Friday, July 24, 2009

Examining Inventory Management Techniques

The most important factor when looking at an inventory management system is to track the inventory performance or turnover rate  of the company.  This rate is the speed at which a company converts its current actual investment in its inventory into actual sales to customers. This eventually leads to profit for the company.

For most types of small business, inventory that doesn’t sell  easily can be very bad to its bottom line. In certain situations, this may be worse than having no inventory at all. This is because the unsold inventory becomes a financial liability on a company's books after sitting around for a long time and not being sold.

  • Inventory Turnover rate can be computed by dividing the cost of goods sold (COGS) by the average inventory age. 
  • Inventory Turnover Rates can often change rapidly throughout the year. It is possible for accountants to anticipate these fluctuations in their industry respond by having the right amount of inventory on hand 

Tuesday, July 21, 2009

Owner Withdrawal Journal Entry

Sometimes an owner with withdrawal money from their company for personal use. This must be recorded on the accounting ledger through a journal entry in order to ensure that the balance sheet is properly updated.

Type of Journal Entry
Account titles
Recording a withdrawl of money from a company for the owner’s own personal use
Owner’s Withdrawal



Saturday, July 11, 2009

Main Features of Joint Venture

The main features of a joint venture are as follows:

  1. Two or more person are needed to be engaged in the business
  2. There is an agreement to execute a particular venture or a project. 
  3. The joint venture business may not have a specific name and is considered part of each of the others main business
  4. The Joint-Venture is temporary nature. The agreement regarding the venture automatically stands terminated as soon as the venture is complete and the desired result is achieved. 
  5. The co-venturers share profit and loss in an agreed ratio that is stated in the contract. The profits and losses are to be shared equally if not agreed otherwise in the joint-venture contract.
  6. The co-venturers are free and legally able to continue with their own business unless agreed otherwise during the life of joint venture between them. For example, there might be certain non-compete agreements

Sunday, July 5, 2009

Sales Personnel Customer Credit

What is the best way to decide to grant customers credit?

Sales personnel have vast experience of working in the same territory and always know highly updated either via personal experiences or peers. Basically, the know the most information about a client and can make a better decision to grant credit than upper management.  Granting credit for the first time involves a risk and to minimize the risk they can be utilized as a very good source of information.

However; there are also certain chances that sales personnel may grant credit for certain personal reasons.  So, a company should not rely on one way to grant credit but also use all the other tools to make the final decision.

Saturday, July 4, 2009

Calculate Average Employee Compensation

How do you calculate the average employee compensation of a company?

Average employee compensation is calculated and shows a comparison to be made between executive salaries and  general worker yearly salaries. An accountant could estimate average annual income for a certain category of employees based on knowledge of their base rate and an assumption about average annual hours of work (find the average amount in the industry).

The company could list its average employee compensation in a note to its financial statements.

Indirectly the company’s average compensation can be calculated if they break out total labor costs on the income statement  and report average total employment.

Friday, July 3, 2009

Computer Accounting System Modules

Modern computer accounting systems contain different modules in order to function correctly. Each module handles a different task. For example data collection, processing, and reporting for each type of business activity that the company is involved in. Some examples include:

  • Sales Moduless
  • Purchasing Modules
  • Inventory Management Modules
  • Human resources module
  • Production Module

Thursday, July 2, 2009

Accounting Regulations External Decision Makers

How external decision makers benefit from accounting regulations and laws?

Enforced accounting regulations help protect the interests of external decision makers such as stockholders and banks by ensuring that information for evaluating the performance and financial condition of a company is available to necessary users and that the information presented is prepared by certified professionals according to specific guidelines that are enforceable by law.

Accounting guidelines provide assurance that the information presented is:
  1. Accurate
  2. Reliable
  3. Comparable over time and across companies.

Wednesday, July 1, 2009

Organizational Cost Drivers Example

Organizational Cost Drivers

Organizational cost drivers influence costs of a company by affecting the types of activities and the costs of activities performed to meet demand for a company's products. In a manufacturing company, previous decisions about plant, equipment, and location cannot be changed when making decisions about organization cost drivers. These must be taken as they are and can be changed with significant investment.

Examples of organizational cost drivers at a manufacturing company:

  • Working closely with a limited number of suppliers 
  • Developing linkages with suppliers
  • Providing employees with cost information
  • Authorizing employees to make cost decisions
  • Reorganizing the existing equipment
  • Designing components of a product so they integrate together
  • Manufacturing on particular equipment
  • Keeping the plant open certain hours

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.