or for the whole enterprise and which is necessary for present and future operations. The joint costs are the cost of either a single process or a series of processes. That simultaneously produce two or more products of significant relative sales value.

3] Short-run and long-run costs:

The short-run costs are costs that vary with the output when fixed plant and capital equipment remain the same and become relevant. When a firm has to decide whether or not to produce more in the immediate future. The long-run-costs are those which vary with the output when all input factors including plant and equipment vary and become relevant. When the firm has to decide whether to set up a new plant or to expand the existing one.

4] Past and future costs:

The past costs are actual costs incur in the past and are generally containing in the financial accounts. These costs report past events and the time lag between event and its reporting makes the information out of date and irrelevant for decision-making.

These costs will just act as a guide for the future course of action. The future costs are costs expecting to incur at a later date and are the only costs that matter for managerial decisions because they are subject to management control.

Future costs are relevant for managerial decision making in cost control, profit projections, appraisal of capital expenditure, the introduction of new products, expansion programs, and pricing, etc.

5] Controllable and non-controllable costs:

The concept of responsibility accounting leads directly to the classification of costs as controllable or uncontrollable. The controllable cost is a cost chargeable to a budget or cost center. Which can influence the actions of the person in whom control the center vests? It is always not possible to predetermine responsibility, because the reason for deviation from expected performance may only become evident later.

For example, excessive scrap may arise from inadequate supervision or latent defect in purchased material. The controllable cost is a cost that can influence and regulate during a given period by the actions of a particular individual within an organization. The controllability of cost depends upon the level of responsibility under consideration.

Direct costs are generally controllable by shop level management. The uncontrollable cost is a cost that is beyond the control of a given individual during a given period. The distinction between controllable and uncontrollable costs are not very sharp and may be left to individual judgment. Some expenditure which may uncontrollably on a short-term basis controllably on a long-term basis,

There are certain costs which are difficult to control due to the following reasons.
- Physical hazards arising due to flood, fire, strike, lockout, etc.
- Economic risks such as increased competition, change in fashion or model, higher prices of inputs, import restrictions, etc.
- Political risks like change in Government policy, political unrest, war, etc.
- Technological risk such as a change in design, know-how, etc.
6] Replacement and Historical Costs:

The Replacement costs and Historical costs are two methods for carrying assets in the balance sheet and establishing the amounts of costs that use to determine income.
- The Replacement cost is a cost at which material identical to that is to replace could purchase at the date of valuation (as distinct, from actual cost price at the date of purchase). The replacement cost is the cost of replacing an asset at any allow point of time either present or the future (excluding any element attributable to improvement).
- The Historical cost is the actual cost, determined after the event. Historical cost valuation states the costs of plant and materials, for example, at the price originally paid for them whereas replacement cost valuation states the costs at prices that would have to pay currently.
Costs reported by conventional financial accounts are based on historical valuations. But during periods of changing price level, historical costs may not be the correct basis for projecting future costs. Naturally historical costs must adjust to reflect current or future price levels.

7] Escapable and unavoidable costs:

The Escapable cost is an avoidable cost that will not incur if an activity does not undertakes or discontinue. The avoidable cost will often correspond-with variable costs. The avoidable cost can identify with an activity or sector of a business and which would avoid if that activity or sector did not exist. The escapable costs refer to costs that can reduce due to the contraction in the activities of a business enterprise. It is the net effect on costs that is important, not just the costs directly avoidable by the contraction. Examples:
- Closing an unprofitable branch house-storage costs of other branches and transportation charges would increase.
- Reducing credit sales costs estimated may be less than the benefits otherwise available.
Note: Escapable costs are different from controllable and discretionary costs.

8] Out of pocket and Book Costs:

The out of pocket cost is a cost that will necessitate a corresponding outflow of cash. Also, the costs involving cash outlay or payment to other parties term as out of pocket costs. Book costs are those which do not require current cash payments.

Depreciation is a notional cost in which no cash transaction involves. The distinction between out of pocket costs and book costs primarily shows how costs affect the cash position.

Out of pocket costs are relevant in some decision-making problems. Such as the fluctuation of prices during the recession, make or buy decisions, etc. Book-costs can convert into out of pocket costs by selling the assets and having the item on hire. Rent would then replace depreciation and interest.

9] Imputed and Sunk Costs:

The imputed cost is a cost that does not involve actual cash outlay. Which uses only for decision making and performance evaluation. Imputed cost is a hypothetical cost from financial accounting. Interest on capital is a common type of imputed cost. No actual payment of interest makes but the basic concept is that had the funds been investing elsewhere they would have to earn interest. Thus, imputed costs are a type of opportunity costs.

The Sunk costs are those costs that have been investing in a project and which will not recover if the project terminates. The sunk cost is one for which the expenditure has to take place in the past. This cost does not affect a particular decision under consideration. Sunk costs are always results of decisions accept in the past.

This, the cost cannot change by any decision in the future. Investment in plant and machinery as soon as it installs its cost is sunk cost and is not relevant for decisions. Amortization of past expenses e.g. depreciation is sunk cost. Sunk, costs will remain the same irrespective of the alternative selected.

Thus, it need not consider by the management in evaluating the alternatives as it is common to all of them. It is important to observe that an unavoidable cost may not be a sunk cost. The Managing Director’s salary is generally unavoidable and also out of pocket but not sunk cost.

10] Relevant and Irrelevant Costs:

The relevant cost is a cost appropriate in aiding to make specific management decisions. Business decisions involve planning for the future and consideration of several alternative courses of action. In this process, the costs which are affecting by the decisions are future costs. Such costs call relevant costs because they are pertinent to the decisions in hand. The cost is saying to be relevant if it helps the manager in taking. The right decision in furtherance of the company’s objectives.

11] Opportunity and Incremental Costs:

The opportunity cost is the value of a benefit sacrifice in favor of an alternative course of action. It is the maximum amount that could obtain at any given point of time. If a resource was selling or put to the most valuable alternative use that would be practicable.
- The opportunity cost of a good or service measure in terms of revenue. Which could have been earning by employing that good or service in some other alternative uses. Opportunity cost can define as the revenue forgone by not making the best alternative use. Opportunity cost is the prospective change in cost following the adoption of an alternative machine process, raw materials, etc. It is the cost of opportunity lost by the diversion of an input factor from use to another.
- The incremental cost is the extra cost of taking one course of action rather than another. It also calls at different costs. The incremental cost is the additional cost due to a change in the level of nature of the business activity.
The change may take several forms e.g., changing the channel of distribution, adding a new machine, replacing a machine by a better machine, execution of export orders, etc. Incremental costs will be different in case of different alternatives. Hence, incremental costs are relevant to the management in the analysis of decision making.

12] Conversion cost:

The conversion cost is the cost incur for converting the raw material into the finished product. It refers to as the production cost excluding the cost of direct materials:

13] Committed cost:

The committed cost is a cost that primarily associates with maintaining the organization’s legal and physical existence over which management has little discretion. Also, the committed cost a fixed cost that results from the froth decision of the prior period.

The amount of committed cost as fixed by decisions. Which makes in the past and not subject to managerial control in the short-run? Since committed cost does not fluctuate with volume and remains unchanged until action takes to increase or reduce available capacity.

Committed cost does not present any problem in cost behavior analysis. Examples of committed costs are depreciation, insurance premium, rent, etc. This is an important Cost concept in accounting.

14] Shutdown and Abandonment costs:

The shutdown costs are the cost incur about the temporary closing of a department/division/enterprise. Such costs include those of closing as well as those of re-opening. Also, the shutdown costs asses as those costs which would incur in the event of suspension of the plant operation. And, which would save if the operations are continuing. Examples of such costs are the costs of sheltering the plant and equipment and construction of sheds for storing exposed property.

Further, additional expenses may have to incur when operations are restoring e.g.. Re-employment of workers may involve the cost of recruitment and training. The Abandonment cost is the cost incur in closing down. Also, A department or a division or in withdrawing a product or ceasing to operate in a particular sales territory etc.. The abandonment costs are the cost of retiring altogether a plant from service; Abandonment arises when there is a complete cessation of activities and creates a problem as to the disposal of assets.

15] Urgent and Postponable costs:

The urgent costs are those which must incur to continue operations of the firm. For example, the cost of material and labor must incur if production is to take place. The Postponable cost is that cost which can shift to the future with little or no effect on the efficiency of current operations. These costs can postpone at least for some time, e.g., maintenance relating to building and machinery.

16] Marginal cost:

The marginal cost is the variable cost of one unit of a product or a service i.e., a cost that would avoid. If the unit did not produce or provide. In this context, a unit in usually either a single article or a standard measure such as a liter or kilogram. But may in certain circumstances be an operation, process or part of an organization.

They are the amount at any allow volume of output by which aggregate costs are changing. If the volume of output increases or decreases by one unit. It uses full Cost concepts in accounting.

The marginal costing technique is the process of ascertaining marginal costs and of the effects of changes in the volume of the type of output on profit by differentiating between fixed and variable costs.

17] Notional cost:

Final Cost concepts; The Constitutional or notional cost is hypothetical to take into account in a particular situation to re-present. As well as, the benefits enjoying by an entity in respect of which no actual expense incurs. Maybe you understand your misinformation of the cost concepts in cost accounting.

What is the Cost concepts in Cost accounting? Discussion.
August 11, 2019
Techniques and methods of costing in Cost accounting

The techniques and methods of costing in Cost accounting are to explain their points one by one. First, Techniques of Costing: Historical Absorption, Marginal, Budget and Budgetary Control, Differential, and Standard Costing. As well as Methods of Costing: There are two methods of costing, namely; Job costing and Process costing.

What are the techniques and methods of costing in Cost accounting? Discussion.

In addition to the different costing methods, various techniques are also using to find the costs.

Techniques of Costing:

The following are the main types or techniques of costing for ascertaining costs:

The techniques of costing in Cost accounting

1] Historical Absorption Costing:

It’s the ascertainment of costs after they have been incurring. It defines as the practice of charging all costs, both variable and fixed, to operations, process or products. It also knows as traditional costing. Its ascertainment of costs after they have been incurring. It aims at ascertaining costs incurred on work done in the past.

It has a limited utility, though comparisons of costs over different periods may yield good results. Since costs are ascertaining after they have been incurring, it does not help in exercising control over costs. However, It is useful in submitting tenders, preparing job estimates, etc.

2] Marginal Costing:

It refers to the ascertainment of costs by differentiating between fixed costs and variable costs. In this technique, fixed costs are not treated as product costs. They are recovering from the contribution (the difference between sales and variable cost of sales).

The marginal or variable cost of sales includes direct material, direct wages, direct expenses, and variable overhead. It is the ascertainment of marginal cost by differentiating between fixed and variable costs.

It uses to ascertain the effect of changes in volume or type of output on profit. This technique helps management in taking important policy decisions such as product pricing in times of competition, whether to make or not, selection of product mix, etc.

3] Budget and Budgetary Control Costing:

A budget is a quantitative statement preparing before the defined period to help achieve certain objectives of the firm. When we talk about the techniques of costing, budgetary control is an important technique. This budget can be in the form of quantities or can be a monetary statement. A budget will lay down the objectives of this period, and the firm’s methods to achieve them.

For example, a production budget will deal with quantities of goods to produce. On the other hand, a marketing budget will be a monetary statement. Another important feature of a budget is that it prepares ahead of time. So the budget can be for the next quarter or the next year or any such predetermined period.

Budgetary control is the preparation of budgets and analysis of the actual performance of the firm in comparison to the budgeted numbers. If there is a lot of variation from the budget the firm can take corrective action. This is how budgetary control works.

4] Differential Costing:

Differential cost is the difference in total cost between alternatives-evaluate to assist decision making. This technique draws the curtain between variable costs and fixed costs. It takes into consideration fixed costs also (unlike marginal costing) for decision making under certain circumstances.

This technique considers all the revenue and cost differences amongst the alternative courses, of action to assist management in arriving at an appropriate decision.

5] Standard Costing:

It refers to the ascertainment and use of standard costs and the measurement and analysis of variances. Standard cost is a predetermining cost that computes in advance of production based on a specification of all factors affecting costs. A comparison makes of the actual cost with a pre-arranged standard cost and the cost of any deviation (called variances) analyzes by causes.

This permits management to investigate the reasons for these variances and to take suitable corrective action. The standards are fixed for each element of cost. To find out variances, the standard costs are comparing with actual costs. The variances are investigating later on and wherever necessary, rectification steps are initiating promptly. The technique helps in measuring the efficiency of operations from time to time.

Methods of Costing:

In this article, we are studying the topic techniques and methods of costing. After discussing the topic of Costing Techniques, so now we can study the topic of Costing Methods. The basic principles of ascertaining costs are the same in every system of cost accounting. However, the methods of analyzing and presenting the cost may vary from industry to industry. The method to use in collecting and presenting costs will depend upon the nature of production.

The methods of costing in Cost accounting

There are two methods of costing, namely: Job costing and Process costing.

A] Job costing:

Job costing uses where production is not repetitive and is done against orders. The work usually carries out within the factory. Each job treats as a distinct unit, and related costs are recording separately. This type of costing is suitable for printers, machine tool manufacturers, job foundries, furniture manufactures, etc.

The following methods are commonly associated with job costing:

1] Batch costing:

Where the cost of a group of product ascertains, it calls “batch costing”. In this case, a batch of similar products treats as a job. Costs are collecting according to batch order number and the total cost divide by the numbers in a batch to find the unit cost of each product. Batch costing generally follows in general engineering factories that produce components in convenient batches, biscuit factories, bakeries, and pharmaceutical industries.

2] Contract costing:

A contract is a big job and, hence, takes a longer time to complete. For each contract, the account keeps recording related expenses separately. It usually follows by concerns involve in construction work e.g. building roads, bridges, and buildings, etc.

B] Process Costing:

Where an article has to undergo distinct processes before completion, it is often desirable to find out the cost of that article at each process. A separate account for each process opens and all expenses are charging thereon. The cost of the product at each stage is, thus, accounted for.

The output of one process becomes the input to the next process. Hence, the process cost per unit in different processes adds to find out the total cost per unit at the end. Process costing is often found in such industries as chemicals, oil, textiles, plastics, paints, rubber, food processors, flour, glass, cement, mining, and meatpacking.

The following methods are used in process costing:

1] Output/Unit Costing:

This method follows by concerns producing a single article or a few articles which are identical and capable of being expressed in simple, quantitative units. This uses in industries like mines, quarries, oil drilling, cement works, breweries, brickworks, etc. for example, a tone of coal in collieries, one thousand bricks in brickworks, etc.

The object here is to find out the cost per unit of output and the cost of each item of such cost. A cost sheet prepares for a definite period. The cost per unit calculates by dividing the total expenditure incurred during a given period by the number of units produced during the same period.

2] Operating Costing:

This method is applicable where services are rendering rather than goods produce. The procedure is the same as in the case of unit costing. The total expenses of the operation are divide by the units and cost per unit of service arrives at. This follows in transport undertakings, municipalities, hospitals, hotels, etc.

3] Multiple Costing:

Some products are so complex that no single system of costing is applicable. Where a concern manufactures several components to assemble into a complete article, no one method would be suitable, as each component differs from the other in respect of materials and the manufacturing process.

In such cases, it is necessary to find out the cost of each component and also the final product by combining the various methods discussed above. This type of costing follows to cost such products as radios, airplanes, cycles, watches, machine tools, refrigerators, electric motors, etc.

4] Operating Costing:

In this method, each operation at each stage of production or process is separately identifying and cost. Also, the procedure is somewhat similar to the one followed in process costing. Process costing involves the costing of large areas of activity whereas operation costing confines to every minute operation of each process.

This method follows in industries with a continuous flow of work, producing articles of a standard nature, and which pass through several distinct operations sins a sequence to completion. Since this method provides for minute analysis of cost, it ensures greater accuracy and better control of costs.

The costs of each operation per unit and cost per unit up to each stage of operation can calculate quite easily. This method is in force in industries were toys, leather, and engineering goods are manufacturing.

5] Departmental Costing:

When costs are ascertaining department by department, such a method calls “departmental costing“. Where the factory divides into several departments, this method follows. The total cost of each department ascertains and divides by the total units produced in that department to obtain the cost per unit. This method follows departmental stores, publishing houses, etc.

August 10, 2019
What is the importance of Cost accounting? Discussion

Importance of Cost accounting: Cost accounting is the accounting of the cost. It is made of two words-Cost and Accounting. This article explains the 7 important, the importance of Cost accounting: Management, Employees, Creditors, Investors, Consumers, Government, and National economy. The term cost denotes the total of all expenditures involved in the process of production. The shortcomings inherent in financial accounting have made the management to realize the importance of cost accounting. Whatever may be the type of business, it involves the expenditure on labor, materials and other items required for manufacturing and disposing of the product.

Here are answering the questions of What is the importance of Cost accounting?

Thus, it covers the costs involved in the production and the cost involved while receiving it. Moreover, big busyness requires delegation responsibility, division of labor and specialization. Management has to avoid the possibility of waste at each stage. Also, management has to ensure that no machine remains idle, efficient labor gets due initiative, proper utilization of by-products is made and costs are properly ascertaining.

Besides management, creditors and employees are also benefiting in numerous ways by the installation of a good costing system in an industrial organization. Cost accounting increases the overall productivity of an industrial establishment and, therefore, serves as an important tool in bringing prosperity to the nation.

Accounting, on the other hand, collects and maintains financial records of each income and expenditure and make avail of such information to the concerned officials. Thus, cost accounting is a practice and process of cost which determines the profitability of a business concern by controlling the cost with the application of accounting principle, process, and rules. Cost accounting includes the presentation of the information derived therefrom for purposes of managerial decision making.

Thus, cost accounting is an art as well as science. It is a science because it is a body of systematic knowledge having certain principles. It is an art as it requires the ability and skill with which a cost accountant can apply the principles of cost accounting in various managerial problems.

Definition:

The following definitions below are:

According to W.W.Bigg,

“Cost accounting is the provision of such analysis and classification of expenditure as will enable the total cost of any particular unit of production to be ascertained with a reasonable degree of accuracy and at the same time to disclose exactly how much total cost is constituted.”

According to R.N. Carter,

“Cost accounting is a system of recording in accounts the materials used and labor employed in the manufacture of a certain commodity or on a particular job.”

Top 7 importance of Cost accounting:

Thus, the importance of cost accounting in various spheres can summarize under the following headings:

Top 7 importance of Cost accounting.

1] Cost Accounting and Management:

Cost accounting provides an invaluable aid to management. It is so closely allied to management that it is difficult to indicate where the work of the cost accountant ends and managerial control begins. Adequate costing data help management in reaching certain important decisions such as, whether hand labor should replace by the machinery or not; whether a particular product line should discontinue or not etc. Costing checks recklessness and avoids the occurrence of mistakes.

Costs can reduce by the proper organization of the plant and executive personnel. As an aid to management, it also provides important information to enable management, to maintain effective control over stores and inventory, to increase the efficiency of the business, and to check waste and losses. It facilitates the delegation of responsibility for important tasks and ratings of employees. However, for all this, the management must be capable of using properly the information provided by the cost accounts.

The various advantages derived by managements on account of a good costing system can put as follows:

A] Useful in periods of depression and competition:

During trade depression, the business cannot afford to have leakages which pass unchecked. The management should know where economies may seek, waste eliminated and efficiency increased. The business has to wage a war for its survival. As well as, the management should know the actual cost of their products before embarking on any scheme of reducing the prices or giving tenders. The costing system facilitates this.

B] Helps in, pricing decisions:

Though economic law of supply and demand and activities of the competitors, to a great extent, determine the price of the article, the cost to the producer does play an important part. Also, the producer can take necessary guidance from his costing records.

C] Helps in estimates:

Adequate costing records provide a reliable basis upon which tenders and estimates may prepare. The chances of losing a contract on account of over-rating or the loss in the execution of a contract due to under-rating can minimize. Thus, ascertained costs provide a measure for estimates, a guide to policy, and control over current production.

D] Cost Accounting helps in channelizing production on the right lines:

Costing makes possible for the management to distinguish between profitable and non-profitable activities. Profits can maximize by concentrating or profitable operations and eliminating non-profitable ones.

E] Helps in reducing wastage:

As it is possible to know the cost of the article at every stage, it becomes possible to check various forms of waste, such as time, expense, etc., or in the use of machinery, equipment, and tools.

F] Costing makes comparison possible:

If the costing records are regularly kept, comparative cost data for different periods and various volumes of production will be available. It will help the management in informing future lines of action.

G] Provides data for periodical profit and loss accounts:

Adequate costing records supply to the management such data as may be necessary for the preparation of profit and loss account and balance sheet, at such intervals as may desire by the management. It also explains in detail the sources of profit or loss revealed by the financial accounts, thus helps in the presentation of better information before the management.

H] Costing results in increased efficiency:

Losses due to wastage of materials, idle time of workers, poor supervision, etc. will disclose if the various operations involved in manufacturing a product are studied by a cost accountant. Also, the efficiency can measure and costs controlled and through it, various devices can frame to increase efficiency.

I] Costing helps in inventory control and cost reduction:

Costing furnishes control which management requires in respect of stock of materials work-in-progress and finished goods. Costs can reduce in the long-run when alternates are tried. This is particularly important in the present-day context of global competition. Cost accounting has assumed special significance beyond, cost control this way.

J] Helps in increasing productivity:

The productivity of material and labor is requiring to increase to have growth and more profitability in the organization. Costing renders great assistance in measuring productivity and suggest ways to improve it.

What is the importance of Cost accounting? Discussion

2] Cost Accounting and Employees:

Employees have a vital interest in their employer’s enterprise and the industry, in which they are employed. They are benefiting in many ways by the installation of an efficient costing system in their enterprise. Cost accounting helps to fix the wages of the workers. Efficient workers are rewarding for their efficiency. It helps to induce an incentive wage plan in business. Also, they are benefiting because of systems of incentives, bonus plans, etc. They get benefit indirectly through an increase in consumer goods and directly through continuous employment and higher remuneration.

3] Cost accounting and creditors:

Investors, banks and other moneylenders have a stake in the success of the business concern and, therefore, are benefit immediately by the installation of an efficient costing system. They can base their judgment on the profitability and further prospects of the enterprise upon the studies and reports submitted by the cost accountants.

4] Cost accounting and investors:

Investors can obtain benefit fro the cost accounting. Investors want to know the financial conditions and earning capacity of the business. Also, they must gather information about the organization before making investment decisions and investors can gather such information from cost accounting.

5] Cost accounting and consumers:

The ultimate aim of costing is to reduce the cost of production to minimize the profit of the business. Reduction in the cost usually passes on the consumers in the form of lower prices. They get quality goods at a lower price.

6] Cost accounting and Government:

Cost accounting is one of the prime sources to provide reliable data to internal as well as external parties. It helps government agencies to determine excise duty and income tax. As well as, they formulate tax policy, industrial policy, export and import policy based on the information provided by the cost accounting.

7] Cost accounting and national economy:

An efficient costing system brings prosperity to the concerned business enterprise resulting in stepping up of the government revenue. Also, the overall economic development of a country takes place due to an increase in the efficiency of production. Control of costs, elimination of wastages and inefficiencies lead to the progress of the industry and in consequence of the nation as a whole.

August 9, 2019
What is Accounting concepts? their 9 Concepts explanation
Accounting concepts; Accounting is the language of business. Business firms communicate their affairs and financial positions to the outsiders through the medium of accounting, which is the language of business in the form of financial statements. To make the language convey the same meaning to all interested parties, accountants have agreed on a number of concepts which they try to follow. 9 Accounting concepts; Separate Business Entity, Dual Aspect, Cost, Money Measurement, Going Concern, Accounting Period, Matching, Accrual, and Realization. Also, helpfull, What are the utility and types of Accounting?

Here are explaining What is Accounting concepts? their 9 Concepts explanation.

Accounting concepts can describe as something which signifies a general notion regarding accounting principle. The assumptions, so made, are most natural and are not forced ones. A concept is a self-evident proposition, i.e., something taken for granted. There is no authoritative list of these concepts.

9 Accounting Concepts – lists

The more important accounting concepts are briefly describing as follows:
1. Separate Business Entity.
2. Dual Aspect.
3. Cost.
4. Money Measurement.
5. Going Concern.
6. Accounting Period.
7. Matching.
8. Accrual, and.
9. Realization.
Now, explain each one;

Separate Business Entity:

First Accounting concepts, Separate Business Entity; In accounting, we make a distinction between business and the owner. All the books of accounts record day to day financial transactions from the viewpoint of the business rather than from that of the owner. The proprietor is considered as a creditor to the extent of the capital brought in business by him.

For instance, when a person invests dollar 10000 into a business, it will treat that the business has borrowed that much money from the owner and it will show as a “liability” in the books of accounts of the business.

Similarly, if the owner of a shop were to take cash from the cash box for meeting certain personal expenditure, the accounts would show that cash had been reducing even though it does not make any difference to the owner himself. Thus, in recording a transaction the important question is how does it affect the business?

For example;

If the owner puts cash into the business, he has a claim against the business for capital brought in. In so far, as a limited company is concerned, this distinction can easily maintain because a company has a legal entity like a natural person it can engage itself in economic activities of buying, selling, producing, lending, borrowing and consuming of goods and services. However, it is difficult to show this distinction in the case of sole proprietorship and partnership.

Nevertheless, accounting still maintains the separation of business and owner. It may note that it is only for accounting purpose that partnerships and sole proprietorship are treated as separate from the owners, though the law does not make such distinction. In fact, the business entity concept is applied to make it possible for the owners to assess the performance of their business and performance of those who manage the enterprise. The managers are responsible for the proper use of funds supplied by owners, banks, and others.

Dual Aspect:

Second Accounting concepts, Dual Aspect; Financial accounting records all the transactions and events involving financial element. Each of such transactions requires two aspects to record. The recognition of these two aspects of every transaction knows as a dual aspect analysis. According to this concept, every business transactions has a dual effect.

For example;

If a firm sells goods of dollar 5,000 this transaction involves two aspects. One aspect is the delivery of goods and the other aspect is immediate receipt of cash (in the case of cash sales). In fact, the term “double-entry” bookkeeping has come into vogue and in this system, the total amount debited always equals the total amount credited. It follows from “dual aspect concept” that at any point of time owners equity and liabilities for any accounting entity will equal to assets own by that entity.

This idea is fundamental to accounting and could express the following qualities:

Assets = Liabilities + Owners Equity …(1)
Owners Equity = Assets – Liabilities …(2)

The above relationship is known as the “Accounting Equation”. The term “Owners Equity” denotes the resources supplied by the owners of the entity while the term “liabilities” denotes the claim of outside parties such as creditors, debenture-holders, bank against the assets of the business. Assets are the resources owned by a business. The total of assets will be equal to the total of liabilities plus owners capital because all assets of the business are claiming by either owners or outsiders.

Cost:

The third Accounting concepts, Cost; The term “assets” denotes the resources land building, machinery, etc. owned by a business. The money values that are assigning to assets are deriving from the cost concept. According to this concept, an asset ordinarily enters on the accounting records at the price paid to acquire it.

For example;

If a business buys a plant for dollar 50000 the asset would record in the books at dollar 50000, even if it’s the market value at that time happens to be dollar 60000. Thus, assets are recording at their original purchase price and this cost is the basis for all subsequent accounting for the business. The assets shown in the financial statements do not necessarily indicate their present market values.

The term “book value” uses for the amount shown in the accounting records. The cost concept does not mean that all assets remain on the accounting records at their original cost for all times to come. The asset may systematically reduce its value by charging “depreciation”. Which will discuss in detail in a subsequent lesson? Depreciation has the effect of reducing the profit of each period.

The prime purpose of depreciation is to allocate the cost of an asset over its useful life and not to adjust its cost. However, a balance sheet based on this concept can be very misleading as it shows assets at a cost even when there is a wide difference between their costs and market values. Despite this limitation, you will find that the cost concept meets all the three basic norms of relevance, objectivity, and feasibility.

Money Measurement:

Fourth Accounting concepts, Money Measurement; In accounting, only those business transactions are recording which can express in terms of money. In other words, a fact or transaction or happening which cannot express in terms of money is no record in the accounting books. As money accepts not only as a medium of exchange but also as a store of value. It has a very important advantage since a number of assets and equities.

Which are otherwise different, can measure and express in terms of a common denominator. We must realize that this concept imposes two severe limitations. Firstly, there are several facts which though very important to the business, cannot record in the books of accounts because they cannot express in money terms.

For example;

General health condition of the Managing Director of the company, working conditions in which a worker has to work, sales policy pursued by the enterprise, quality of product introducing by the enterprise, though exert a great influence on the productivity and profitability of the enterprise, are not recorded in the books.

Similarly, the fact that a strike is about to begin because employees are dissatisfying with the poor working conditions in the factory will not record even though this event is of great concern to the business. You will agree that all these have a bearing on the future profitability of the company. Secondly, the use of money implies that we assume a stable or constant value of the rupee. Taking this assumption means that the changes in the money value in future dates are conveniently ignored.

Question example;

A piece of land purchased in 1990 for dollar 20000 and another bought for the same amount in 1998 are recording at the same price, although the first purchased in 1990 may be worth two times higher than the value recorded in the books because of the rise in land prices. In fact, most accountants know fully well that purchasing power of rupee does change but very few recognize this fact in accounting books and make allowance for changing price level.

Going Concern:

The fifth Accounting concepts, Going Concern; Accounting assumes that the business entity will continue to operate for a long time in the future unless there is good evidence to the contrary. The enterprise views as a going concern, that is, as continuing in operations, at least in the foreseeable future.

In other words, there is neither the intention nor the necessity to liquidate the particular business venture in the predictable future. Because of this assumption, the accountant while valuing the assets does not take into account the forced sale value of them. In fact, the assumption that the business does not expect to liquidate in the foreseeable future establishes the basis for many of the valuations and allocations in accounting.

For example;

The accountant charges depreciation on fixed assets. It is this assumption which underlies the decision of investors to commit capital to the enterprise. Only on the basis of this assumption accounting process can remain stable and achieve. The objective of correctly reporting and recording on the capital invested. The efficiency of management, and the position of the enterprise as a going concern.

However, if the accountant has good reasons to believe that. The business or some part of it is going to liquidate or that it will cease to operate (say within six-month or a year). Then the resources could report at their current values. If this concept not follows, the International Accounting Standard requires. The disclosure of the fact in the financial statements together with reasons.

What is Accounting concepts? their 9 Concepts explanation.

Accounting Period:

Sixth Accounting concepts, Accounting Period; this concept requires that the life of the business should divide into appropriate segments for studying. The financial results show by the enterprise after each segment. Although the results of operations of a specific enterprise can know precisely only after the business has ceased to operate. Its assets have been selling off and liabilities paid off, the knowledge of the results periodically is also necessary.

Those who are interesting in the operating results of business obviously cannot wait till the end. The requirements of these parties force the businessman “to stop” and “see back” how things are going on. Thus, the accountant must report for the changes in the wealth of a firm for short time periods. A year is the most common interval on account of prevailing practice, tradition and government requirements.

Some firms adopt the financial year of the government, some other calendar year. Although a twelve-month period adopts for external reporting, a shorter span of the interval, say one month or three months applies for internal reporting purposes. This concept poses difficulty for the process of allocation of long term costs.

All the revenues and all the cost relating to the year in operation have to take into account while matching the earnings and the cost of those earnings for any accounting period. This holds good irrespective of whether or not they have been receiving in cash or paid in cash. Despite the difficulties which stem from this concept, short term reports are of vital importance to owners, management, creditors and other interested parties. Hence, the accountants have no option but to resolve such difficulties.

Matching:

The seventh Accounting concepts, Matching; This concept bases on the accounting period concept. In reality, we match revenues and expenses during the accounting periods. Matching is the entire process of periodic earnings measurement, often described as a process of matching expenses with revenues.

In other words, income made by the enterprise during a period can measure only. When the revenue earns during a period compares with the expenditure incurred for earning that revenue. Broadly speaking revenue is the total amount realized from. The sale of goods or provision of services together with earnings from interest, dividend, and other items of income.

Expenses are a cost incurred in connection with the earnings of revenues. Costs incur do not become expenses until the goods or services in question are exchanging. Cost is not synonymous with the expense since the expense is a sacrifice made. Resource consume in relation to revenues earns during an accounting period. Only costs that have expired during an accounting period are considering as expenses.

For example;

If a commission is paid on January 2002, for services enjoyed in November 2001, that commission should take as the cost for services rendered in November 2001. On account of this concept, adjustments are made for all prepaid expenses, outstanding expenses, accrued income, etc, while preparing periodic reports.

Accrual:

Eighth Accounting concepts, Accrual; It generally accepts in accounting that the basis of reporting income is accrual. Accrual concept makes a distinction between the receipt of cash and the right to receive it and the payment of cash and the legal obligation to pay it. This concept provides a guideline to the accountant as to how he should treat the cash receipts and the right related thereto.

Accrual principle tries to evaluate every transaction in terms of its impact on the owner’s equity. The essence of the accrual concept is that net income arises from events that change the owner’s equity in a specified period. And, that these are not necessarily the same as the change in the cash position of the business. Thus it helps in proper measurement of income.

Realization:

Final Accounting concepts, Realization is technically understood as the process of converting non-cash resources and rights into money. As the accounting principle, it uses to identify precisely the amount of revenue to recognize and the amount of expense to match to such revenue for the purpose of income measurement.

According to realization, concept revenue recognizes when a sale makes. The sale is considering to make at the point. When the property in goods passes to the buyer and he becomes legally liable to pay. This implies that revenue generally realizes when goods are delivering or services are rendering. The rationale is that delivery validates a claim against the customer.

However, in the case of long-run construction contracts revenue often recognizes on the basis of a proportionate or partial completion method. Similarly, in the case of long-run installment sales contracts. Revenue regards as realize only in proportion to the actual cash collection. In fact, both these cases are exceptions to the notion. That exchange needs to justify the realization of revenue.
August 1, 2019
Utility of Accounting: Types, Explain with Understand
Types and utility of Accounting; This article in we discuss first the utility of accounting after that we will finally discuss the types of accounting. So, What is the utility of Accounting? There are three types and utility of accounting: financial, management, and also cost accounting. The preceding section only brought the importance of information to the fore. Effective decisions require accurate, reliable, and timely information. The quantity and quality requirement of information differs with the importance of that decision which should take based on that information.

Here are explains; The utility and types of Accounting, discussion each one.

Individuals can use accounting information to manage and manage their bank accounts, to evaluate job eligibility in the organization, to invest money, rent a house, and manage their routine matters. Business managers have to set goals, evaluate progress, and start corrective action in case of adverse deviations from planned courses of action.

Many such decisions require accounting information – purchasing equipment, maintenance of inventory, borrowing, and lending, etc. Investors and creditors are willing to evaluate the profitability and solvency of a company before giving benefits to the company. Therefore, they are interested in obtaining financial information about the company in which they are considering an investment.

Financial statements;

Financial statements are the main source of information for them, which are published in a company’s annual report and various financial dailies and journals. Government and regulatory agencies have the responsibility to direct a country’s Socio-economic system in such a way that it promotes the common good. For example, the Securities and Exchange Board of India (SEBI) makes it mandatory to disclose some financial information to the public investment for a company.

The government’s task of managing the industrial economy becomes simpler if accounting information such as profit, cost, tax, etc. is presented uniformly without any manipulation or “window-dressing”. Central and state governments make various taxes Therefore, taxation officials must know the company’s income to calculate the amount of the company tax.

The information generated by accounting helps them in such calculations and also helps in finding any attempt to tax evasion. Employees and trade unions use accounting information to resolve various issues related to wages, bonuses, profit sharing, etc. Consumers and the general public are also interest in knowing the amount of income earned by various business houses.

Accounting information helps in determining whether a company is overcharging or exploiting customers, whether companies are showing better business performance or not, whether the country is emerging from the economic recession, etc. The aspects are closely related to accounting information and our quality of life.

What are the types of Accounting?

The financial literature classifies accounting into two broad categories, viz, Financial Accounting, and Management Accounting. Financial accounting is primarily concerned with the preparation of financial statements whereas management accounting covers areas such as interpretation of financial statements, cost accounting, etc.

Types of Accounting – List

Both these utility and types of accounting are examining in below;

Financial accounting:

As mentioned earlier, financial accounting deals with the preparation of financial statements for the basic purpose of providing information to various interested groups like creditors, banks, shareholders, financial institutions, government, consumers, etc. Financial statements, i.e. the income statement and the balance sheet indicate. How the activities of the business have been conducting during a given period of time.

Financial accounting is charge with the primary responsibility for external reporting. The users of the information generated by financial accounting, like bankers, financial institutions, regulatory authorities, government, investors, etc. want the accounting information to be consistent to facilitate comparison.

Therefore, financial accounting is based on certain concepts and conventions. Which include a separate business entity, going concern concept, money measurement concept, cost concept, dual aspect concept, accounting period concept, matching concept, realization concept, and conventions of conservatism, disclosure, consistency, etc. All such concepts and conventions would deal with detail in subsequent lessons.

Importance of financial accounting;

The significance of financial accounting lies in the fact that it aids the management in directing and controlling the activities of the firm and to frame relevant managerial policies related to areas like production, sales, financing, etc.

However, it suffers from certain drawbacks which are discussing below;
- The information provided by financial accounting is consolidating in nature. It does not indicate a break-up for different departments, processes, products, and jobs. As such, it becomes difficult to evaluate the performance of different sub-units of the organization.
- Financial accounting does not help in knowing the cost behavior as it does not distinguish between fixed and variable costs.
- The information providing by financial accounting is historical in nature and as such the predictability of such information is limited.
The management of a company has to solve certain ticklish questions like the expansion of business, making or buying a component, adding or deleting a product line, deciding on alternative methods of production, etc. The financial accounting information is of little help in answering these questions.

The limitations of financial accounting;

However, should not lead one to believe that it is of no use. It is the basic foundation on which other branches and tools of accounting analysis are based. It is the source of information, which can further analyze and interpreted according to the tailor-made requirements of decision-makers.

Management accounting:

Management accounting is ‘tailor-made’ accounting. It facilitates management by providing accounting information in such a way. So, that it is conducive for policy-making and running the day-to-day operations of the business. Its basic purpose is to communicate the facts according to the specific needs of decision-makers by presenting. The information in a systematic and meaningful manner.

Management accounting, therefore, specifically helps in planning and control. It helps in setting standards and in case of variances between planning and actual performances. It helps in deciding the corrective action. An important characteristic of management accounting is that it is forward-looking. Its basic focus is one future activity to perform and not what has already happened in the past.

Since management accounting caters to the specific decision needs, it does not rest upon any well-defined and set principles. The reports generated by a management accountant can be of any duration– short or long, depending on the purpose. Further, the reports can prepare for the organization as a whole as well as its segments.

Cost accounting:

One important variant of management accounting is the cost analysis. Cost accounting makes elaborate cost records regarding various products, operations, and functions. It is the process of determining and accumulating the cost of a particular product or activity. Any product, function, job, or process for which costs are determining and accumulate, are calls cost centers. The basic purpose of cost accounting is to provide a detailed break- up of the cost of different departments, processes, jobs, products, sales territories, etc. So, that effective cost control can exercise.

Cost accounting also helps in making revenue decisions such as those related to pricing, product-mix, profit-volume decisions, expansion of business, replacement decisions, etc. The objectives of cost accounting, therefore, can summarize in the form of three important statements, viz, to determine costs. To facilitate planning and control of business activities and to supply information for short- and long-term decisions. Cost accounting has certain distinct advantages over financial accounting. Some of them have been discussing succeedingly.

Cost accounting system;

The cost accounting system provides data about profitable and non-profitable products and activities, thus prompting corrective measures. It is easier to segregate and analyze individual cost items and to minimize losses and wastages arising from the manufacturing process. Production methods can vary to minimize costs and increase profits. Cost accounting helps in making realistic pricing decisions in times of low demand, competitive conditions, technology changes, etc.

Various alternative courses of action can properly evaluate with the help of data generate by cost accounting. It would not be an exaggeration if it is saying that a cost accounting system ensures maximum utilization of physical and human resources. It checks frauds and manipulations and directs the employer and employees towards achieving the organizational goal.

What are the utility and types of Accounting? Discussion
July 31, 2019