Category: Accounting

Category of Accounting articles

Direct costs Vs indirect costs

Sometimes, direct costs are treated as indirect because tracing costs directly to the cost object is not cost effective. For example, the nails used to manufacture a particular desk can be identified specifically with the desk, but, because the cost is likely to be insignificant, the expense of tracing such items does not justify the possible benefits from calculating more accurate product costs.

The distinction between direct and indirect costs also depends on the cost object

A cost can be treated as direct for one cost object but indirect in respect of another. if the cost object is the cost of using different distribution channels, then the rental of warehouses and the salaries of storekeepers will be regarded as direct for each distribution channel. Also consider a supervisor's salary in a maintenance department of a manufacturing company. if the cost object is the maintenance department, then the salary is a direct cost. However, if the cost object is the product, both the warehouse rental and the salaries of the storekeepers and the supervisor will be an indirect cost because these costs cannot be specifically identified with the product.

 

Assigning direct costs to cost objects

 

Direct costs can be traced easily and accurately to a cost object. For example, where products are the cost object,

Direct costs in cost assignment

Direct costs

direct materials and labour used can be physically identified with the different products that an organization produces. Therefore it is a simple process to establish an information technology system that records the quantity and cost of direct labour and material resources used to produce specific products.

 

Assigning indirect costs to cost objects

 

In contrast, indirect costs cannot be traced to cost objects. Instead, an estimate must be made of the resources consumed by cost objects using cost allocation. A cost allocation is the process of assigning costs when a direct measure does not exist for the quantity of resources consumed by a particular cost object Cost allocations involve the use of surrogate rather than direct measures. 

Example

 

For example, consider an activity such as receiving incoming materials. Assuming that the cost of receiving materials is strongly influenced by the number of receipts then costs can be allocated to products (i.e. the cost object) based on the number of material receipts each product requires.

Prices raw materials in cost accounrting

If 20% of the total number of receipts for a period were required for a particular product then 20% of the total costs of receiving incoming materials would be allocated to that product.

Assuming that the product was discontinued, and not replaced, we would expect action to be taken to reduce the resources required for receiving materials by 20%.

in the above illustration the surrogate allocation measure is assumed to be a significant determinant of the cost of receiving incoming materials. You should note that only direct costs can be accurately assigned to cost objects.

The more direct costs that can be traced to a cost object, the more accurate is the cost assignment.

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Direct and Indirect Costs

Costs that are assigned to cost objects can be divided into two broad categories Direct and Indirect costs. Both categories can be further divided into direct and indirect material costs, and direct and indirect labour costs Each of these categories is discussed in the following sections. Direct Materials Direct materials represent those material costs that can be specifically and […]

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Cost Terms and Concepts

Accounting information systems measure costs that are used for different purposes i.e profit measurement and inventory valuation, decision-making, performance measurement and control. Therefore different types of costs are used in different situations. Because the term ‘cost’ has multiple meanings, a preceding term must be added to clarify the assumptions that underlie a cost measurement. A large terminology has emerged […]

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Absorption costing system

Below image provides an overview of the cost assignment process for an absorption costing system, The term cost tracing is used in this photo to denote the fact that direct costs can be specifically and exclusively identified with a particular cost object. Cost assignment merely involves the implementation of suitable data processing procedures that identify and […]

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How to write a cash book

Cash trading is one the most used method in shops and discount centers. to keep a cash book updated and write a cash book in true format, you need details of cash flow. When Cash receives from customer, it will be added to cash account with amount of it in Debit column When Cash be […]

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Tools Shops in Dubai

in Dubai, tools shops usually sell tools like: SAFETY PRODUCTS SHADE NETTINGS RAZOR WIRE FIRE BLANKETS PAINT BRUSHES PAINT ROLLERS ABRASIVES PVC WATER TANKS ROLLER CHAINS Brands of these tools commonly are from Bush, BlackandDecker, Siemens, … Coast Tools    

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What is Management Accounting

The Role of Management Accounting Management accounting:  ( defined by the National Association of Accountants (NAA)) ( The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information, which is used by management to plan, evaluate, and control within an organization. ) It ensures the appropriate use of and accountability for an organizations […]

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The importance of bookkeeping

All businesses, without exception, need to keep accurate and readily accessible records of their financial transactions. Many organizations other than businesses also need to do it, and some individuals too. As a child I had a neighbor who died at the age of 75 leaving records that accounted for every penny of his income and […]

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Examples of invoicing

The best way to learn an accounting software is to enter real invoices and vouchers in it. Therefore, we will add different examples of invoice entry of sample businesses in Dubai, Oman and Qatar to show you how to do invoicing by iGreen accounting application.

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Profit and Loss Report

When you record invoices of your business in iGreen accounting software, it will give you an easy to understanding report of profit and loss As you see here, you can get total of profits of all your items and also you can control one by one of items. In this example, we have two items […]

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Forex Positions

Online market of currencies or Forex is very sensitive to any politics changes. an eCommerce with high risk to loss your investments in market very easy. So it need study very carefully ! we will update it about our analyses when to buy or sell EURUSD , JPNUSD and GBPUSD Forex signal of this week […]

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Expense Entry Software for Dubai

In any business, Gross income is the main statement for taxation but to know net income, you need to reduce expenses from it, with a perfect expense entry software you can reach net income easily. There are many software in Dubai markets and you can use them for journal entry of expenses. here we will […]

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Free accounting consultation in Dubai

There many business owners in Dubai that they need an honest guides to know how to order software and automate their business accounts department. so that, a free consultation of accounting in Dubai, could be a advantage for you to know what you need really for your accounts department. Without a true consultation maybe there are […]

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Accounting Software Images

Screenshots and images of accounting software could help you to select an accounting software for your accounts department. With looking at images, you don't need to waste your time for installation of accounting software one by one. You can quickly look at screenshots of any accounting software to see what it offers you.

It is important to check what types of vouchers and invoices, you want to have in an accounting software. some of accounting programs are strong in manufacturing department but some of them are strong in shopping accounting. so that, it is not true if an accounting software is strong in another field could be strong in your accounts department.

Images of Quickbooks Accounting Software

Quickbooks accounting has been used widely in United state of America. it is a software product of Intuit software company.

Chart of Accounts in Quickbooks accounting

Quickbooks - Chart of Accounts

Customer payments in Quickbooks Accounting

Customer payments

Main screen of Quickbooks

Main screen of Quickbooks

Sales Invoice in Quickbooks

Invoice in Quickbooks

Images of Peachtree Accounting Software

Invoice entry form in Peachtree accounting software

Invoice entry form in Peachtree accounting software

Print of invoice in one the best accounting software - Peachtree

Print of invoice in one the best accounting software (Peachtree)

Peachtree accounting software - Main Screen

Main screen of Peachtree

Chart of Accounts in Peachtree accounting

Peachtree accounting - Chart of Accounts

Images of iGreen Accounting Software

The most important benefits of iGreen accounting are:

  • A real free accounting software
  • Unlimited levels in Chart of accounts
  • Tree-veiw chart of accounts
  • Tree-view list of items and goods
  • Unlimited photo of products
  • Multi-Currency
Inventory form in iGreen accounting software

Inventory form in iGreen accounting

iGreen Accounting Software V1.1.0.1

Main Screen

iGreen's chart of accounts

iGreen's chart of accounts

Journal Entry in version 1.0.9.2 of iGreen

Journal Entry in version 1.0.9.2 of iGreen accounting

Example of Cash payment in iGreen

Example of Cash payment in iGreen

Report of client cash payment in iGreen

Report of client cash payment in iGreen

Cash Receipt form in iGreen Accounting

Cash Receipt form in iGreen Accounting

New Images

All images of these accounting software have been taken from real accounting software

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Node 4253 in BPR Model

The example demonstrated here illustrates opportunities for using e-business in construction processes. The example Node .4253 described is that of an innovative procurement process. Node 4253 incorporates the concept of using I-components for the door ordering process. The process of selecting a product supplier (in this case the door supplier) requires input from the client brief, door detail drawings […]

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Free Account Software Download Full Version

An account software usually will be used for double journal entry but accounting software will be used for sales and stock management. In an account software, the first and the most important section is chart of accounts. advanced account software will let you to manage chart of accounts of your business very professionally but in […]

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The Concept of Net Present Value

By using discounted cash flow techniques and calculating present values, we can compare the return on an investment in capital projects with an alternative equal risk investment in securities traded in the financial market, Suppose a firm is considering four projects (all of which are risk-free) as shown in below photo. You can see that each of the projects […]

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Compounding and Discounting of FV

Our objective is to calculate and compare returns on an investment in a capital project with an alternative equal risk investment in securities traded in the financial markets. This comparison is made using a technique called discounted cash flow (DCF) analysis. Because a DCF analysis is the opposite of the concept of compounding interest, we shall initially […]

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Professionally Qualified Accountants

There are six institutions of professionally qualified accountants currently operating in the UK. All jealously guard their independence and the many attempts to merge over the past few years have all failed.

Chartered Professional Accountant

Chartered Professional Accountants

  1. institute of Chartered Accountants in England and Wales (ICAEW)
    • Generally auditing, financial accounting, management consultancy, insolvency and tax advice. However, many work in industry.
  2. institute of Chartered Accountants in Ireland ( lCAl )
    • Similar to ICAEW.
  3. institute of Chartered Accountants of Scotland (ICAS)
    • Similar to ICAEW.
  4. Association of Chartered Certified Accountants (ACCA)
    • Auditing, financial accounting, insolvency, management consultancy, and tax advice. Many train or work in industry.
  5. Chartered institute of Management Accountants (CIMA)
    • Management accounting
  6. Chartered institute of Public Finance and Accounting (CIPFA)
    • Accounting within the public sector and privatized industries.

ACCA:  The ACCA's members are not so easy to pigeonhole as the other professionally qualified accountants. They work both in public practice as auditors and as financial accountants. They also have an enormous number of overseas students. Many certified accountants train for their qualification in industry and never work in public practice.

CIMA: This is an important body whose members generally train and work in industry. They are found in almost every industry, ranging, for example, from coal mining to computing. They mainly perform the management accounting function.
CIPFA: This institute is smaller than the ICAEW, ACCA or CIMA. It is also much more specialized with its members typically working in the public sector or the newly privatized industries, such as Railtrack. CIPFA members perform a wide range of financial activities within these organisations, such as budgeting in local government.

Second-Tier Bodies

The main second-tier body in the UK is the Association of Accounting Technicians. This body was set up by the major professional accountancy bodies, Accounting technicians help professional accountants, often doing the more routine bookkeeping and costing activities.
Many accounting technicians go on to qualify as professional accountants. The different accountancy bodies, therefore, all perform different functions. Some work in companies, some in professional accountancy practices, some in the public sector.

Lay Priest

The accountant working for a company

Mendicant Priest

The professional accountant in a partnership

Monastic Priest

The banker, who, while not strictly an accountant, serves much the same ends in a separate and semi-isolated unit

Father Confessor

The auditing accountant to whom everything is (officially) revealed, and who then grants absolution.

Limitations of Accounting

Accounting, therefore, measures business transactions in numerical terms. It thus provides useful information for
managers and other users of accounts. It is, however. important to appreciate certain limitations of accounting.

  1. Accounting tends to measure the cost of past expenditures rather than the current value of assets.
  2. Traditional accounting does not capture non-financial aspects of business. Thus, if an industry pollutes the air or the water, this is not recorded in the conventional accounts. Nor does traditional accounting measure the human resources of a business or its knowledge and skills base. The accounts can' thus' only give a partial picture of a business's activities.

Accounting Firms in UK

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Historical Cost Valuation in Real Life

The merits of historical cost accounting and the advantages and disadvantages of the competing alternative measurement systems have been debated vigorously for at least 40 years.  However,  with some rare exceptions,  most companies worldwide still use historical cost.  for example This is not to say that experimentation has not occurred in the Netherlands,  for a […]

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Historical Cost vs Replacement Cost

Historical cost

Historical cost has always been the most widely used measurement system. Essentially, transactions are recorded in the books of account at the date the transaction occurred.
This original cost is maintained in the books of account and not updated for any future changes in value that might occur.

An illustration

if we paid £5,000 for a building in 1980, this will be the cost that is shown in the balance sheet when we prepare our accounts in 2006. This is even when the building has increased in value to say £20,000 through inflation.
The depreciation will be based on the original value of the asset(i.e., f5,000 not t20,000)
The main strength of historical cost is that it is objective. In other words, you can objectively verify the original cost of the asset. You only need to refer to the original invoice. In addition, historical cost is very easy to use and to understand. Finally, historical cost enables businesses to keep track of their assets. There is, however, one crucial problem with historical cost. It uses a fixed monetary capital maintenance system, which does not take inflation into account. This failure to take into account changing prices can cause severe problems. In particular, as Soundbite 12.2 shows, it may not accurately value a company's worth Replacement

Historical Cost and Asset-Rich Companies

The balance sheets of asset-rich companies, such as banks,  may not reflect their true asset values,  if prepared under historical cost accounting.  Why do you think this might be?  f we take banks and building societies as examples of asset-rich companies,  these businesses have substantial amounts of prime location fixed assets occupy properties in central locations.  These properties were also often acquired many years indeed possibly centuries ago.  ago,  Using strict historical cost,  these buildings would be recorded in the balance sheet at very low amounts.  This is because over time money values have changed.  If a prime site was purchased for £1,000 in 1700 that might have been worth a lot then.  Today,  it might be worth say £400 million.  Thus,  fixed assets will be radically understated,  unless revalued.

 

 

Replacement Cost

Replacement cost attempts to place a realistic value on the assets of a company
It is concerned with maintaining the operating capacity of a business. Essentially, replacement cost asks the question:
what would it cost to replace the existing business assets with identical, equivalent assets at today's prices? Replacement cost is an alternative method of measuring the assets and profits of a business rather than principally a method of tackling inflation. In the Netherlands, replacement costing has been successfully used by many businesses, such as Heineken. As The Company Cam era 12.1 shows, Heineken values its tangible fixed assets at replacement cost based on expert valuation.  the problem for the Dutch is not I convincing rest of the world that it so much the difficulties of using replacement cost,  but of the is a worthwhile system.

Example of Replacement Cost

Replacement Cost in SmithX Tangible Fixed Assets(Property,  Plant and Equipment)

Except for land,  which is not depreciated,  tangible fixed assets are stated at replacement cost less accumulated depreciation.  The following average useful lives are used for depreciation purposes:  

  • Buildings 30-40 years
  • Plant and equipment 10-30 years
  • Other fixed assets 5-10 years

The replacement cost is based on appraisals by internal and external experts,  taking into account technical and economic developments.  Other factors taken into account include the experience gained in the construction of breweries throughout the world.  Grants received respect of investments in tangible fixed assets are deducted from the amount of the investment.  Projects under construction are included at cost.

 

Read more: Historical Cost Valuation in Real Life

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Measurement Systems

Measurement systems underpin not only profit, but also asset valuation. Essentially, a measurement system is the way in which the elements in the accounts are valued. Traditionally, historical cost has been accepted measurement system. Incomes, Expenses, Assets and liabilities have been recorded  in the accounting system at cost at the time that they were first recognized. […]

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Depreciation and Fixed Assets

Fixed assets must be differentiated from current assets and investment assets. Current assets are assets with a value available to the business in the short term, which is usually taken to mean up to a year. These are cash and assets used in the course of business, such as stock and debtors(money owing by customers). […]

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Creative Accounting

It is about how businesses use the flexibility inherent in accounting to manage their results. In itself, flexibility is good because it allows companies to choose accounting policies that present a ‘true and fair view’. However, by the judicious choice of accounting policies and by exercising judgement, accounts can serve the interests of the prepares […]

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Cash Book Format

We are listening many times terms like "cash" and "money" in any business and shops. because all trading transactions are on cash flow and it is the base of any business with format of in bank or in hand. So that, a successful business should keep its cash transactions very clear with true format in a cash book for decision times to get more profits. so that, understanding cash book format is a most for cash flow reports.

 

Parts of Cash book

All accounting transactions should be recorded and keep in a suitable section in ledger book, there many types of transactions between products, customers and suppliers. so that, relations of these transaction will be by cash or credits. Transactions of items of products and services will be kept in sales day book and purchase book and therefore all money transactions will keep in cash book. so any cash payment and cash receipt will record in cash book.

Cash book is a separate accounting book that includes columns as:

  • Date
  • Accounts
  • Description
  • Debit
  • Credit

Any record with debit amount means cash amount will store in cash account and reverse.

Formats

Typically, we can find two format for a cash book

  1. Official Format

  2. Shop Format

Official format of Cash Book

Official format of Cash Book

In official format there are columns Date, Description, Debit and Credit but in shop format there are columns: Date, Description, Income and Expense.

Shop format of Cash Book

Shop format of cash book

Debit and Credit are used in accounting concepts and professional format but these terms are hard to understand for normal user so in shop format term Income will used for Debit and Expense Will used for Credit.

Types of Cash Book

  • Two Column Cash Book
    • This type, has two columns as Debit (Income) and Credit(Expense) for Only Cash account so it mentions to All money in hand and bank
  • Triple Column Cash Book
    • This type, has three columns as Debit, Credit, and a column for cash type ( cash in hand or cash in bank). Benefit of this type of cash book is to recognize where is cash? in hand or in bank and we can have more clear reports and statement of cash flow
Cash Book in Triple Column

Cash Book in Triple Column

Petty Cash Book

Petty cash is one of big volume account in any business because of much quantity of charge payments for daily charges of offices or..

However, in the most company, petty cash transactions keep in separate book as name petty cash book.

 

How to Use Cash Book

As you know, cash transactions are too much and everyday too many voucher will be recorded. so it is recommended to enter cash payments and cash receipt at the end of day and before leaving the job. Don't leave them to do in the next day because you will get more delay vouchers day by day so that will grow to huge quantity of vouchers and it will make more mistakes in big time working.

To read more:

 

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Short-Run Price Decision of Price Setting Firm

Companies can encounter situations where they have temporary un-utilized capacity and are faced with the opportunity of bidding for a one-time special order in competition with other suppliers. In this situation only the incremental costs of undertaking the order should be taken into account. It is likely that most of the resources required to fill the order will have […]

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Pricing non-customized products andservices using target costing

Instead of using the cost-plus pricing approach described in above example (Case A) whereby cost is used as the starting point to determine the selling price, target costing is the reverse of this process. With target costing the starting point is the determination of the target selling price. Next a standard or desired profit margin is deducted to […]

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