Friday, September 10, 2010

Vertical Analysis of Balance Sheets

Learn how to do vertical analysis of a balance sheet.


Saturday, May 15, 2010

Vertical Analysis



Saturday, May 1, 2010

What is the Difference Between Bookkeeping and Accounting?

By John Dixon

What is the difference between bookkeeping, accounting, and accountancy? When someone says they are an accountant, are they really a bookkeeper? Does it really matter?

Bookkeeping

Bookkeeping is the process of systematically recording the financial transactions of a business, so as to show how the transactions relate to each other. Bookkeeping is largely a mechanical process and does not involve any analysis of the financial transactions, but rather the recording of them.

Traditionally, the records were kept in a book, hence the name bookkeeping. These days, bookkeeping is normally performed using a bookkeeping software package, but the names of the books (daybook, cashbook, journal, and ledger) are still used.

A bookkeeper's function is primarily one of recording transactions in the journal and posting to the ledger, and is sometimes referred to as an accounts clerk.

There are two types of bookkeeping: single entry and double-entry. In single entry bookkeeping, the record of each transaction is carried to either the debit or credit column of a single account. In double-entry bookkeeping, two entries of each transaction are carried to the ledger: one to the debit side, and one to the credit side, of the corresponding account. This is so the two entries can be used to check each other.

Accounting

Accounting is the systematic recording, reporting, and analysis of financial transactions of a business. As bookkeeping involves making a financial record of business transactions, it is true to say that the role of bookkeeping is encompassed within the scope of accounting, and the bookkeeping system used by a business would form part of the accounting system.

Accounting also includes the preparation of statements concerning assets, liabilities and the operating results of a business.

Accountancy is the occupation related to accounting, and an accountant is the person who does, or at least is responsible for, the work. Accountants often specialize in a particular area of accounting such as taxes, auditing, or management.

In a small company, all of the bookkeeping and accounting tasks may well be performed by a single person. In this situation, that person would normally be referred to as an accountant.

About the Author: John Dixon is a web developer working through his own company John Dixon Technology. As well as providing web development services, John's company also provides a free bookkeeping tool.

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Saturday, April 17, 2010

Different Methods of Allocating Costs



By Peter Robertson

Different methods of allocating costs

First, we will start with Direct Costs. In the previous article I indicated that it is advisable to allocate direct or (known) costs to the product or service whenever possible.

There are a number of methods used. The most common one being used by service type industries such as the local mechanic:-

DIRECT COSTS

Job Costing

For some, this takes the form of a docket book in which they write down each expense relative to the job being undertaken. In larger workshops and small factories there is often a job sheet or card that follows the product along the assembly line. These can be specially printed, or with many of the Small to Medium Enterprises (SME) the accounting package used may print one.

On jobs that extend over a longer period if these cards are collected and entered into the accounting program then the value of Work in Progress for each job may be obtained. It is also possible to see how actual costs compare with those in the quotation.

One of these expenses is of course Workshop Labour. Few firms are ever able to track each employee's direct labour cost as the employee often is shifted from one job to another too frequently for this to be practicable. The clerical cost of this recording of labour is also prohibitive.

Once a firm has been able to establish a cost history for labour the most sensible way of allocating this is to establish how many different categories of employee are on the payroll. That is, an average cost may be established for a supervisor, another average cost for leading hands, another for permament tradesmen and yet another for casual employees. With apprentices, there may be different average rates based on years of training.

All these labour rates should take into account not only gross wages paid, but also such extra costs as employer superannuation contribution, WorkCover levy, any regular tool or car allowances, and any salary sacrifice costs that affect the employer.

Process or Batch Costing.

The theory here is not much different to Job Costing except that instead of the costs being allocated to a specific job to be charged out, they are being allocated to a production run of some product. The end result is that an average cost can be established for one of a number of products being processed at one time.

Standard Costs

These are established by larger firms such as automotive manufacturers. When a production run is scheduled the costs are accumulated at standard contract rates as soon as Purchase Orders are issued. A detailed analysis is subsequently undertaken of the costs of over or under supply of materials and labour. Even the costs of wear and tear of plant are charged against the run based on standard machine hours that should occur. I consider that it is unlikely that any SME would need to consider seven variable Standard Cost reporting.

INDIRECT COSTS

These are usually associated with the cost of running the front office, sales team costs, advertising and any other cost that can not be reasonably allocated direct to the Job or Process Cost.

As mentioned in the previous article all costs have to be recovered, and provision made for replacement of plant (as distinct from depreciation of historic cost by the Tax Agent), and of course a profit for the investors. The most usual method of applying these indirect or on-costs is as a percentage to be added to the Direct or known costs.

Modern accounting software for SME provides for Plussage to be added to purchase cost e.g. in MoneyWorks Gold, and when the selling price is shown, the percentage mark-up can be set to also show on the screen. This then enables the salesperson to know how much they can safely reduce the price if bargaining is practiced.

A future article will deal with the concepts of budget setting in more detail.

Peter Robertson ACIS, CPA, PNA is not a Registered Tax Agent, however, he had forty years of practical experience covering both industrial and government accounting, and including efficiency and effectiveness audits. He has decided to pass on some proven costing and general accounting theories in the hopes that it may assist prospective entrepreneurs. Peter may be contacted through http://www.money-works.com.au.

Article Source: http://EzineArticles.com/?expert=Peter_Robertson
http://EzineArticles.com/?Practical-Accounting-2&id=162416