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4. Cost Principle. From an accountant's point of view, the term "cost" refers to
the amount
spent (cash or the cash equivalent) when an item was originally obtained,
whether that
purchase happened last year.
5. Full Disclosure Principle.
If certain information is important to an investor or lender using the financial
statements,
that information should be disclosed within the statement or in the notes to the
statement.
It is because of this basic accounting principle that numerous pages of
"footnotes" are
often attached to financial statements..
6. Going Concern Principle
This accounting principle assumes that a company will continue to exist long
enough to
carry out its objectives and commitments and will not liquidate in the
foreseeable future.
7. Matching Principle
This accounting principle requires companies to use the accrual basis of
accounting. The
matching principle requires that expenses be matched with revenues. For
example, sales
commissions expense should be reported in the period when the sales were
made (and
not reported in the period when the commissions were paid).
8. Revenue Recognition Principle
Under the accrual basis of accounting (as opposed to the cash basis of
accounting),
revenues are recognized as soon as a product has been sold or a service has
been
performed, regardless of when the money is actually received.
9. Materiality
Because of this basic accounting principle or guideline, an accountant might be
allowed to
violate another accounting principle if an amount is insignificant.
.10. Conservatism.If a situation arises where there are two acceptable
alternatives for
reporting an item, conservatism directs the accountant to choose the
alternative that will
result in less net income and/or less asset amount.
I. FILL IN THE BLANKS WITH THE RIGHT BASIC ACCOUNTING PRINCIPLES AND
GUIDELINES.
(60 POINTS)
ECONOMIC ENTITY ASSUMTION, MONETARY UNIT ASSUMPTION, TIME PERIOD
ASSUMTION, COST PRINCIPLE, Full Disclosure Principle, Going Concern Principle,
Matching Principle, Revenue Recognition Principle, Materiality, Conservatism.
1. From an accountant's point of view, the term "cost" refers to the amount
spent, when an
item was originally obtained, whether that purchase happened last year.
the costs of running a business. Modern cost accounting originated during the
industrial revolution, when the complexities of running a large scale business
led to the development of systems for recording and tracking costs to help
business owners and managers make decisions. In the early industrial age,
most of the costs incurred by a business were what modern accountants call
"variable costs" because they varied directly with the amount of production.
Money was spent on labor, raw materials, power to run a factory, etc. in direct
proportion to production. Managers could simply total the variable costs for a
product and use this as a guide for decision-making processes. Some costs
tend to remain the same even during busy periods, unlike variable costs, which
rise and fall with volume of work. Over time, these "fixed costs" have become
more important to managers. Examples of fixed costs include the depreciation
of plant and equipment, and the cost of departments such as maintenance,
tooling, production control, purchasing, quality control, storage and handling,
plant supervision and engineering. In the early nineteenth century, these costs
were of little importance to most businesses. However, with the growth of
railroads, steel and large scale manufacturing, by the late nineteenth century
these costs were often more important than the variable cost of a product, and
allocating them to a broad range of products lead to bad decision making.
Managers must understand fixed costs in order to make decisions about
products and pricing. DIFFERENCE OF USE BETWEEN COST ACCOUNTING AND
FINANCIAL ACCOUNTING Financial accounting aims at finding out results of
accounting year in the form of Profit and Loss Account and Balance Sheet. Cost
Accounting aims at computing cost of production/service in a scientific manner
and facilitate cost control and cost reduction.
Financial accounting reports the results and position of business to
government, creditors, investors, and external parties. Cost Accounting is an
internal reporting system for an organizations own management for decision
making. ELEMENTS OF COST 1. Raw materials, 2. Labor and 3. Indirect
expenses CLASSIFICATION OF COSTS. Classification of cost means, the
grouping of costs according to their common characteristics. 1. By Functions:
production,administration, selling and distribution, R&D. 2. By Time: Historical
Costs and Predetermined costs. Historical costs re costs incurred in the past.
Predetermined costs are computed in advance on basis of factors affecting cost
elements. Example: Standard Costs. 3. By Decision making Costs: These costs
are used for managerial decision making. STANDARD COST ACCOUNTING. In
modern cost account of recording historical costs was taken further, by
allocating the company's fixed costs over a given period of time to the items
produced during that period, and recording the result as the total cost of
production. This allowed the full cost of products that were not sold in the
period they were produced to be recorded in inventory using a variety of
complex accounting methods, which was consistent with the principles of GAAP
(Generally Accepted Accounting Principles). It also essentially enabled
managers to ignore the fixed costs, and look at the results of each period in
relation to the "standard cost" for any given product. An important part of
standard cost accounting is a variance analysis, which breaks down the
variation between actual cost and standard costs into various components
(volume variation, material cost variation, labor cost variation, etc.) so
managers can understand why costs were different THE DEVELOPMENT OF
THROUGHPUT ACCOUNTING. As business became more complex and began
producing a greater variety of products, the use of cost accounting to make
decisions to maximize profitability came into question. Management circles
became increasingly aware of the Theory of Constraints in the 1980s, and
began to understand that "every production process has a limiting factor"
somewhere in the chain of production. I ACCORDING TO THE PREVIOUS
READING ANSWER THE NEXT QUESTIONS IN A COMPLETE FORM.(40 POINTS) 1.
Whats cost accounting, and whats its goal?
2. What does cost accounting provide to the management? 3. Whats cost
accounting information primary function? 4. Are accounting systems subject to
rules and standard of GAAP? 5. Is there a wide variety in the cost accounting
systems? 6. When and why did cost accounting originate? 7. Where was money
spent? 8. What do fixed costs include? 9. Whats the difference between cost
accounting and financial accounting? 10. Whats an important part of standard
cost accounting? THE TECHNOLOGY'S ROLE IN ACCOUNTING'S FUTURE The
next decade will see industries transition to a Cloud-enabled world where work
can be accomplished anywhere, and anytime. This will especially be true of the
accounting profession, according to Intuit, as such tools as Cloud-connected
smartphones and tablets will enable firms to provide clients with an
"accountant in their pocket" at all times. In its recently released study Intuit
2013 Future of Accountancy Report the online accounting software company
provided a view of the demographic, economic, social, and technology trends
that will shape the accounting profession in the next ten years.
Prepared by research and consulting firm Emergent Research in partnership
with Intuit and thirty-seven top influencers in accounting from around the
world, the new report is an update to the Intuit 2020 Report: Future of the
Accounting Profession report released in 2011. "With increased competition,
technology advances, globalization, and demographic shifts, trust will remain
paramount in the relationship between accounting professionals and the clients
they serve," Jill Ward, senior vice president and general manager of the Intuit
Accountant and Advisor Group, said in a written statement. "The trends
happening within the industry provide several opportunities for accountants to
deliver the service their clients expect and demand." According to Intuit,
technology will increasingly be woven into the fabric of the accounting industry
in the next decade. The profession will be reshaped as accounting firms use
Cloud computing platforms and applications, combined with advanced
analytical tools, large data sets, and social and mobile computing. Small
businesses are confronting a massive shift in technology, and they must adopt
those technologies into their business processes to effectively compete in the
marketplace," Joe Woodard, founder of accounting and software consulting firm
Woodard Consulting Group, said in a written statement. "To best serve their
clients, accounting professionals need to embrace new technologies quickly,
understand the best way to incorporate those technologies into the small
business process, and proactively guide their clients through to full adoption,"
Woodward said. Woodard hosts Scaling New Heights, a conference conducted
in cooperation with Intuit that provides training on Intuit QuickBooks and
selected products that integrate with QuickBooks. "As an industry, we must
take the lead and be out in front of the coming changes." Smartphones,
tablets, notebooks, and other mobile devices will become the main tools
accounting professionals will use to manage their workloads and client
services. These technologies will allow for more flexibility around when, where,
and how work is done. "Being on-site will become much less important, and
these tools will enable and often require anytime, anywhere work," Intuit
noted in the report. "Cloud services and products will also allow accounting
professionals to interact virtually with clients on a 'same data, same time'
basis, eliminating many of the bottlenecks associated with PC or server-based
data that is only easily accessible in one location." By using Cloud technology
and advanced computing tools, accounting firms will realize effective
automation of data collection, improved data quality, and a reduction in the
time required for data validation, according to Intuit. "These productivity
improvements will shift the focus of accounting from computation to consulting
as clients increasingly rely on their accounting professionals to analyze
business information, support decisions, and provide strategic advice," the
report stated. "Greater automation, coupled with a growing interest on the part
of businesses to outsource part and even all of their bookkeeping and financial
operations, will also create new opportunities for accounting firms to take over
these functions for their clients." "Just as consumers use websites and social
media to compare and review products, potential clients are already going
online to choose their accounting service providers," While personal client
interaction will continue, virtual accounting services will become more of an
industry norm. "Clients will expect real-time support that is delivered when,
where, and how they want it," the report stated. "Online customer relationship
management and support systems will grow in importance. High-touch, face-toface client contact will not go away, but it will be augmented by virtual support
and collaboration systems. The use of customer relationship management
systems will also increase and automate simpler support tasks and provide
clients with self-serve options." II. ACCORDING TO THE PREVIOUS READING,
ANWER THE NEXT QUESTIONS IN A COMPLETE FORM. (60 POINTS) 1.- What will
the next decade see? 2. In what profession this will be true? 3.- which devices
will be used in the accounting field? 4.- What did the online accounting
software provide to the company 5. In what year did Intuit release the report of
accountancy future? 6. What did Jill Ward say in his written statement? 7. How
will the accounting professions be reshaped?
8. What did Joe Woodward say in his written statement? 9. Which productivity
improvements will shift in the accountings future? 10. What will be the
advantages of the virtual accounting service?