Tag: Definition

Definition!

What is a Definition? It is a statement of the meaning of a term (a word, phrase, or other set of symbols). As well as, Descriptions can classify into two large categories, intentional purposes (which try to give the essence of a term) and extensional purposes (which proceed by listing the objects that a term describes).

Another important category of definitions is the class of ostensive illustrations, which convey the meaning of a term by pointing out examples. Also, A term may have many different senses and multiple meanings and thus require multiple reports.

  • A statement of the meaning of a word or word group or a sign or symbol dictionary definitions. The statement expresses the essential nature of something, a product of defining.
  • The action or process of stating the meaning of a word or word group.
  • Difference between Cost and Financial Accounting

    Difference between Cost and Financial Accounting

    Cost Accounting and Financial Accounting Difference: Cost Accounting refers to that branch of accounting that deals with costs incurred in the production of units of an organization. A common question asked around, What is the Difference between Cost Accounting and Financial Accounting? On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization, to exhibit the exact position of the business. Also, take look at the difference between Cost and Management Accounting.

    Learn, Explain the Difference between Cost and Financial Accounting!

    Cost accounting generates information to keep a check on operations, to maximize profit and efficiency of the concern. On the other hand, Financial accounting ascertains the financial results, for the accounting period and the position of the assets and liabilities on the last day of the period. There is no comparison between these two because they are equally important for the users. This article presents you with the difference between cost accounting and financial accounting in tabular form.

    Definition of Cost Accounting:

    Cost Accounting is the field of accounting that uses to record, summarise, and report the cost information on a periodical basis. Its primary function is to ascertain and control costs. It helps the users of cost data to make decisions regarding the determination of selling price, controlling costs, projecting plans and actions, efficiency measurement of the labor, etc. also, Cost Accounting adds to the effectiveness of financial accounting by providing relevant information which ultimately results in the good decision-making process of the organization. It traces the cost incurred at each level of production, i.e. right from the input of the material till the output produced, every cost records.

    There are two types of Cost Accounting systems, they are:

    • Non – Integrated Accounting System: The accounting system in which a separate set of books is maintaining for cost information.
    • Integrated Accounting System: The accounting system in which cost and financial data are maintaining in a single set of books.

    Definition of Financial Accounting:

    Financial Accounting is the branch of accounting, which keeps the complete record of all monetary transactions of the entity and reports them at the end of the financial period in proper formats that increases the readability of the financial statements among its users. Also, The users of financial information are many i.e. from internal management to outside parties. Preparation of financial statements is the major objective of financial accounting in a specified manner for a particular accounting period of an entity.

    It includes an Income Statement, Balance Sheet, and Cash Flow Statement which helps in, tracing out the performance, profitability, and financial status of an organization during a period. Also, the information provided by financial accounting is useful in making comparisons between different organizations and analyzing the results thereof, on various parameters. In addition to this, the performance and profitability of various financial periods can also be compared easily.

    Comparison of Cost and Financial Accounting:

    Basis For Comparison Cost Accounting Financial Accounting
    Meaning: Cost Accounting is an accounting system, through which an organization keeps the track of various costs incurred in the business in production activities. Financial Accounting is an accounting system that captures the records of financial information about the business to show the correct financial position of the company on a particular date.
    Information type: Also, Records the information related to material, labor, and overhead, which are used in the production process. Records the information which are in monetary terms.
    Which type of cost is used for recording? Both historical and pre-determined cost Only historical cost.
    Users: Information provided by the cost accounting uses only by the internal management of the organization like employees, directors, managers, supervisors, etc. Also, Users of the information provided by financial accounting are internal and external parties like creditors, shareholders, customers, etc.
    Valuation of Stock: At cost Cost or Net Realizable Value, whichever is less.
    Mandatory: No, except for manufacturing firms it is mandatory. Yes for all firms.
    Time of Reporting: Details provided by cost accounting are frequently prepared and reported to the management. Financial statements are reported at the end of the accounting period, which is normally 1 year.
    Profit Analysis: Generally, the profit is analyzed for a particular product, job, batch, or process. Income, expenditure, and profit are analyzed together for a particular period of the whole entity.
    Purpose: Reducing and controlling costs. Also, Keeping a complete record of the financial transactions.
    Forecasting: The forecasting is possible through budgeting techniques. The forecasting is not at all possible.

    The upcoming discussion will update you on the difference between cost and financial accounting.

    The Difference in Cost Accounting:

    The following difference below are;

    • Cost Accounting explains the prin­ciples, techniques, and methods for ascertaining the cost and to find out the variance in comparison with the standard and enquire reasons for such variation.
    • The objective of cost accounting is to ascertain the cost and allocates the same in respective places.
    • It applies to the manufacturing and service industries.
    • Also, Cost accounting supplies necessary information’s to the management for decision-making purposes.
    • Stocks are valued as per cost price in cost accounting.
    • Cost accounting determines the profit or loss of each item of product, process, etc.
    • There is no particular period for ascertaining the cost of a product.
    • Also, Cost accounting is based on the concept of costing principles.
    • They include data based on facts and figures and also on some estimates.
    • Also, Cost accounting considers the requirements of Sec. 209(1) of the Companies Act.
    • Cost accounting control, material labor and overhead costs with the help of Standard costing, Budgetary control, etc.
    • Usually, cost accounting provides services to internal management.
    The Difference in Financial Accounting:

    The following difference below are;

    • Financial accounting maintains records for keeping accounts rela­ting to all monetary transactions.
    • The objective of financial accoun­ting is to maintain records and to prepare final accounts.
    • It is applicable in all cases.
    • Also, Financial accounting supplies information’s to the management relating to profit or loss and financial positions.
    • In financial accounting, stocks are valued as per cost price or market price whichever is lower.
    • Financial accounting shows the profit or loss of a firm as a whole at a particular date.
    • In Financial Accounting, accounts are prepared periodically, usually at the end of the period.
    • Also, Financial accounting bases on the concept of GAAP.
    • Financial accounting takes data based on facts and figures only.
    • They meet the requirements of the Companies Act 1956, Sales Tax, Income-Tax, etc.
    • Financial accounting does not have any tool to control the financial tran­saction of the business.
    • Also, Financial accounting provides information to the internal as well as external users of accounting information.

    The Main point of Differences Between Cost and Financial Accounting:

    Difference between Cost and Financial Accounting
    Difference between Cost and Financial Accounting

    The following are the major differences between cost accounting and financial accounting:

    • Cost Accounting aims at maintaining the cost records of an organization. Also, Financial Accounting aims at maintaining all the financial data of an organization.
    • Cost Accounting Records both verifiable and pre-decided costs. On the other hand, Financial Accounting records just chronicled costs.
    • Also, Clients of Cost Accounting are restricted to interior administration of the element; though clients of Financial Accounting are inside just as outside gatherings.
    • In cost, accounting stock qualities at cost while in financial accounting, the stock qualities at the lower of the two for example cost or net feasible worth.
    • Cost Accounting is obligatory just for the association which participates in assembling and creative exercises. Then again, Financial Accounting is obligatory for all associations, just as consistent with the arrangements of the Companies Act and Income Tax Act, is additionally an unquestionable requirement.
    • Also, cost Accounting data reports intermittently at continuous spans; yet financial accounting data reports after the fruition of the financial year for example for the most part one year.
    • Cost Accounting data decide benefit identified with a specific item, work, or cycle. Instead of Financial Accounting, which decides the benefit for the entire association made during a specific period.
    • Also, the motivation behind Cost Accounting is to control costs; yet the reason for financial accounting is to keep total records of the financial data, in light of which detailing should be possible toward the finish of the accounting time frame.
  • Difference between Cost and Management Accounting

    Difference between Cost and Management Accounting

    Cost and Management Accounting Difference; Cost accounting is a branch of accounting that aims at generating information to control operations to maximize profits and the efficiency of the company, that is why it is also termed control accounting. A common question asked around, What is the difference between the Cost Accounting and Management Accounting? Conversely, management accounting is the type of accounting that assists management in planning and decision-making and is thus known as decision accounting. Also learned, Financial and Management Accounting.

    Learn, Explain the Difference between Cost and Management Accounting.

    The two accounting system plays a significant role, as the users are the internal management of the organization. While cost has a quantitative approach, i.e. it records data that is related to money, management emphasizes both quantitative and qualitative data. Now, let’s understand the difference between cost accounting and management accounting, with the help of the given article.

    Definition of Cost Accounting:

    They are a method of collecting, recording, classifying, and analyzing the information related to cost. Also, the information provided by it is helpful in the decision-making process of managers. There are three major elements of cost which are material, labor, and overhead. The main aim of cost accounting is to track the cost of production and fixed costs of the company. Also, this information is useful in reducing and controlling various costs. It is very similar to financial accounting, but it is not reported at the end of the financial year.

    Definition of Management Accounting:

    Management Accounting refers to the preparation of financial and non-financial information for the use of management of the company. It is also termed managerial accounting. Also, the information provided by it helps make policies and strategies, budget, forecasting plans, making comparisons, and evaluating the performance of the management. The reports produced by management accounting are used by the internal management of the organization, and so they are not reported at the end of the financial year.

    Comparison of Cost and Management Accounting:

    The Basis of Comparison Cost Accounting Management Accounting
    Meaning The recording, classifying, and summarizing of cost data of an organization is known as cost accounting. Also, the accounting in which both financial and non-financial information is provided to managers knows as Management Accounting.
    Information Type Quantitative. Quantitative and Qualitative.
    Objective Ascertainment of cost of production. Providing information to managers to set goals and forecast strategies.
    Scope Concerned with ascertainment, allocation, distribution, and accounting aspects of cost. Impart and effect aspect of costs.
    Specific Procedure Yes No
    Recording Records past and present data It gives more stress on the analysis of future projections.
    Planning Short-range planning Short-range and long-range planning
    Interdependency Can install without management accounting. Cannot install without cost accounting.

    The upcoming discussion will help you to differentiate between cost and management accounting.

    The main difference between Cost and Management Accounting:

    The following difference below are;

    Objective:

    The primary objective of Cost Accounting is to ascertain the cost of production as well as to control the same after careful analysis. On the other hand, the primary objective of Management Accounting is to supply the accounting information to the management for taking the proper decision.

    Method:

    In Cost, accounts are prepared according to predetermined standards and budgets. But in Management reports are submitted to the management after measuring the variance between the actual performances and the budgets. As a result, past errors and defects may rectify and, thereby, efficiency improves.

    Accounting System:

    The Double Entry System can apply in Cost Account, if necessary, whereas this is not adopting in the case of Management Account.

    Accounting Period:

    Normally, in Cost, statements of the current year’s activities are to prepare, i.e., importance is not according to future activities while, in Management, primarily future activities are considering.

    Management Accounting relates to the whole affair of the concern, the capacity for making profits or losses, and the expectation for the future. To discharge its duties properly, it has to depend on both Financial Accounting and Cost Accounting. Therefore, Management Accounting may regard as the expansion of these two forms of accounting, viz., Financial Account, and Cost Account.

    The main points of the difference between Cost and Management Accounting:

    • The accounting related to the recording and analyzing of cost data is cost account. Also, the accounting related to producing information which uses by the management of the company is management account.
    • Also, Cost provides quantitative information only. On the contrary, Management provides both quantitative and qualitative information.
    • Cost is a part of Management as the information uses by the managers for making decisions.
    • The primary objective of Cost Accounting is the ascertainment of the cost of producing a product but the main objective of management accounting is to provide information to managers for setting goals and future activity.
    • There are specific rules and procedure for preparing cost accounting information while there is no specific rules and procedures in case of management accounting information.
    • The scope of Cost Account limits to cost data however the Management Account has a wider area of operation like the tax, budgeting, planning and forecasting, analysis, etc.
    • Cost related to the ascertainment, allocation, distribution, and accounts face of cost. On the flip side, management associates with the impact and effect aspect of cost.
    • They stress short-range planning, but management accounting focuses on long and short-range planning, for which it uses high-level techniques such as probability structure, sensitivity analysis, etc.
    • While management accounting can’t install in the absence of cost accounting; Also, cost accounting has no such requirement, it can install without management accounting.
    Difference between Cost and Management Accounting
    Difference between Cost and Management Accounting.
  • Creative Accounting: Methods, Techniques, and Prevention

    Creative Accounting: Methods, Techniques, and Prevention

    Definitions of Creative Accounting: The term ‘creative accounting’ can define in several ways. Initially, we will offer this definition; “A process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business”. The concept of Creative Accounting study: Methods of Creative Accounting, Techniques of Creative Accounting, and Prevention of Creative Accounting! Also learned, Definition, Motivation, and Ethical Considerations.

    Learn, Explain Creative Accounting: Methods, Techniques, and Prevention!

    They characterize by excessive complications and the use of novel ways of characterizing income, assets, or liabilities. This results in financial reports that are not at all dull; but have all the complications of a novel by James Joyce, hence the appellation “creative”. Sometimes the words “innovative” or “aggressive” use.

    Creative accounting, which generally involves the preparation of financial statements with the intention of misleading readers of those statements, is prima facie a form of lying. Creative accounting is a euphemism referring to accounting practices that may follow the letter of the rules of standard accounting practices but deviate from the spirit of those rules.

    It examines and rejects the arguments for considering creative accounting, despite its deceptive intent, as not being a form of lying. It then examines the ethical issues raised by creative accounting, in the light of the literature on the ethics of lying.

    This literature includes the evaluation of various excuses and justifications for lying and this examines here about creative accounting. It concludes that even in circumstances in which creative accounting would arguably serve a worthy purpose; that purpose would be at least as well served by honest communication.

    Concept:

    Creative accounting also called aggressive accounting, is the manipulation of financial numbers; usually within the letter of the law and accounting standards; but very much against their spirit and certainly not providing the “true and fair” view of a company that accounts suppose to:

    • A typical aim of creative accounting will be to inflate profit figures. Some companies may also reduce reported profits in good years to smooth results. Assets and liabilities may also manipulate, either to remain within limits such as debt covenant or to hide problems.
    • Typical creative accounting tricks include off-balance-sheet financing, over-optimistic revenue recognition, and the use of exaggerated non-recurring items.
    • Window Dressing has a similar meaning when applied to accounts; but is a broader term that can apply to other areas. In the US it is often used to describe the manipulation of investment portfolio performance numbers. In the context of accounts, “window dressing” is more likely than “creative accounting” to imply illegal or fraudulent practices, but it needs to do so.
    • The techniques of creative accounting change over time. As accounting standards change, the techniques that will work change. Many changes in accounting standards are meant to block particular ways of manipulating accounts; which means that intent on creative accounting needs to find new ways of doing things. At the same time, other, well-intentioned, changes in accounting standards open up new opportunities for creative accounting, and in the use of fair value is a good example of this.
    • Many creative accounting techniques change the main numbers shown in the financial statements but make themselves evident elsewhere, most often in the notes to the accounts. The market has been surprised before by bad news hidden in the notes, so a diligent approach can give you an edge.

    Methods of Creative Accounting:

    The following methods below are;

    1] First Methods:

    Although not technically wrong, many annual and quarterly reports and presentations dive heavily into theoretical scenarios where one-time “charges” to earnings are excluded. What this means is, for example, a lawsuit settlement amount would take out of the reported profit in one big chunk, even if its payout little by little over time.

    This practice call reserves. Often, when explaining the quarterly results, a CEO might say; “Well if we didn’t take this charge for the lawsuit, we would have made this much money”. Very often, the hypothetical situations proposed to get even more complicated. The main “creative” aspect to this is when a “one time” “exceptional” charge is very common to the business.

    2] Second Methods:

    Banks can lend out most of the money they receive in the deposit. The banks can also lend money they borrow from other banks. However, to protect against bad loans, banks must keep aside a stash of money called a “reserve”. The bank, within general guidelines, gets to set the size of this reserve to what it feels prudent compare to how risky its outstanding loans are. However, when the bank wants to make it look like it made more money this quarter than last; one way to do that is to make money from the reserve and call it is profit with the excuse that the loans are safer now than before and that amount was no longer needed.

    3] Third Methods:

    One of the main genres of “creative accounting” know as slush fund accounting; whereby some earnings from this quarter hideaway just in case the profit from next quarter is not enough for the management to make their bonuses. This happened most famously at Freddie Mac. As of 2004, there is a large investigation underway to see if retroactive insurance policies from insurers such as General Re of Berkshire Hathaway were used for slush fund accounting. The question is if these insurance policies truly transferred some risk or were merely a slush fund.

    Techniques of Creative Accounting:

    Creative accounting actively applies in six areas. The first area is regulatory flexibility, whereby changes in accounting policy permit by accounting regulation. For example, IAS permit carrying non-current assets can recover at either revalued amount or depreciated historical cost in asset valuation. Secondly, the dearth of regulation by which some accounting treatment might not be fully regulated as there are few mandatory requirements. The third area is management has a large extent of estimation in discretionary areas, such as assumption in bad debts provision. Fourthly, some transactions can time to show the desired appearance in accounts.

    For example, the manager is free to choose the timing to sell the investment just to increase earning in the accounts. Fifthly, to manipulate balance sheet amounts by using artificial transactions. Last but not least, by reclassification and presentation of financial amounts through balance sheet manipulation to smooth financial ratios; and, also based on the cognitive reference point in financial numbers’ presentation.

    Creative Accounting Methods Techniques and Prevention
    Creative Accounting: Methods, Techniques, and Prevention! #Pixabay.

    Prevention of Creative Accounting:

    Those companies most at risk for fraudulent financial reporting tend to be those that have one or more of the following attributes: weak internal control; no audit committee; a family relationship among directors and/or officers; assets and revenue less than $ 100 million; and/or a board of directors dominated by individuals with significant equity ownership; and, little experience serving as directors of other companies.

    To prevent creative accounting, the experts opine that accountants and managers should divide the duties of an internal control checklist. Furthermore, an independent audit committee should always have someone with a strong accounting background; and, audit experience who deals directly with outside auditors. The investors should diversify their investment portfolio to circumvent the problems related to creative accounting by a few unscrupulous companies.

    The company has to adhere strictly to the ethical values it has set itself in the long-run and the short-run of the life of the company. The accounting and accounting practices have to be consistent; and, show to the investors that it is following the ethical practices in all its financial dealing as well as reporting.

    How Enron Played the Game of Creative Accounting:

    According to Mulford, the expert in the field, the most common creative accounting practices include improper revenue recognition and misreporting expenses. However, Enron’s game, explains Mulford, involved special-purpose entities.

    “Enron conducted much of its business in these entities that they controlled. They transacted with themselves. That kind of self-dealing allowed them to report profits when they weren’t traditionally making a profit.”

    Though Mulford wrote the book before and published shortly after Enron’s dealings became public, the authors included a special note in the preface regarding the company’s accounting practices, noting that Enron’s “investors and creditors had not fully discounted the risk associated with the firm’s trading activities, its off-balance sheet liabilities, and its related-party transactions.” The authors add they believe careful attention to steps outlined in The Financial Numbers Game “would have provided an early alert to the possibility of developing problems.”

  • Creative Accounting: Definition, Motivation, and Ethical Considerations

    Creative Accounting: Definition, Motivation, and Ethical Considerations

    Creative accounting is a euphemism referring to accounting practices that may follow the letter of the rules of standard accounting practices but deviate from the spirit of those rules. The Concept of Creative Accounting: Definition of Creative Accounting, Motivation for Creative Accounting, the existence of Creative Accounting, and Ethical Perspective of Creative Accounting! They are characterized by excessive complication and the use of novel ways of characterizing income, assets, or liabilities and the intent to influence readers towards the interpretations desire by the authors.

    Learn, Explain Creative Accounting: Definition, Motivation, and Ethical Considerations!

    The terms “innovative” or “aggressive” are also sometimes used. Other synonyms include Cooking the books and Enronomics. Creative accounting is a euphemism referring to accounting practices that may follow the letter of the rules of standard accounting practices but deviate from the spirit of those rules – by Wikipedia.

    Definition of Creative Accounting:

    Creative accounts an accounting practice that falls outside the regulation and gives benefits to certain people. It can describe as a practice with a clear aim to interrupt the financial reporting process which affects reported income to make it looked normal; and, provides no true economic advantages to relevant parties like shareholders. Concisely, it is the transformation of financial accounting figures from what they are to what users desire by taking advantage of the accounting policies which permit by the accounting standard.

    Creative accounts a practice that potentially undertakes as a result of some individual care more on their interest and indirectly causes issues to arise in the ethical dimension of creative accounting. From the information perspective, agency theory gives a clear picture of the creative accounting scenario. Whereby managers misuse their privileged position in manipulating financial reporting in their interest which providing superior information content to the shareholder. Lack of personal skill or unwillingness to carry out detailed analysis making individual shareholders do not have a clear view of the effect of accounting manipulation gives a high possibility of the incidence of creative accounting.

    The motivation for Creative Accounting:

    Several motivations have to identify in stimulating the behavior of creative accounting in the organization. Firstly, the significant motivator for creative accounting is to report a decrease in business income to lower the tax paid. Second, to enable the company’s performance to appear better in the future; the company will maximize the reported loss to make a bad loss that year. This is calls ‘big bath’ accounting to smooth the income. Thirdly, to provide a positive view on expectations, securities valuation, and reduction on risk for analysts in anticipated capital market transactions; and, maintain the firm’s performance in analyst’s expectations.

    Other motivations are to manipulate profit to match the reported income to profit forecasts; and, to distract attention from negative news by boosting company profit figures through the change in accounting policies. Manager’s motivations in managing earning aim to report a stable growth in profit not only to reduce the perception of variability toward an organization’s earnings but also are about income measurement. To make the company faces less risk and gain more benefit in the aspect of raising funds; takeover bids as well as prevent the takeover by other companies.

    It is needed to maintain or promote the share price and create a good profit growth. To gain benefit from inside knowledge, the director of the company engages creative accounting to postpone the release of information to the market. Last but not least, many types of contractual rights, obligations, and constraints based on the amount reported in the accounts also motivate the company to apply creative accounts. What are the Role and Duties of the Management Accountant?

    The existence of Creative Accounting:

    Theoretically, the manager’s motivation in there is acceptable. However, certain companies apply a particular technique of creative accounting to some extent; for example, applied in the non-discretionary component of the bad debts provision. Other evidence is Classificatory smoothing by using the extraordinary items; such as pensions cost, dividends from unconsolidated subsidiaries, extraordinary charges and credits; and, research and development costs in manipulating the figure of income in financial statements.

    The behaviors can identify by having a thoughtful analysis of a financial statement or observe by the reasonably well-inform user of the financial statement. But, how clearness the users of statement observe creative accounting is questionable. Anyway, the value of the information contained in the financial statement is concerned even though financial statements give adequate information that enables users to adjust for them as certain investors rely on reported earning numbers in an income statement.

    Creative Accounting Definition Motivation and Ethical Considerations
    Creative Accounting: Definition, Motivation, and Ethical Considerations! #Pixabay.

    Ethical Perspective of Creative Accounting:

    There are some ethical issues concerning the exercise of creative accounting. Loopholes in accounting standards provide managers some spaces in the sense of manipulating the timing in income reporting. Accounting is a tool to supervise contracts between managers and financial groups, identify the possibility of accounting manipulation; and, how properly it reflected in pricing and contracting decisions. Ethics of bias in choosing accounting policy which implies in they can see through accounting regulators and management level.

    Managers tend to misapply accounting principles to give a better appearance in the financial statement to investors. Conflict of interest, client requests to alter account, and tax evasion are the most frequent ethical issues. Accountants’ attitudes toward creative accounting depend on whether it has arisen from the misuse of accounting principle and manipulation of transactions. Accountants more critical in the misuse of accounting principles as the accountant’s duty is rule-based; and, it falls within their expertise. Failure to act ethically may damage the reputation as an accountant unless he or she reports the abuse to the appropriate party. Slotting is not an acceptable accounting treatment in company practices.

    There is some action can take by accounting regulators to restrain creative accounting:
    • Decrease allowable accounting method or fixed method used in the different conditions so that the scope for choosing the accounting method can narrowly down. Companies should also be consistent in using the method chosen by them.
    • Some rules should establish to reduce the abuse of justice. For instance, International Accounting Standards presently have almost removed the “extraordinary item” from operating profit. Also, companies should be consistent in applying accounting policy to restrain the abuse of justice.
    • Implementation of “Substance over form” can decrease artificial transaction and this can make linked transactions become one as the whole.
    • To restrict the use of timing of the genuine transaction, item in the account should regularly evaluate. Also, the increases or decreases in value should state in the account each year the revaluation occurs. International Accounting Standards also tends to value items at fair value rather than historical cost.
    • Besides alteration in accounting regulations, ethical standards and governance codes must be properly executed to avoid individuals from performing creative accounts.
    How Enron Played the Game of Creative Accounting:

    According to Mulford, the expert in the field, the most common creative accounting practices include improper revenue recognition and misreporting expenses. However, Enron’s game, explains Mulford, involved special-purpose entities.

    “Enron conducted much of its business in these entities that they controlled. They transacted with themselves. That kind of self-dealing allowed them to report profits when they weren’t traditionally making a profit.”

    Though Mulford wrote the book before and published shortly after Enron’s dealings became public; the authors included a special note in the preface regarding the company’s accounting practices, noting that Enron’s; “investors and creditors had not fully discounted the risk associated with the firm’s trading activities; its off-balance sheet liabilities, and its related-party transactions”.

    The authors add they believe careful attention to steps outlined in The Financial Numbers Game; “would have provided an early alert to the possibility of developing problems”.

  • What is the Cost Accounting Information System?

    What is the Cost Accounting Information System?

    Cost Accounting Information System (CAIS) is an accounting information system that determines the costs of products manufactured or services provided and records these costs in the accounting records. Also, The concept of CAIS studying: Functions of Cost Accounting Information System, Technology of Cost Accounting Information System, and Development of Cost Accounting Information System! It is the key to management’s assessment of the company’s efforts to achieve profit. Since it is so important, the CAIS must be careful to design and properly maintains. Also learn, Financial Accounting, What is the Cost Accounting Information System?

    Learn, Explain What is the Cost Accounting Information System? Functions, Technology, and Development!

    An accounting information system (AIS) is a system of collecting, storing, and processing financial and accounting data that are used by decision-makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. Also, The resulting financial reports can uses internally by management or externally by other interested parties including investors, creditors, and tax authorities.

    Accounting information systems are designed to support all accounting functions and activities including auditing, financial accounting & reporting, managerial/ management accounting, and tax. Also, The most widely adopted accounting information systems are auditing and financial reporting modules.

    What is the Accounting Information System? Accounting Information System refers to the computer-based method used by the companies to collect, store and process the accounting and the financial data which is used by the internal users of the company to give a report regarding various information to the stakeholders of the company such as creditors, investors, tax authorities, etc.

    The cost accounting information system with its operating accounts must correspond to the organizational division of authority; so that the individual foreman, supervisor, department head, or manager can be held accountable for the costs incurred in his department. Also, The concept of authority and responsibility is closely allied with accountability; which recognizes the need for measuring a manager’s discharge of his responsibilities.

    Functions of Cost Accounting Information System:

    Generally, the purposes or functions of cost accounting information systems fall into four categories. These include providing information for:

    1. External financial statements,
    2. Planning and controlling activities or processes,
    3. Also, Short-term strategic decisions and
    4. Long-term strategic decisions.

    These four functions relate to different audiences, emphasize different types of information, require different reporting intervals, and involve different types of decisions.

    The technology of Cost Accounting Information System:

    They are below;

    Input:

    The input devices commonly associated with CAIS include standard personal computers or workstations running applications; scanning devices for standardized data entry; electronic communication devices for electronic data interchange (EDI) and e-commerce. Also, many financial systems come “Web-enabled” to allow devices to connect to the World Wide Web.

    Process:

    Basic processing achieves through computer systems ranging from individual personal computers to large-scale enterprise servers. However, conceptually, the underlying processing model is still the “double-entry” accounting system initially introduced in the fifteenth century.

    Output:

    Output devices used include computer displays, impact and non-impact printers, and electronic communication devices for EDI and e-commerce. Also, The output content may encompass almost any type of financial report from budgets and tax reports to multinational financial statements.

    Development of Cost Accounting Information System:

    The development of a Cost Accounting Information System includes five basic phases: planning, analysis, design, implementation, and support.

    The period associated with each of these phases can be as short as a few weeks or as long as several years.

    Planning, project management objectives, and techniques: 

    Also, The first phase of systems development is the planning of the project. This entails the determination of the scope and objectives of the project, the definition of project responsibilities, control requirements, project phases, project budgets, and project deliverables.

    Analysis: 

    The analysis phase is using to both determine and document the cost accounting and business processes used by the organization. Such processes are redesign to take advantage of best practices or the operating characteristics of modern system solutions.

    Design:

    The design phase takes the conceptual results of the analysis phase and develops detailed, specific designs that can implement in subsequent phases. It involves the detailed design of all inputs, processing, storage, and outputs of the proposed accounting system. Also, Inputs may be define using screen layout tools and application generators.

    Processing can show through the use of flowcharts or business process maps that define the system logic, operations, and workflow. Also, Logical data storage designs are identified by modeling the relationships among the organization’s resources, events, and agents through diagrams.

    Also, the entity-relationship diagram (ERD) modeling is using to document large-scale database relationships. Output designs are documented through the use of a variety of reporting tools such as report writers, data extraction tools, query tools, and online analytical processing tools. Also, all aspects of the design phase can perform with software toolsets provide by specific software manufacturers.

    Implementation:

    The implementation phase consists of two primary parts: construction and delivery. Also, Construction includes the selection of hardware, software, and vendors for the implementation; building and testing the network communication systems; building and testing the databases; writing and testing the new program modifications; and installing and testing the total system from a technical standpoint.

    Delivery is the process of conducting the final system and user acceptance testing; preparing the conversion plan; installing the production database; Also, training the users, and converting all operations to the new system.

    Support:

    The support phase has two objectives. The first is to update and maintain the CAIS. Also, This includes fixing problems and updating the system for business and environmental changes. For example, changes in generally accepted accounting principles (GAAP) or tax laws might necessitate changes to conversion or reference tables used for financial reporting.

    Also, The second objective of the support is to continue development by continuously improving the business through adjustments to the CAIS caused by business and environmental changes. These changes might result in future problems, new opportunities, or management or governmental directives requiring additional system modifications.

    What is the Cost Accounting Information System Image
    What is the Cost Accounting Information System? Image from Pixabay.
  • Cost Accounting: Objectives, Nature, and Scope

    Cost Accounting: Objectives, Nature, and Scope

    Cost accounting examines the cost structure of a business. It does so by collecting information about the costs incurred by a company’s activities, assigning selected costs to products and services and other cost objects, and evaluating the efficiency of cost usage. Discuss the topic, the Concept of Cost Accounting: Meaning of Cost Accounting, Definition of Cost Accounting, Objectives of Cost Accounting, Nature and Scope of Cost Accounting, and Limitations of Cost Accounting! It is mostly concern with developing an understanding of where a company earns and loses money, and providing input into decisions to generate profits in the future. Also learned, Management Accounting; Objectives, Nature, and Scope.

    Learn, Explain Cost Accounting: Objectives, Nature, and Scope.

    Cost accounting involves the techniques for as: 1) Determining the costs of products, processes, projects, etc. to report the correct amounts on the financial statements, and 2) Assisting management in making decisions and in the planning and control of an organization.

    For example, cost accounts used to compute the unit cost of a manufacturer’s products to report the cost of inventory on its balance sheet and the cost of goods sold on its income statement. This is achieving with techniques such as the allocation of manufacturing overhead costs and through the use of process costing, operations costing, and job-order costing systems.

    It assists management by providing analysis of cost behavior, cost-volume-profit relationships, operational and capital budgeting, standard costing, variance analyses for costs and revenues, transfer pricing, activity-based costing, and more. They had their roots in manufacturing businesses, but today it extends to service businesses.

    For example, a bank will use cost accounting to determine the cost of processing a customer’s check and/or a deposit. This, in turn, may provide management with guidance in the pricing of these services.

    Key activities include:

    • Defining costs as direct materials, direct labor, fixed overhead, variable overhead, and period costs.
    • Assisting the engineering and procurement departments in generating standard costs, if a company uses a standard costing system.
    • Using an allocation methodology to assign all costs except period costs to products and services and other cost objects.
    • Defining the transfer prices at which components and parts are selling from one subsidiary of a parent company to another subsidiary.
    • Examining costs incurred about activities conducted, to see if the company is using its resources effectively.
    • Highlighting any changes in the trend of various costs incurred.
    • Analyzing costs that will change as the result of a business decision.
    • Evaluating the need for capital expenditures.
    • Building a budget model that forecasts changes in costs based on expected activity levels.
    • Determining whether costs can be reduced.
    • Providing cost reports to management, so they can better operate the business.
    • Participating in the calculation of costs that will require to manufacture a new product design, and.
    • Analyzing the system of production to understand where bottlenecks are position, and how they impact the throughput generate by the entire manufacturing system.

    Meaning of Cost Accounting:

    An accounting system is to make available necessary and accurate information for all those who are interested in the welfare of the organization. The requirements of the majority of them are satisfied using financial accounting. However, the management requires far more detailed information than what conventional financial accounting can offer.

    The focus of the management lies not in the past but on the future. For a businessman who manufactures goods or renders services, cost accounts a useful tool. It was developed on account of limitations of financial accounting and is the extension of financial accounting. The advent of the factory system gave an impetus to the development of cost accounting.

    It is a method of accounting for cost. The process of recording and accounting for all the elements of the cost calls cost accounting.

    Definition of Cost Accounting:

    The Institute of Cost and Works Accountants, London defines costing as,

    “The process of accounting for cost from the point at which expenditure incur or commit to the establishment of its ultimate relationship with cost centers and cost units. In its wider usage, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carry out or plan.”

    The Institute of Cost and Works Accountants, India defines cost accounting as,

    “The technique and process of ascertainment of costs. Cost accounts the process of accounting for costs, which begins with the recording of expenses or the bases on which they are calculating and ends with the preparation of statistical data.”

    To put it simply, when the accounting process is applying to the elements of costs (i.e., Materials, Labor and Other expenses), it becomes Cost Accounting.

    Objectives of Cost Accounting:

    It was born to fulfill the needs of manufacturing companies. Its a mechanism of accounting through which costs of goods or services are ascertaining and control for different purposes. It helps to ascertain the true cost of every operation, through a close watch, say, cost analysis and allocation.

    The main objectives of cost accounting are as follows:-

    1] Cost Ascertainment: 

    The main objective of cost accounts to find out the cost of product, process, job, contract, service or any unit of production. It is done through various methods and techniques.

    2] Cost Control: 

    The very basic function of cost accounts to control costs. A comparison of actual costs with standards reveals the discrepancies (Variances). The variances reveal whether the cost is within the control or not. Remedial actions are suggesting to control the costs which are not within control.

    3] Cost Reduction: 

    Cost reduction refers to the real and permanent reduction in the unit cost of goods manufactured or services rendered without affecting the use intended. It can be done with the help of techniques called budgetary control, standard costing, material control, labor control, and overheads control.

    4] Fixation of Selling Price: 

    The price of any product consists of total cost and the margin required. Cost data are useful in the determination of selling price or quotations. It provides detailed information regarding various components of cost. It also provides information in terms of fixed cost and variable costs, so that the extent of price reduction can be decided.

    5] Framing business policy: 

    It helps management in formulating business policy and decision making. Break-even analysis, cost volume profit relationships, differential costing, etc help make decisions regarding key areas of the business.

    Nature and Scope of Cost Accounting:

    Cost accounts concerned with ascertainment and control of costs. The information provided by cost-accounting to the management is helpful for cost control and cost reduction through functions of planning, decision making, and control. Initially, they confined itself to cost ascertainment and presentation of the same mainly to find out product cost.

    With the introduction of large-scale production, the scope was widened and providing information for cost control and cost reduction has assuming equal significance along with finding out the cost of production. To start with cost-accounting was apply in manufacturing activities but now it applies in service organizations, government organizations, local authorities, agricultural farms, Extractive industries and so on.

    The guide for the ascertainment of the cost of production. It discloses as profitable and unprofitable activities. They help management to eliminate unprofitable activities. It provides information for estimates and tenders. They disclose the losses occurring in the form of idle time spoilage or scrap etc. It also provides a perpetual inventory system.

    It helps to make effective control over inventory and for the preparation of interim financial statements. They help in controlling the cost of production with the help of budgetary control and standard costing. They provide data for future production policies. It discloses the relative efficiencies of different workers and for the fixation of wages to workers.

    Cost Accounting Objectives Nature and Scope
    Cost Accounting: Objectives, Nature, and Scope! #Pixabay.

    Limitations of Cost Accounting:

    The following limitations below are;

    • It is based on estimation: as cost accounting relies heavily on predetermined data, it is not reliable.
    • No uniform procedure in cost accounting: as there is no uniform procedure, with the same information different results may be arrived by different cost accounts.
    • A large number of conventions and estimate: There are several conventions and estimates in preparing cost records such as materials are issuing on an average (or) standard price, overheads are charging on the percentage basis, Therefore, the profits arrive from the cost records are not true.
    • Formalities are more: Many formalities are to be observed to obtain the benefit of cost accounting. Therefore, it does not apply to small and medium firms.
    • Expensive: Cost accounts expensive and requires reconciliation with financial records.
    • It is unnecessary: Cost accounts of recent origin and an enterprise can survive even without cost accounting.
    • Secondary data: It depends on financial statements for a lot of information. Any errors or shortcomings in that information creep into cost accounts also.
  • Management Accounting: Objectives, Nature, and Scope

    Management Accounting: Objectives, Nature, and Scope

    What is the definition of management accounting? Management accountants (also called managerial accountants) look at the events that happen in and around a business while considering the needs of the business. Management Accounting is comprising of two words “Management” and “Accounting”. Discuss the topic, Management Accounting: Meaning of Management Accounting, Definition of Management Accounting, Objectives of Management Accounting, Nature and Scope of Management Accounting, and Limitations of Management Accounting! From this, data and estimates emerge. Cost accounting is the process of translating these estimates and data into knowledge that will ultimately use to guide decision-making.

    Learn, Explain Management Accounting: Objectives, Nature, and Scope!

    Management Accounts a tool to assist management in achieving better planning and control over the organization. It is relevant for all kinds of an organization including a not-for-profit organization, government, or Sole Proprietorship’s. It has a significant place in the businesses and widely used by management to achieve better control and quality decision making. Also Learned, In the Hindi language: प्रबंधन लेखांकन का उद्देश्य, प्रकृति, और दायरा, Financial Accounting!

    Meaning of Management Accounting:

    Management Accounts not a specific system of accounting. It could be any form of accounting which enables a business to conduct more effectively and efficiently. It’s largely concerned with providing economic information to managers for achieving organizational goals. It is an extension of the horizon of cost accounting towards newer areas of management. Much management accounts information is financial but has been organizing in a manner relating directly to the decision at hand.

    Management Accounts comprised of two words ‘Management’ and ‘Accounting’. It means the study of the managerial aspect of accounting. The emphasis of management accounting is to redesign accounting in such a way that it is helpful to the management in the formation of policy, control of execution, and appreciation of effectiveness. Management Accounts of recent origin. This was first used in 1950 by a team of accountants visiting U. S. A under the auspices of Anglo-American Council on Productivity.

    Definition of Management Accounting:

    Definition: It is, also called managerial accounting or cost accounting, is the process of analyzing business costs and operations to prepare the internal financial report, records, and account to aid managers’ decision making process in achieving business goals. In other words, it is the act of making sense of financial and cost data and translating that data into useful information for management and officers within an organization.

    “Management accounting is the practical science of value creation within organizations in both the private and public sectors. It combines accounting, finance, and management with the leading edge techniques needed to drive successful businesses.”

    More of it:

    Anglo-American Council on Productivity defines as:

    “The presentation of accounting information in such a way as to assist management in the creation of policy and the day to day operation of an undertaking.”

    The American Accounting Association defines as:

    “The methods and concepts necessary for effective planning for choosing among alternative business actions and for control through the evaluation and interpretation of performances.”

    The Institute of Chartered Accountants of India defines as follows:

    “Such of its techniques and procedures by which accounting mainly seeks to aid the management collectively has come to be known as management accounting.”

    From these definitions, it is very clear that financial data is recorded, analyzed, and presented to the management in such a way that it becomes useful and helpful in planning and running business operations more systematically.

    Objectives of Management Accounting:

    The fundamental objectives of management accounting are to enable the management to maximize profits or minimize losses. The evolution of managerial accounting has given a new approach to the function of accounting.

    The main objectives of management accounting are as follows:

    Planning and policy formulation:

    Planning involves forecasting based on available information, setting goals; framing policies determining the alternative courses of action, and deciding on the program of activities. Management Accounts can help greatly in this direction. It facilitates the preparation of statements in light of past results and gives an estimation for the future.

    Interpretation process:

    Management Accounts to present financial information to the management. Financial information is technical. Therefore, it must present in such a way that it is easily understood. It presents accounting information with the help of statistical devices like charts, diagrams, graphs, etc.

    Assists in the Decision-making process: 

    With the help of various modern techniques management accounting makes the decision-making process more scientific. Data relating to cost, price, profit, and savings for each of the available alternatives are collected and analyzed and provides a base for making sound decisions.

    Controlling:

    It is useful for managerial control. Their tools like standard costing and budgetary control help control performance. Cost control is effected through the use of standard costing and departmental control is made possible through the use of budgets. The performance of every individual is controlled with the help of managerial accounting.

    Reporting:

    Management Accounts keeps the management fully informed about the latest position of concern through reporting. It helps management to take proper and quick decisions. The performance of various departments is regularly reported to the top management.

    Facilitates Organizing:

    “Return on Capital Employed” is one of the tools of Management Accounts. Since managerial accounting stresses more on Responsibility Centre’s to control costs and responsibilities, it also facilitates decentralization to a greater extent. Thus, it helps set up an effective and efficient organization framework.

    Facilitates Coordination of Operations:

    Management accounts provide tools for overall control and coordination of business operations. Budgets are an important means of coordination.

    Nature and Scope of Management Accounting:

    Managerial Accounting involves the furnishing of accounting data to the management for basing its decisions. It helps in improving efficiency and achieving organizational goals. You may know is that Comparative analysis is the scope of management accounting.

    The following paragraphs discuss the nature and scope of management accounting.

    Provides accounting information: 

    Management accounting is based on accounting information. It is a service function and it provides the necessary information to different levels of management. Managerial Accounting involves the presentation of information in a way it suits managerial needs. The accounting data collected by the accounting department is used for reviewing various policy decisions.

    Cause and effect analysis: 

    The role of financial accounting is limited to find out the ultimate result, i.e., profit and loss; Managerial Accounting goes a step further. Managerial Accounting discusses the cause and effect relationship. The reasons for the loss are probed and the factors directly influencing the profitability are also studied. Profits are compared to sales, different expenditures, current assets, interest payable’s, share capital, etc.

    Use of special techniques and concepts:

    It uses special techniques and concepts according to the necessity to make accounting data more useful. The techniques usually used include financial planning and analyses, standard costing, budgetary control, marginal costing, project appraisal, control accounting, etc.

    Taking important decisions: 

    It supplies the necessary information to the management which may be useful for its decisions. The historical data is studied to see its possible impact on future decisions. The implications of various decisions are also taking into account.

    Achieving objectives:

    It is uses accounting information in such a way that it helps in formatting plans and setting up objectives. Comparing actual performance with targeted figures will give an idea to the management about the performance of various departments. When there are deviations, corrective measures can take at once with the help of budgetary control and standard costing.

    No fixed norms: 

    No specific rules are followed in Managerial Accounting as that of financial accounting. Though the tools are the same, their use differs from concern to concern. The deriving of conclusions also depends upon the intelligence of the management accountant. The presentation will be in the way which suits the concern most.

    Increase in efficiency: 

    The purpose of using accounting information is to increase the efficiency of the concern. The performance appraisal will enable the management to pinpoint efficient and inefficient spots. An effort makes to take corrective measures so that efficiency improves. The constant review will make the staff cost-conscious.

    Supplies information and not the decision: 

    The management accountant is only to guide and not to supply decisions. The data is to use by the management for taking various decisions. “How is the data to utilize” will depend upon the caliber and efficiency of the management.

    Concerned with forecasting: 

    The management accounts concerned with the future. It helps the management in planning and forecasting. The historical information is used to plan the future course of action. The information is supplied to the object to guide management in making future decisions.

    Techniques and Procedures Design and Installation:

    Management accounting is identifying with the most productive and monetary arrangement of accounting reasonable for any size and kind of embraced. Additionally, it utilizes the best utilization of mechanical and electronic gadgets. Maybe you got your answer; 10 points of Nature of Management Accounting with their scope.

    A portion of the Acts, which have their impact on management choices, are as per the following:

    The Companies Act, MRTP Act, FEMA, SEBI Regulations, and so forth.

    Inside Audit:

    This incorporates the improvement of an appropriate arrangement of inside reviews for inner control. An interior review is led by the business association with the assistance of a paid worker who has careful accounting information. All the significant records are kept up under the management accounting framework with the goal that the inner review is directed in a successful way.

    Inner Reporting:

    This incorporates the arrangement of quarterly, half-yearly, and other interval reports and pays articulations, income and assets stream explanations, scarp reports, and so on.

    Limitations of Management Accounting:

    Hence, it suffers from all the limitations of a new discipline. Some of these limitations are:

    Limitations of Accounting Records:

    Management accounting derives its information from financial accounting, cost accounting, and other records. It is concerned with the rearrangement or modification of data. The correctness or otherwise of the Managerial Accounting depends upon the correctness of these basic records.

    It is only a Tool: 

    Management accounts not alternate or substitute for management. It is a mere tool for management. Ultimate decisions are taking by management and not by management accounts.

    Heavy Cost of Installation: 

    The installation of the Managerial Accounting system needs a very elaborate organization. This results in heavy investment which can afford only by big concerns.

    Personal Bias: 

    The interpretation of financial information depends upon the capacity of the interpreter as one has to make a personal judgment. Personal prejudices and biases affect the objectivity of decisions.

    Psychological Resistance:

    The installation of Managerial Accounting involves the basic change in the organization set up. New rules and regulations are also required to frame which affects the number of personnel, and hence there is a possibility of resistance from some or the other.

    Evolutionary stage: 

    Management accounts only in a developmental stage. Its concepts and conventions are not as exact and established as those of other branches of accounting. Therefore, its results depend to a very great extent upon the intelligent interpretation of the data of managerial use.

    Provides only Data:

    Managerial Accounting provides data and not decisions. It only informs, not prescribes. This limitation should also keep in mind while using the techniques of management accounting.

    Broad-based Scope: 

    The scope of management accounts for wide and this creates many difficulties in the implementation process. Management requires information from both accounting as well as non-accounting sources. It leads to inexactness and subjectivity in the conclusion obtained through it. Also Learned, In the Hindi language: Management Accounting: Objectives, Nature, and Scope (प्रबंधन लेखांकन का उद्देश्य, प्रकृति, और दायरा).

    Management Accounting Objectives Nature and Scope
    Management Accounting: Objectives, Nature, and Scope, Image credit from @Pixabay.

  • What is the Concept of Accountability in Financial Management?

    Accountability has different forms. First, the individualizing form of accountability can be studied in which the accountability contributes to making the realization of the image an individual perceives it. This perspective helps a person to polish his senses and action thereby improving his image that is noticed by others. The second view of accountability is the socializing form in which a person can improve its performance and efficiency by interacting with some of the experienced people in the organization. Accountability institutionalizes the use of accounting through which it operates in the organizations and firms. Also learned, Types of Product, What is the Concept of Accountability in Financial Management?

    Learn, Explain What is the Concept of Accountability in Financial Management?

    “Accountability breeds responsibility” This is a famous quote by Dr. Stephen R. Covey gives the meaning of accountability in rather general terms. The concept of accountability can be defined as the process through which a person is held answerable for his actions and deeds. Under the umbrella of the organization, the notion of accountability can be stated as the phenomenon through which whether a person at the higher level of hierarchy or at the lower level is accountable for his works and services that he renders to the organization. Accountability from the organizational perspective bears great importance as it is the measure through which the performance of the organization and a person serving can be judged and analyzed.

    How Does Accountability work?

    Accountability within the organizations mainly works through three different levels of accounting. They are auditing, management accounting, and financial reporting. Financial reporting and management accounting aspect of accounting has been dealt with in detail in representation and control part respectively. The third and more applicative form in which accountability holds in the organizations is the auditing in which companies accounts are checked and verified by some agency or authority assigned for it is covered in detail here.

    When it comes to organizational perspective the application of accountability expands. From the past, there has been a practice in business and organizations to maintain the accounts of each and every transaction that takes place in the organization. In the modern era, this system has become more advanced and transparent. The organizations can be judged or held responsible economically on the grounds of the accounts or financial statements that they produce. This involves the concept of auditing of company accounts. Audit serves as a vital economic process and plays an important role in serving the public interest by strengthening the accountability and reinforcing the trust and confidence in financial reporting.

    Auditing of accounts are generally performed by the people employed by the owner of the company, these persons are called auditors, agents or stewards. They generally work in the interest of the company with the focus on the economic performance of the institution. This phenomenon is called an agency theory which suggests that because of the information asymmetries people employ agents or stewards who work for the benefit of the company. Auditing gives a clear idea of accounts and also imparts the correct information to the shareholders.

    The interplay between Accounting and Accountability:

    Accounting can be defined as the process of identifying, measuring and communicating the financial information about the entity to permit informed judgments and decisions by users of information. Initially, there were cruder forms of accounting first one was double entry system which was a binary system method used for recording the events in which all the debts and credits were represented in the tabular form and the second was bookkeeping which was the maintenance or the summary of all the financial transactions taken place. Accountability often comes to play where there is some accounting failures or discrepancies and the company or the person producing the account is held responsible.

  • New Product Development: Definition, Planning, and Role!

    Learn, Explain New Product Development: Definition, Planning, and Role!

    Cost, time and quality are the main variables that drive customer needs. Aiming at these three variables, companies develop continuous practices and strategies to better satisfy customer requirements and to increase their own market share by a regular development of new products. There are many uncertainties and challenges which companies must face throughout the process. The use of best practices and the elimination of barriers to communication are the main concerns for the management of the NPD. Also learned, What is the Role of Group Influence in Consumer Behavior? New Product Development: Definition, Planning, and Role!

    In business and engineering, new product development (NPD) covers the complete process of bringing a new product to market. A central aspect of NPD is product design, along with various business considerations. New product development is described broadly as the transformation of a market opportunity into a product available for sale. The product can be tangible (something physical which one can touch) or intangible (like a service, experience, or belief), though sometimes services and other processes are distinguished from “products.” NPD requires an understanding of customer needs and wants, the competitive environment, and the nature of the market.

    Definition of New Product Development:

    • New Product Development is a process which is designed to develop, test and consider the viability of products which are new to the market in order to ensure the growth or survival of the organization.
    • New Product Development can be defined as the process of innovating and inventing new ideas and concepts, with a view to developing a successful new product in the anticipation of customer needs.
    • The new product development can be defined as the term used to describe the complete process of bringing a new product or service to market.

    There are two parallel paths involved in the new product development process. The first involves the idea generation, product design, and detail engineering whereas the other involves market research and marketing analysis. Basically, Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product lifecycle management where it is used to maintain or grow their market share. It is important the new product which is based on current market trends should be launched so that it can give greater benefit to the customers. At the same time, it can also help them to understand what are the needs of their customers helps to increase the sales of their business in terms of maximizing the profits.

    Planning of New Product Development:

    New product planning has been defined by the American Marketing Association as “the act of making out and supervising the search, screening, evelopment, and commercialization of new products; the modification of existing lines; and the discontinuance of marginal or unprofitable items”.  Simply stated, product planning decides the nature and other related aspects of the articles produced and sold.  Product development is a more limited term but includes the technical activities of product research, engineering and design.  Product planning and development is the result of the co-ordinated the efforts of large number of specialists – engineers, scientists, marketers, etc.  Product planning is usually described as ‘Merchandising’ and it covers both, the existing and potential products.  This activity, therefore, must deal with the proper balance between the old and the new products.

    New product planning is a very long and complex process, and it deals with changes in:

    • The kinds of goods or services offered by a marketer for various segments.
    • The number of kinds of products, or different lines, that the company offers in various segments.
    • The width of product line offered.
    • The quality levels or levels acceptable to various classes of consumers in various target markets.
    • The degree of distinctiveness.
    • Increased societal and governmental constraints.
    • The growing shortage of new product ideas in certain areas.
    • Shorter time spans between the emergence of the idea and the physical launch of the product.
    • The costliness of the new product development process.

    The following decisions are important in new product planning :

    1. Improving the existing product lines and services,
    2. Weeding out unprofitable items in the product line (simplification),
    3. Expansion of the current product line (diversification),
    4. New product development for the present customers, and
    5. New product development for new customers (diversified products).

    Role of New Product Development:

    Whatever may be the size and nature of operations of a firm, product planning and development is necessary for its survival and growth in the long-run.  Every product has a life cycle and it becomes obsolete after the completion of its life-cycle.  Therefore, it is essential to develop new products and alter or improve the existing ones to meet the often-changing requirements of customers.

    The role of new product development can be stated in terms of :
    1. Ensuring that the product mix, matches changing environmental conditions and that product obsolescence is avoided.
    2. Enabling the marketer to compete in new and developing segments of the market.
    3. Reducing the marketer’s dependence upon particular elements of the product range or vulnerable market segments.
    4. Filling excess capacity.
    5. Achieving greater long-term growth and profit.

    Introducing new product is rather difficult as it involves long-range planning.  Customers’ need should be identified, competing and substitute products should be evaluated and, above all, the strength of the company should be examined before deciding to produce a new product.  Product failure defeats the very objectives of a firm.  In a survey conducted by Booze, Allen, and Hamilton, it was revealed that firms with well-organized product planning programmes have only 40-50 percent product failures.  When this percentage is compared with the overall industry product failures (80 percent), one could easily be convinced of the need for product planning.

  • What is Dividend Investing? Meaning, Definition, and Example!

    Learn, What is Dividend Investing? Meaning, Definition, and Example!

    For those who are still considered greenhorns in the investment world, a dividend is a payment distributed by a company to all its shareholders. For the longest time, dividend investing has been a permanent fixture in wealth building and wealth management programs because of the kind of financial security it provides. An investor and expert financial planner earns in divided investments through dividend payments, which forms part of a company’s profit. Also learned, Mutual Funds, What is Dividend Investing? Meaning, Definition, and Example!

    Meaning:

    Each quarter, on the dividend declaration date, a firm’s board of directors declares the dividend amount that will be distributed to the firm’s shareholders. Only the shareholders who owned the stock on the dividend record date, i.e. the date that the firm reviews its lists to determine the shareholders of record, receive a dividend. Shareholders who do not own the stock on the dividend record date are not entitled to receive a dividend.

    Likewise, investors who buy the stock on or after the ex-dividend date do not receive the firm’s dividend. Usually, dividend investors are interested in a firm’s dividend payout ratio and dividend yield. A dividend payout ratio between 40% and 50% indicates that the firm distributes almost half of its retained earnings to its shareholders while the remaining is invested in the launch of a new product or to lower the short-term debt. The dividend yield may lead to a large cash income.

    Definition:

    Dividend investing is an investment approach to purchasing stocks that issue dividends in an effort to generate a steady stream of passive income. Companies distribute cash dividends to their shareholders periodically during their fiscal year, but most issue them on a quarterly basis. “Dividend investing is an investment strategy of only buying stocks that issue dividends thus creating a reoccurring income stream.”

    The other profit portion not distributed to the investors will be pumped back into the capitalization used to fuel the operation of the company.
    • Most wealth management and wealth building programs include dividend investing. To place investments strategically, a professional financial planner would be necessary. One who deals with dividend investing would need the expertise provided by a financial planner when playing with the rise and fall of share prices.
    • With dividend investing as part of an individual’s wealth building and wealth management portfolio, a consistent flow of passive income is produced which the investor and financial planner can opt to spend or reinvest in the same venture to increase shares or place in other forms of investment. That is the reason why most retirees love investing in dividends – the supplemental income plus the excitement that market assumption brings.
    • Only when a company has reached a high level of marketing success will it only decide to pay dividends. This means that investing in a company that pays dividends is investing in a stable company. With bigger rewards and very little financial risks, dividend investing is really one of the best wealth building and wealth management strategy options. Dividend investing offers two ways of earning profits: getting dividend payments and increase in share prices which mean bigger return on investment when one decides to sell his shares.
    • With dividend investments, one gets a better deal with his money. It improves his wealth building and wealth management portfolio which raises his assets worth. Plus, he still retains part ownership of the company while collecting profits at the same time. An investor, as well as a financial planner, has the option of increasing his number of shares by reinvesting his dividends. He does not even have to shell out extra cash to buy new stocks and shares.
    • Investments in dividends can function as a barricade against inflation. Dividends can offset losses in other business as a result of the increase in the prices of products. High prices mean more earnings which also translate to bigger dividends.
    • Dividends are typically taxed lower compared to regular income. This means more savings on taxes paid to the government.

    Today, a lot of senior citizens rely on their investments on dividends in sustaining them with their daily needs. The dividends coming from stable companies are as consistent as night and day and it provides the opportunity of receiving cash right out the investments that they made without having to cash in on their shares. Or, they can beef up their shares by reinvesting the profits that they earn when they feel they do not need the extra cash at the moment (as a trusted financial planner would often say).

    For Example:

    A steel manufacturing firm has released its quarterly results and has a net income of $250 million. The board of directors decides to pay $120 million in cash dividend and reinvest $130 million in lowering its short-term debt. This means that the firm’s dividend payout ratio is dividend / net income = $120 million / $250 million = 48%.

    The board of directors declares a quarterly dividend of $0.95 per share, reaching an annualized dividend of $3.8 per share. The stock currently trades at $88; therefore, the dividend yield of the stock is dividend / stock price = $3.8 / $88 = 4.32%. A shareholder that holds 10,000 shares will be compensated with 10,000 x 4.32% = $432.

    On the ex-dividend date, the stock price declines to adjust to the dividend paid. Therefore, the firm’s stock that trades at $88, and pays a quarterly dividend of $0.95 per share, ceteris paribus, the stock will open at $88 – $0.97 = $87.03 on the ex-dividend date.