Tuesday, August 31, 2010

Job Card Cost Accounting

What is a Job Card and what is it benefits for cost accounting?

A job card or job ticket is maintained for every job that workers complete for a cost accounting system. When a worker begins a job, a job card  with the number of the job is given to him/her.

The worker record on the job card the time of taking up and finishing the job. In most cases this is done by computers and other electronic devices. As soon as a job is completed the worker is given job card of another job to be done by him.

In case the job is suspended or the worker does not get another job soon after the completion of a job, he should contact the time-keeper so that appropriate booking of waiting time may be made on the ‘Idle time card”.

A job card, thus, performs two functions in the bigger cost accounting picture:

  1. It authorises a worker to carry out the operations detailed thereon.
  2. It enables the correct allocation of wages to jobs, operations or processes.
Certain Benefits of Using a Job Card System Include:
  • Reducing normal idle time.
  • Giving clear, logical and suitable information to the costing accounting department. 
  • Providing a  link between the production control and costing departments
  • Job cards also give information about number and particulars of job accurately.

Wednesday, August 25, 2010

Accounting for Merchandising Operations

Merchandising Issues and Accounting

Merchandisers will derive most of their income from the sale of goods.  Usually the largest expense for a merchandiser is cost of goods sold.  This is also known as the cost of sales.

The difference between the net sales of a company and cost of goods sold is gross profit, which is also called the gross margin. This will be recorded on the income statement.

To keep track of what they own, a merchandiser will use the Merchandise Inventory account on the balance sheet.  It represents the stock of goods on hand and in the inventory that can be sold to customers.

There are two types of inventory systems; the perpetual inventory system which keeps a record of all of the ins and outs in the inventory account and the periodic inventory system which only updates the inventory account at the end of the period.  Most companies use a perpetual inventory system because technology has made it cheap to do so.

This means that the merchandise inventory account is updated for every purchase and decreased for every sale.  Returns of goods also affect the account.

Friday, August 20, 2010

Arbitrage Pricing Theory v Capital Asset Pricing Model

The arbitrage pricing theory is an alternative to the capital asset pricing model for estimating certain assets estimated returns. The Arbitrage pricing theory doesn't assume that an investor will employ a mean variance analysis for their analyzing their capital investment decisions. The theory uses only industry specific factors that are predicted to affect the capital investment or security future returns. Therefore, the investor can use a number of factors may measure the underlying systematic risk of an asset under arbitrage pricing theory.

Arbitrage pricing theory is similar to using a capital asset pricing model because it is founded on the idea investors biggest gains will be non diversifiable risk. This is because diversifiable risk is not compensated beta and is considered the a vital factor in using the capital asset pricing model that captures the entire systematic risk of a capital asset or other type of investment.

Thursday, August 19, 2010

When is a Reverse Stock Spilt Used?

A reverse stock split can be used in a situation where a stock share is trading at very low price ranges for the company. Companies will use this to make their stock look more marketable on stock exchanges and more appealing for smaller investors.

Furthermore, a reverse stock split is an important accounting process by a corporation of issuing to each current shareholder in that company a smaller number of new shares in proportion to that shareholder's original shares that are subsequently canceled.  This can also be called a stock merge.

Important things to remember:

  1. With a share split, the number of shares increase by some factor, while  the par value per share decreases by the same factor, leaving the value of common shares unchanged (no journal entry is necessary). Basically, the investor is in the same position as before. 
  2. Share splits are performed so that the share price is in a ‘normal’ trading range 
  3. Generally, a reverse split is only used when the company's hare price is very low.

Saturday, August 14, 2010

Fixed Costs and Variable Costs Examples

The following are examples of fixed costs and variable costs:
  • Indirect labor- fixed costs could be variable under certain circumstances
  • Indirect materials- variable costs
  • Insurance on building- fixed costs
  • Depreciation on building (straight-line)- fixed costs
  • Overtime premium pay- variable costs
  • Property taxes- fixed costs
  • Polishing compounds- variable costs
  • Depreciation on machinary (based on machine hours used)- variable costs
  • Employer's payroll taxes- variable costs
  • Machine lubricants- variable costs
  • Employees' hospital insurance (paid by employer)- fixed costs
  • Labor for machine repairs- variable costs
  • Vacation pay- variable costs
  • Patent amortization- fixed costs
  • Janitor's wages- fixed costs
  • Rent- fixed costs
  • Factory electricity- fixed costs
  • Plant manager's salary- fixed costs

Friday, August 13, 2010

Accounting Income Statement

The main purpose of the accounting income statement is to report the net income earned by a company during a specified period. Most company's issue annual and quarterly income statements.

The income statement is generally considered the best representation of a company's financial health. A well prepared should answer the following questions:

  1. What is the company's current financial status (profit/loss) ?
  2. What were the company's operating results for the period?
  3. What did the company use its cash for during the period.

Additional Links to Accounting Problems and Examples:

Wednesday, August 11, 2010

What is default risk?

In relation to financial and managerial accounting, default risk is the probability that a company or customer will not be able to make timely debt or interest payments when they are required.

When the amount of debt in a company's capital structure increases, the likelihood of default increases significantly because the principal and required interest payments become much larger.

Additional Accounting Examples:

Tuesday, August 10, 2010

Integrated Financial Model Definition

What is an Integrated Financial Model?

In accounting terms, an integrated financial model is a spreadsheet based financial model that integrates projected revenues and expenses from all company's business activities into financial performance pro-forma projections over a specified period of time.

Dependent upon the complexity of the integrated financial model, the output can be at a very high level (easier to calculate) to highly granular output (very high degree of complexity).

Thursday, August 5, 2010

Two Main Disadvantages of LLC

Sometimes choosing an LLC as a business form is not always the best choice of entity. It might be better in some circumstances for business owners to choose a corporation or a standard partnership.

  1. One of the main disadvantages of the LLC form of business over the other pass-through entities is that since the LLC is a relatively new entity under many different state laws. The governing law, both tax and nontax, concerning most LLCs is not as well developed as it is with S corporations and partnerships. This could result in some uncertainty with certain transactions. 
  2. Another significant disadvantage of the LLC over the limited partnership form is that a LLC is more likely that an unwanted dissolution of the LLC will occur.  The LLC typically terminates on the death, resignation, expulsion, bankruptcy, or dissolution of any of its members. Again, this could lead to uncertainty with the LLC form of business entity over corporate forms. 

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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.