...The formation of the debit and credit concept
In this simplified form we can begin to see what the mathematician and Father of Accounting (Luca Pacioli) saw in 1494 when he codified the double-entry bookkeeping system. It is his codified system that outlined the rules for applying debits and credits when recording the financial transactions of a business in the double-entry bookkeeping system.
Now remember that Luca’s book in 1494 was written and published in Latin and at a time when the concept of negative numbers was not yet accepted in Europe. So he spoke of the terms ‘Debere’ and ‘Credere’ which means
To maintain this fundamental truth that the value of the net assets of the business must be equal to the value of the owners equity, Luca introduced the concept that the net assets side of the equation would be represented as Debere (Debits = funds owed to the owners) and the owners equity side would be represented as Credere (Credits = funds entrusted).
Consequently, he could also see that financial activities that caused net assets to increase should be debited (more funds owed to the owners) and credited if decreased (less funds owed to the owners). The same principle applies to the owners equity side. An increase in owners equity would be credited (more funds entrusted in the business) and a decrease debited (less funds entrusted in the business).
Treatment of expenses and revenues
Finally, the treatment of expenses and revenues in the double-entry...
Submitted to: Dr. James Tong
MBA 507: Management Accounting
Submitted by: Rajvinder Brar
Definition – Historical cost
In accounting, historical cost is the original financial or monetary value of any economic item. It is based on a stable measuring assumption of a unit. Sometimes under some circumstances, assets and liabilities on a balance sheet can be shown at their historical or the original value at the time of purchase can be shown, as if there has been no change since it has been bought until after sometime. Also sometimes, the balance sheet value of the item may differ from its “true” value.
Historical costs are not useless in rapidly changing environment though it does not provide the market value of an economic item at that particular point of time.
The historical cost provides the management and the investors significant other options in recognising, reporting and measuring economic information. It cannot be useless, as it will help the owner or he manager to forecast the coming operational costs based on the previously available data. Its basic function is to tell the user the actual or true cost of the item. Without knowing the original costs future projections can be...
Chapter # 01
01) How does managerial accounting differ from financial accounting?
A: Managerial accounting is concerned with providing information to managers for use inside the organization. Financial accounting is con¬cerned with providing information to stockhold¬ers, creditors, and others outside of the organi¬zation.
02) Pick any major television network and describe some planning and control activities that its managers would engage in.
A: Five examples of planning activities include:
1. Estimating the advertising revenues for a future period.
2. Estimating the total expenses for a future period, including the salaries fo all actors, news reporters and sportscasters.
3. Planning how many new television shows to introduce to market.
4. Planning the network’s advertising activities and expenditures.
5. Planning each television show’s designated broadcast time.
Five examples of controlling activities:
1. Comparing the actual number of viewers for each show to its viewership projections.
2. Comparing the actual costs of running a production studio to the budget
3. Comparing the revenues earned from broadcasting a sporting event to the costs incurred to broadcast the event.
4. Comparing the actual costs of producing a made for television movie to its budget.
5. Comparing the actual cost of providing global and local news coverage to the budget....
...German Accounting - GPK
Leave it to the Germans to develop a costing model based on detail, precision and improving overall control. Flexible Analytic Cost Planning and Accounting (GPK) is a powerful tool, having withstood 60 years of alternative methodologies and widespread hands-on use across Europe. In manufacturing companies, particularly those with a homogenous product line, GPK can be used to define the effects of resource consumption to the bottom line while greatly illustrating to management their marginal cost tiers. The nature of GPK is to show managers what their true production costs are in order to drive strategy. But isn’t that the goal of most other cost accounting methods, such as activity-based costing and Japanese target costing?
By understanding GPK through its applicability, comparisons can be made to these other methods to determine if it is superior, necessary or, indeed, complementary to them. It is quite noteworthy that Andreas STIHL AG & Co., KG, a privately held firm, uses GPK and GAAP-based systems to assist in their corporate strategy. This speaks to the value of a GPK model, which is first measured against a traditional target costing approach.
GPK vs. Target Costing
In broad terms GPK and target costing are similar in that they both are used to drive cost control. It is the extent – or motive - of cost control efforts, however, that contrasts the two. Target costing begins with desired...
...Running Head: MANAGEMENT ACCOUNTING
The Management Accountant in Business
[Name of the Writer]
[Name of the Institution]
The Management Accountant in Business
Tesco Public Limited Company is a merchandising retailer and a grocery retailer multinational chain which has it’s headquarter in Cheshunt in the United Kingdom. Tesco as compared to its counterparts, Walmart and Carrefour, is the world’s third largest retail store with regard to the revenues that it generates. Tesco stands as the second largest retail stores of the world with regard to its profits, with Walmart being the first. Tesco has its retail stores spread across almost 14 countries of the world of Asia, North America and Europe. Tesco public limited company is the market leader in its home country United Kingdom with a market share of almost 30%. Tesco was founded by Jack Cohen in 1919 which operated as a group of stalls in the market. After its inception today Tesco plc operates across diverse areas of clothing, electronics, furniture, books, financial services and internet services.
Tesco is listed at the London Stock Exchange and is a part of the FTSE 100 index having a market capital of approximately £24.4 billion and a symbol of TSCO. Tesco has been operating with seven business segments, namely, Tesco Superstores, Tesco express, Tesco metro, Tesco extra, One stop, Tesco Homeplus, and Dobbies. The market share of Tesco as recorded in 2012 was 30.2% which was the highest as...
...Management accounting evolution
Since the early 1980s a number of ‘innovative’ management
accounting techniques have been developed such as
activity-based techniques (costing, budgeting and
management), strategic management accounting and the
balanced scorecard. It is believed that these ‘new’ techniques
have been introduced to overcome a claim that ‘outdated’
management accounting practices had provided misleading
information for planning, controlling, decision making and
communication. Changes in the business environment have
almost always been cited as the impetus for firms to
implement more advanced practices and adapt their
management accounting systems. The International
Federation of Accountants (IFAC) (in its statement on
Management Accounting Concepts) describes the
development of management accounting as an evolution in
• Stage 1 (pre-1950) – cost determination and financial
• Stage 2 (by 1965) – provision of information for
management planning and control.
• Stage 3 (by 1985) – reduction of resources waste in
• Stage 4 (by 1995) – creation of value through effective use
During the 1980s Kaplan, in his review of The Evolution of
Management Accounting (1984) and with Johnson in the
Relevance Lost book, levelled strong criticism at the
Managerial accounting is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization’s goals. Managerial accounting is an integral part of the management process, and managerial accountants are important strategic partners in an organization’s management team. The relation between accounting and management has been commonly expressed by the phrase, “Accounting is a tool of management”. Accounting practice has developed in response to a changing business economy. In view of these changes, effects have been made to clarify, redefine, and seek acceptance.
The role of managerial accounting is very different now than it was even a decade ago. In the past, managerial accountants operated in a strictly staff capacity, usually physically separated from the managers for whom they provided reports and information. Nowadays, managerial accountants serve as internal business consultants, working side-by-side in cross-functional teams with managers from all areas of the organization. Managerial accountants have traditionally been thought of as the bean counters or number crunchers in an organization. However, advances in accounting information systems and other changes in the past five or ten years have resulted in the automation of traditional accounting functions...
...challenges of implementing a lean accounting system in a lean manufacturing environment? Do you anticipate interest in lean accounting will grow, the methods will change, or the concepts will fade out and be replaced with another ‘flavor of the month’? How do you perceive lean principles affecting your career? Justify your answers.
I. Lean Accounting
Lean accounting often refers to more simplifiedaccounting practices that focuses on eliminating waste, reducing production lead time, and producing products on customer demand. But Lean accounting does not stand alone. It is enabled by lean thinking and lean production methods. And lean accounting not only needs lean manufacturing, it also facilitates lean manufacturing.1 That’s why lean accounting is always related to, but not necessarily have to be associated with lean manufacturing.
Here are some specific positive reasons that lean accounting is important.
1. Reduces time, cost, and waste by eliminating wasteful transactions and systems.
2. A better way to understand costs, product costs and value stream costs.
3. Provides information for better lean decision making.
4. Identifies the potential financial benefits of lean manufacturing improvements.
5. Frees up the time for finance people to work on lean improvement.
6. Focuses the business around the...