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Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs." (IMA) Often considered a subset of managerial accounting, its end goal is to advise the management on how to optimize business practices and processes based on cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.
In financial accounting, a balance sheet is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
Inventory or stock refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.
In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wears, and second, the allocation in accounting statements of the original cost of the assets to periods in which the assets are used.
Tax deduction is a reduction of income that is able to be taxed and is commonly a result of expenses, particularly those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and credits. The difference between deductions, exemptions and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable to a third party at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs. Forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their receivables to a forfaiter. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. Accounts receivable financing is a term more accurately used to describe a form of asset based lending against accounts receivable. The Commercial Finance Association is the leading trade association of the asset-based lending and factoring industries.
In finance, valuation is the process of determining the present value (PV) of an asset. Valuations can be done on assets or on liabilities. Valuations are needed for many reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability.
A company's earnings before interest, taxes, depreciation, and amortization is an accounting measure calculated using a company's earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company's current operating profitability.
Project accounting is a specialized form of accounting, designed around serving the needs of project delivery. It helps track, report, and analyze financial results and implications. This includes creating financial reports designed to track the financial progress of projects, which can be used by managers to aid project management.
A deferral, in accrual accounting, is any account where the income or expense is not recognised until a future date, e.g. annuities, charges, taxes, income, etc. The deferred item may be carried, dependent on type of deferral, as either an asset or liability. See also accrual.
The revenue recognition principle is a cornerstone of accrual accounting together with the matching principle. They both determine the accounting period in which revenues and expenses are recognized. According to the principle, revenues are recognized when they are realized or realizable, and are earned, no matter when cash is received. In cash accounting – in contrast – revenues are recognized when cash is received no matter when goods or services are sold.
Construction accounting is a form of project accounting applied to construction projects. See also production accounting. Construction accounting is a vitally necessary form of accounting, especially when multiple contracts come into play. The construction field uses many terms not used in other forms of accounting, such as "draw" and progress billing. Construction accounting may also need to account for vehicles and equipment, which may or may not be owned by the company as a fixed asset. Construction accounting requires invoicing and vendor payment, more or less as to the amount of business done.
Accounting for leases in the United States is regulated by the Financial Accounting Standards Board (FASB) by the Financial Accounting Standards Number 13, now known as Accounting Standards Codification Topic 840. These standards were effective as of January 1, 1977. The FASB completed in February 2016 a revision of the lease accounting standard, referred to as ASC 842.
Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes accountability rather than profitability, and is used by Nonprofit organizations and by governments. In this method, a fund consists of a self-balancing set of accounts and each are reported as either unrestricted, temporarily restricted or permanently restricted based on the provider-imposed restrictions.
The installment sales method is one of several approaches used to recognize revenue under the US GAAP, specifically when revenue and expense are recognized at the time of cash collection rather than at the time of sale. Under the US GAAP, it is the principal method of revenue recognition when the recognition occurs subsequently to the sale.
Work in process (WIP), work in progress (WIP), goods in process, or in-process inventory are a company's partially finished goods waiting for completion and eventual sale or the value of these items. These items are either just being fabricated or waiting for further processing in a queue or a buffer storage. The term is used in production and supply chain management.
Percentage of completion (PoC) is an accounting method of work-in-progress evaluation, for recording long-term contracts. GAAP allows another method of revenue recognition for long-term construction contracts, the completed-contract method.
The cash method of accounting, also known as cash-basis accounting, cash receipts and disbursements method of accounting or cash accounting records revenue when cash is received, and expenses when they are paid in cash. As a basis of accounting, this is in contrast to the alternative accrual method which records income items when they are earned and records deductions when expenses are incurred regardless of the flow of cash.
IFRS 15 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for revenue from contracts with customers. It was adopted in 2014 and became effective in January 2018. It was the subject of a joint project with the Financial Accounting Standards Board (FASB), which issues accounting guidance in the United States, and the guidance is substantially similar between the two boards.
The IAS 11 standard of International Accounting Standards set out requirements for the accounting treatment of the revenue and costs associated with long-term construction contracts. By their nature, construction activities and contracts are long-term projects, often beginning and ending in different accounting periods. Until its replacement with IFRS 15 in January 2018, IAS 11 helped accountants with measuring to what extent costs, revenue and possible profit or loss on the project are incurred in each period.
References
- ↑ Samuel C. Weaver; J. Fred Weston (23 February 2004). Finance & Accounting for Non-Financial Managers. McGraw-Hill Professional. p. 30. ISBN 978-0-07-143536-9 . Retrieved 4 March 2012.
- ↑ Michael C. Thomsett (July 2001). Builder's Guide to Accounting. Craftsman Book Company. p. 25. ISBN 978-1-57218-105-2 . Retrieved 4 March 2012.
Sources
- Wiley IFRS 2015: Interpretation and Application of International Financial Reporting Standards, PKF International Ltd, ISBN 978-1-118-88955-8, February 2015, 1032 Pages.
