Common-Size Income Statements In Excel

A common technique among financial analysts is to examine common-size
financial statements. Common-size financial statements display the data not as
dollar amounts, but as percentages. These statements provide the analyst
with two key benefits:

1. They allow for easy comparisons between firms of different sizes.

2. They can aid in spotting important trends which otherwise might
be not be obvious when looking at dollar amounts.

A common-size income statement is one which shows all of the data as a
percentage of the firm’s total revenues. Excel makes the building of
common-size financial statements easy, as we’ll see with the EPI data.

To begin, we need to make room for the common-size income statements.
Select any cell in column B, or all of column B, by clicking on the column
header. From the menus choose Insert Columns which will insert a
new column to the left of the selected column. This new column will
need to be resized so that it is approximately the same size as column C,
which was formerly column B. Now, repeat this process with column D
(the 2003 data). In B4 and D4 enter the labels: 2004% and 2003%,
respectively. We will start building our common-size income statements
with the 2004 data. In B5 enter the formula: =C5/C$5.4 The resulting
display is likely to be nonsensical

because the formatting will be the same as the cells in column C.
So change the number format (Format Cells) to a Percentage
format with 2 decimal places. You should now see that the result
is 100.00%. Copy B5, select cells B6:B15, and then
choose Edit Paste. You have now created a common-size
income statement for 2004.

To create the common-size income statement for 2003, simply copy
B5:B15 and then paste into D5.

You can easily see why this is a useful tool for analysts. By looking
at row 8, you can instantly see that Selling and G&A expenses
have risen quite sharply in 2004 relative
to sales. Also, looking at row 15 instantly shows that the firm’s net profit margin

Accounting In Excel

Accounting In Excel, or the term “spreadsheet” that
covers a wide variety of elements useful for
quantitative analysis of all kinds. Essentially,
a spreadsheet is a simple tool consisting of a
matrix of cells that can store numbers, text,
or formulas. The spreadsheet’s power
comes from its ability to recalculate results
as you change the contents of other cells.
No longer does the user need to do
these calculations by hand or on a calculator.
Instead, with a properly constructed spreadsheet,
changing a single number (say, a sales forecast)
can result in literally
thousands of automatic changes in the model. The freedom
and productivity enhancement provided by modern
spreadsheets presents an unparalleled opportunity for
learning financial analysis.
Building an Income Statement in Excel(accounting in excel)

The image below presents the income statement for Elvis Products
International (EPI) for the year ending December 31, 2004. We
will build this income statement first, and then use it as a base
for creating the 2003 income statement.(click the image to enlarge)


Principle 1:
Make Excel do as much of the
work as possible. Whenever
possible, a formula should be
used rather than entering
numbers. In the long run this
will minimize errors.


Principle 2:
Format the worksheet so that
it is easy to understand.
Borders, shading, and font
choices are more than just
decorations. Properly chosen,
they can make important
numbers stand out and get the
attention they deserve.

While we are building the income statement, we want to keep
a couple of general principles in mind. Principle 1 says that we
want to make Excel do as much of the work as possible.
Any time a value can be calculated, we should use Excel to do
so. The reasoning behind this principle is that we want to avoid
mistakes and increase productivity. A little thought before
beginning the design of a worksheet can help to minimize data
entry errors, and increase productivity by reducing the
amount of data that needs to be entered. Principle 2 says
that we should format the worksheet in such a way as to make
it easy to comprehend. There are many times that you will be
creating a worksheet for others to use, or for your own use at a later
date. Properly organizing the cells and judicious use of color and
fonts can make the worksheet easier to use and modify.
1 Worksheets that are disorganized and sloppily formatted do not
engender faith in their results.

It is usually helpful when working with multiple worksheets in a
workbook for each sheet to be given a name other than the default.
With the right mouse button, click

Tag: Accounting In Excel

Calculating Your Print Ad’s Cost

I have good news and bad news about print media ad costs. The good news is
that most print media actually have easy-to-read (albeit somewhat difficultto-
understand) rate cards that list the various costs for assorted ad sizes — a
welcome relief from the way radio advertising is negotiated

The bad news is that the rate card is nothing more than a starting point in
the media-negotiation and buying process, because newspapers, especially,
have created so many permutations of their basic (or open) rates that even a
professional media buyer has trouble deciphering them in order to come up
with the most frugal media buy. And after you discover the nuances of one
publication’s rates and myriad discounts, you can then call the next publication
and start all over again — no two publications’ rates and discounts are
alike. (I think they do this just to totally confuse you and to give their salespeople
a reason for being.)

After deciding where you’re going to put your ad, you need the help of a sales
rep, But before you go into a meeting with a rep, you need to know a few things
about how print ads are priced.

For example, somewhere in the mists of time, all newspapers made the diabolical
decision that no two advertising pricing schemes would ever be the
same. Newspapers and other publications generally price print ads by multiplying
the number of columns wide, by the number of inches high, by a dollar
amount for each column inch. For example, a quarter-page ad in most newspapers
is 3 columns wide by 11 inches high, which makes it a 33-column-inch
ad. So if the open rate for your local paper is $50 per column inch, you have
an ad that can cost you $1,650 for one insertion.

Unfortunately, it’s not always that simple. Here are just a few of the seemingly
infinite variations possible to that simple pricing structure:

1, The initial $50 per-column-inch rate can change for numerous reasons,
because it’s the open rate (the rate paid by a new advertiser who runs an
ad only one time).

2 If you’re willing to commit to running your ad multiple times over a certain
time period, you can reduce the open rate by as much as 50 percent.

3 Newspapers and other publications often give discounts for new businesses,
minority-owned businesses, first-time advertisers, political advertisers, nonprofit
groups, and so on.

4 If you’re willing to commit to three ads per week, and if you’re also willing
to make a substantial dollar commitment over an extended time
period, you can dramatically reduce your rate per ad.

5 You may qualify for more than one of these discounts — for example, if
you’re willing to commit to a long-term buy and you’re also a nonprofit.

Usually, newspapers offer what they call pickup rates. A pickup rate is a discounted
rate newspapers give in return for running the same ad two or more
times in the same week. For instance, if your first ad runs in the Sunday
paper, your newspaper rep may quote you a pickup rate as follows: “Our
pickup rates are 20, 30, 40, then 50, 50, and 50.” That’s her way of saying that
if you run your ad a second time in the same week, you receive a 20-percent
discount; a third insertion in that week gets you a 30-percent discount; a
fourth insertion gets you a 40-percent discount; and for every time you run
the ad in that same week after that point, you receive a 50-percent discount.
And the discounts apply to all ads you run Clearly, the discounts definitely
have a way of adding up! The ad in my example earlier in this section, which
I priced at $1,650 for a single insertion, ends up costing $594 at the end of
one week if you run it multiple times — which gives you a discount of 64 percent!

Ad pricing is complicated, confusing, convoluted, and intimidating. The only
way you can be sure you’re getting the best rate possible is to tell your rep,
in no uncertain terms, “Give me all available rates.”

Double Entry Accounting System Design For Single-Entry Folks

Businesses and nonprofit entities use double-entry accounting.
But I’ve never met an individual
who uses double-entry accounting in personal bookkeeping. Instead, individuals use single-entry accounting. For example,
when you write a check to make a payment on your credit card balance, you undoubtedly
make an entry in your checkbook to decrease your bank balance. And
that’s it. You make just one entry — to decrease your checking account balance.
It wouldn’t occur to you to make a second, companion entry to
decrease your credit card liability balance. Why? Because you don’t keep a
liability account for what you owe on your credit card. You depend on the
credit card company to make an entry to decrease your balance.

Businesses and nonprofit entities have to keep track of their liabilities as well
as their assets. And they have to keep track of all sources of their assets.
(Some part of their total assets comes from money invested by their owners,
for example.) When a business writes a check to pay one of its liabilities, it
makes a two-sided (or double) entry — one to decrease its cash balance and
the second to decrease the liability. This is double-entry accounting in action.
Double-entry does not mean a transaction is recorded twice; it means both
sides of the transaction are recorded at the same time.

Double-entry accounting pivots off the accounting equation:

Total assets = Total liabilities + Total owners’ equity

The accounting equation is a very condensed version of the balance sheet.
The balance sheet is the financial statement that summarizes a business’s
assets on the one side and its liabilities plus its owners’ equity on the other
side. Liabilities and owners’ equity are the sources of its assets.

One main function of the bookkeeping/accounting system is to record all
transactions of a business — every single last one. If you look at transactions
through the lens of the accounting equation, there is a beautiful symmetry in
transactions (well, beautiful to accountants at least). All transactions have a
natural balance. The sum of financial effects on one side of a transaction
equals the sum of financial effects on the other side.

Suppose a business buys a new delivery truck for $65,000 and pays by check.
The truck asset account increases by the $65,000 cost of the truck, and cash
decreases $65,000. Here’s another example: A company borrows $2 million
from its bank. Its cash increases $2 million, and the liability for its note
payable to the bank increases the same amount.

Just one more example: Suppose a business suffers a loss from a tornado
because some of its assets were not insured. The assets destroyed
by the tornado are written off and the amount of the loss decreases
owners’ equity the same amount. The loss works its
way through the income statement but ends up as a decrease in owners’
equity.

Accumulated Depreciation Accounting

The basic theory of depreciation accounting is unarguable: The amount
of capital a business invests in a fixed asset, less its estimated future
residual (salvage) value when it will be disposed of, should be allocated
in a rational and systematic manner over its estimated useful life to the
business.

A fixed asset’s cost shouldn’t be charged entirely to expense in the year
the asset’s acquired. Doing so would heavily penalize the year of acquisition
and relieve future years from any share of the cost. But the opposite approach
is equally bad: The business shouldn’t wait until a fixed asset is eventually
disposed of to record the expense of using the asset. Doing so would heavily
penalize the final year and relieve earlier years from any share of the fixed
asset’s cost.

Essentially, cost less residual value should be apportioned to every year
of the fixed asset’s use. (Land has perpetual life, and therefore, its cost
isn’t depreciated.) The theory of depreciation is relatively simple, but
the devil is in the details. And, I mean details!

Frankly, there’s not much point in discussing the finer points of
depreciation accounting. I could refer you to many books written
by accounting scholars on depreciation. But as a practical matter the
federal income tax law dictates the depreciation methods and practices
used by most businesses. The IRS publication “How To Depreciate
property” (2005 edition) runs 112 pages. You ought to read this
pamphlet— if you have the time, and the stamina.

Let me step on the soapbox for a moment. The depreciation
provisions in the income tax law are driven mainly by political
and economic incentives, to encourage businesses to upgrade
and modernize their investments in long-term operating assets.
By and large, businesses follow income tax regulations on
depreciation. As the result, useful lives for depreciating
fixed assets are too short, salvage value is generally ignored,
and depreciation is stacked higher in the early years. In
other words: fixed assets generally last longer than their income
tax depreciation lives; when disposed of fixed assets often have
some salvage value; and, a strong case can be made for allocating
an equal amount of depreciation to each year over the useful life
of many fixed assets. In short, actual depreciation practices
deviate from depreciation theory. Okay, I’m off my soapbox now.

The cost of land is not depreciated. Land stays on the books at
original cost as long as the business owns the land. Ownership
of land is a right in perpetuity, which does not come to an end.
Land does not wear out in the physical sense, and generally holds
its economic value over time. Buildings, machines and other fixed
assets, on the other hand, wear out with use over time and generally
reach a point where they have no economic value. Assume the business
decides to maximize the amount of depreciation recorded in the year,
according to the provisions of the income tax law.

Sample Of Credit Policy,How To Create And Maintain Credit Policy

Today we talk about sample credit policy and how to maintain it,

One of the chief causes of confusion not only within the credit

department but also between the credit and sales departments

is the lack of consistency in dealing with customer credit issues.

This includes who is responsible for credit tasks, what logical

structure is used to evaluate and assign credit, what terms of sale

are used, and what milestones are established for the collection process.

Without consistent application of these items, customers never

know what credit levels they are likely to be assigned, collection

activities tend to jolt from one step to the next in no predetermined

order, and no one knows who is responsible for what activities.

Establishment of a reasonably detailed credit policy goes a

long way toward resolving these issues. The policy should

clearly state the mission and goals of the credit department,

exactly which positions are responsible for the most critical

credit and collection tasks, what formula shall be used for

assigning credit levels, and what steps shall be followed

in the collection process. Further comments are as follows:

Mission. The mission statement should outline the general

concept of how the credit department does business: Does it

provide a loose credit policy to maximize sales, or work toward

high-quality receivables (implying reduced sales), or manage

credit at some point in between? A loose credit policy might

result in this mission: ‘‘The credit department shall offer credit to

all customers except those where the risk of loss is probable.’’

Goals. This can be quite specific, describing the exact performance

measurements against which the credit staff will be judged.

For example, ‘‘The department goals are to operate with no

more than one collections person per 1,000 customers, while

attaining a bad debt percentage no higher than 2 percent of

sales, and annual days sales outstanding of no higher than 42 days.’’

Responsibilities. This is perhaps the most critical part of the policy,

based on the number of quarrels it can avert. It should firmly state

who has final authority over the granting of credit and the assignment

of credit hold status. This is normally the credit manager, but the policy

can also state the order volume level at which someone else, such as

the CFO or treasurer, can be called upon to render final judgment.

Credit level assignment. This section may be of extreme interest to

the sales staff, the size of whose sales (and commissions) is based on it.

The policy should at least state the sources of information to be used

in the calculation of a credit limit, such as credit reports or financial

statements, and can also include the minimum credit level automatically

extended to all customers, as well as the criteria used to grant larger limits.

Collections methodology. The policy can itemize what collection steps shall be

followed, such as initial calls, customer visits, e-mails, notification of the sales

staff, credit holds, and forwarding to a collections agency. This section can be

written in too much detail, itemizing exactly what steps are to be taken after a

certain number of days. This can constrain an active collections staff from

taking unique steps to achieve a collection, so a certain degree of

vagueness is acceptable here.

Terms of sale. If there are few product lines in a single industry, it is useful to

clearly state a standard payment term, such as a 1 percent discount if paid in

10 days; otherwise full payment is expected in 30 days. An override policy can

be included, noting a sign-off by the controller or CFO. By doing so, the

sales staff will be less inclined to attempt to gain better terms on behalf

of customers. However, where there are multiple industries served with

different customary credit terms, it may be too complicated to include this

verbiage in the credit policy.

Company management can experience significant losses if it loosens the

credit policy without a good knowledge of the margins it earns on its products.

For example, if it earns only a 10 percent profit on a product that sells for $10

and extends credit for one unit on that product to a customer who defaults,

it has just incurred a loss of $9 that will require the sale of nine more units

to offset the loss. On the other hand, if the same product had a profit of

50 percent, it would require the sale of only one more unit to offset the loss

on a bad debt. Thus, loosening or tightening the credit policy can have a

dramatic impact on profits when product margins are low. Consequently,

always review product margins before altering the credit policy.

When economic conditions within an industry worsen, a company whose

credit policy has not changed from a more expansive period will likely

find itself granting more credit than it should, resulting in more bad

debts. Similarly, a restrictive credit policy during a boom period will result

in lost sales that go to competitors. This latter approach is particularly

galling over the long term, since customers may permanently convert to

a competitor and not come back, resulting in lost market share. To

prevent these problems, schedule a periodic review of the credit policy

to see when it should be changed to match economic conditions. A

scheduled quarterly review is generally sufficient for this purpose.

To prepare for the meeting, assemble a list of leading indicators for

the industry, tracked on a trend line, that show where the business

cycle is most likely to be heading. This information is most relevant

for the company’s industry, rather than the economy as a whole,

since the conditions within some industries can vary substantially from

the general economy. If a company has international operations, then

the credit policy can be tailored to suit the business cycles of specific

countries.

If a company’s products are subject to rapid obsolescence, a tight

credit policy can result in limited product sales that leave excess

quantities on hand that will be scrapped. In such cases, loosen the

credit policy on those inventory items most likely to become obsolete

in the near term. The logic is that, even if inventory is sold to

customers with a questionable ability to pay for the goods, this at

least presents higher odds of obtaining payment than if the

company throws away the goods. To implement this approach,

keep the credit department informed of the obsolescence status of

inventory items, usually by having the sales, marketing, and logistics

staffs flag potentially obsolete items in the inventory database

and giving the credit department online access to this information.

When customers send in orders, the credit staff

accesses this information, verifies the obsolescence status

of the items ordered, and modifies the credit policy as needed.

Tags: sample credit policy

Depreciation Accounting Methods

The basic theory of depreciation accounting is unarguable: The amount of capital a business
invests in a fixed asset, less its estimated future residual value when it will be disposed
of, should be allocated in a rational and systematic manner over its estimated useful
life to the business.

A fixed asset’s cost should not be charged entirely to expense in the year the asset’s acquired.
Doing so would heavily penalize the year of acquisition and relieve future years from any
share of the cost. But the opposite approach is equally bad: The business shouldn’t wait
until a fixed asset is eventually disposed of to record the expense of using the asset. Doing so
would heavily penalize the final year and relieve earlier years from any share of the fixed
asset’s cost.

Essentially, cost less residual value should be apportioned to every year of the fixed asset’s
use. (Land has perpetual life, and therefore, its cost isn’t depreciated.) The theory of depreciation is relatively simple, but the devil is in the details. And, I mean details!

Frankly, there’s not much point in discussing the finer points of depreciation accounting. I
could refer you to many books written by accounting scholars on depreciation. But as a practical
matter the federal income tax law dictates the depreciation methods and practices used
by most businesses.

Let me step on the soapbox for a moment. The depreciation provisions in the income tax law
are driven mainly by political and economic incentives, to encourage businesses to upgrade
and modernize their investments in long-term operating assets. By and large, businesses
follow income tax regulations on depreciation. As the result, useful lives for depreciating
fixed assets are too short, salvage value is generally ignored, and depreciation is stacked
higher in the early years. In other words: fixed assets generally last longer than their income
tax depreciation lives; when disposed of fixed assets often have some salvage value; and, a
strong case can be made for allocating an equal amount of depreciation to each year over the
useful life of many fixed assets. In short, actual depreciation practices deviate from depreciation
theory. Okay, I’m off my soapbox now.

No depreciation expense for the year has been recorded yet, but obviously, some amount of
depreciation must be recorded. The business purchased all its fixed assets during the first
week of the year, and the assets were placed in service immediately, so the business is entitled
to record a full year’s depreciation on its fixed assets. (Special partial-year rules apply
when assets are placed in service at other times during the year.)

The company’s plant, property, and equipment account consists of the following components:

Land $150,000
Building $468,000
Machines $532,000
Total $1,150,000

The cost of land is not depreciated. Land stays on the books at original cost as long as the
business owns the land. Ownership of land is a right in perpetuity, which does not come to
an end. Land does not wear out in the physical sense, and generally holds its economic value
over time. Buildings, machines and other fixed assets, on the other hand, wear out with use
over time and generally reach a point where they have no economic value.

Assume the business decides to maximize the amount of depreciation recorded in the year,
according to the provisions of the income tax law.

How to take care of some housekeeping details

I want to point out a few things about income statements that accountants
assume everyone knows but, in fact, are not obvious to many people.
(Accountants do this a lot: They assume that the people using financial statements
know a good deal about the customs and conventions of financial
reporting, so they don’t make things as clear as they could.) For an accountant,
the following facts are second-nature:

Minus signs are missing. Expenses are deductions from sales revenue,
but hardly ever do you see minus signs in front of expense amounts to
indicate that they are deductions. Forget about minus signs in income
statements, and in other financial statements as well. Sometimes parentheses
are put around a deduction to signal that it’s a negative number,
but that’s the most you can expect to see.

Your eye is drawn to the bottom line. Putting a double underline under
the final (bottom-line) profit number for emphasis is common practice
but not universal. Instead, net income may be shown in bold type. You
generally don’t see anything as garish as a fat arrow pointing to the
profit number or a big smiley encircling the profit number — but again,
tastes vary.

Profit isn’t usually called profit.The bottom-line
profit is called net income. Businesses use other terms as well, such as
net earnings or just earnings. (Can’t accountants agree on anything?) In
this book, I use the terms net income and profit interchangeably.

You don’t get details about sales revenue. The sales revenue amount in
an income statement is the combined total of all sales during the year;
you can’t tell how many different sales were made, how many different
customers the company sold products to, or how the sales were distributed
over the 12 months of the year. (Public companies are required to
release quarterly income statements during the year, and they include a
special summary of quarter-by-quarter results in their annual financial
reports; private businesses may or may not release quarterly sales
data.) Sales revenue does not include sales and excise taxes that the
business collects from its customers and remits to the government.
Note: In addition to sales revenue from selling products and/or services,
a business may have income from other sources. For instance, a business
may have earnings from investments in marketable securities. In its
income statement, investment income goes on a separate line and is not
commingled with sales revenue.

Gross margin matters. The cost of goods sold expense is the cost of
products sold to customers, the sales revenue of which is reported
on the sales revenue line. The idea is to match up the sales revenue
of goods sold with the cost of goods sold and show the gross margin
(also called gross profit), which is the profit before other expenses are
deducted. The other expenses could in total be more than gross margin,
in which case the business would have a loss for the period.

Maths Words Problems

Today i write an article about maths words problems....
Mathematicians decided long ago to conserve on words and
explanations and replace them with symbols and single letters.

The only problem is that a completely different language
was created, and you need to know how to translate from
the cryptic language of symbols into the language
of words. The operations have designations such as +, –, ×, and ÷.
Algebraic equations use letters and arrangements of those letters and numbers
to express relationships between different symbols.

Words used in maths are very precise. The words have the same meaning
no matter who’s doing the reading of a problem or when it’s being
done. These precise designations may seem restrictive, but being strict is
necessary — you want to be able to count on a mathematical equation or
expression meaning the same thing each time you use it.

For example, in maths, the word rational refers to a type of number or
function. A person is rational if he acts in a controlled, logical way. A number
is rational if it acts in a controlled, structured way. If you use the word rational
to describe a number, and if the person you’re talking to also knows
what a rational number is, then you don’t have to go into a long, drawn-out
explanation about what you mean. You’re both talking in the same language,
so to speak.

Defining types of words that used for numbers
(maths words problems) Naming numbers

Numbers have names that you speak. For example, when you write down a
phone number that someone is reciting, you hear two, one, six, nine, three,
two, seven, and you write down 216-9327. Some other names associated with
numbers refer to how the numbers are classified.

Natural (counting): The numbers starting with 1 and going up by ones
forever: 1, 2, 3, 4, 5, . . .

Whole: The numbers starting with 0 and going up by ones forever.
Whole numbers are different from the natural numbers by just the
number 0: 0, 1, 2, 3, 4, . . .

Integer: The positive and negative whole numbers and 0: . . . ,–3, –2, –1,
0, 1, 2, 3, 4, . . .

Rational: Numbers that can be written as p/q where both p and q are
integers, but q is never 0:3/4,19/8,-5/21,24/6 and so on

Even: Numbers evenly divisible by 2: . . . ,–4, –2, 0, 2, 4, 6, . . .

Odd: Numbers not evenly divisible by 2: . . . ,–3, –1, 1, 3, 5, 7, . . .

Prime Numbers divisible evenly only by 1 and themselves: 2, 3, 5, 7, 11,
13, 17, 19, 23, 29, . . .

Composite: Numbers that are not prime; numbers that are evenly divisible
by some number other than just 1 and themselves: 4, 6, 8, 9, 10, 12,
14, 15, . . .

The Career Of Accounting

Accounting Careers:Types of accountants

Just as there are types of
accounting, there are also
types of accountants.While
there are many ways to
classify accountants, the
most common division is
between public and private
accountants.

Public accountants mainly deal with financial accounting (the preparation of financial statements for external parties such as investors). Private accountants deal with both financial and management accounting.

Career of accounting in which one Public or Private?

According to many college professors and career services counselors, most
college students interested in accounting should try to start their careers in
public accounting. This route carries a number of benefits, including higher
salaries, more interesting and diverse work, exposure to many different
industries and the ability to fulfill a requirement for certification

One senior manager at a Big Four firm captures the general opinion of the
majority of people we spoke with: “For someone just out of college, public
accounting is really the only way to go,” he says. “You gain experience and
get up the learning curve much more quickly. A public accountant will
perform three or four audits of entire companies in a year, whereas a private
accountant could be stuck monitoring cash ledgers – one account – for a year.
Even in the long term, there are benefits. You have more control over your
career progression. In private, you’ll often see highly productive and talented
individuals mired in their jobs or limited to lateral career moves because they
have to wait for the people above them to retire or otherwise leave the
company. Public accounting is much more of a meritocracy – you’ll advance
as fast and as high as you want to.”

However, public accounting life is not for everyone. Private accountants
generally don’t travel nearly as much as public accountants, and their work
schedules are much more stable – they rarely have to pack a briefcase and go
to a client at a moment’s notice. Private accountants also do not have to deal
with the chargeability issue (the pressure on public accountants to work on
billable projects as much of the time as possible). Finally, they are not
required to get their CPA and thus do not have to deal with the rigors of
fulfilling the grueling certification requirements

What Is Cost And Cost Accounting

Cost Accounting: Management accounting is often called cost
accounting and you will find the terms used interchangeably.
Cost accounting is generally considered the major subset of
management accounting. The field of cost accounting has most
of the analytical theories and approaches to cost behavior.
To make a distinction, management accounting looks to the
tasks of decision-making, policy setting, and communicating
information, while cost accounting collects and analyzes costing,
pricing, and performance details for internal management and,
crossing into financial accounting, for external reporting.

Management accounting systems can report information in
any way that is useful to management. The system does not
have to conform to GAAP.Unfortunately, once the
data is in the system, it is often unused or misused.
Managers are usually aware of what is in the externally
reported financials. What happens then is that managers
use only the information in external financial
reports—and so they make poor decisions. Successful managers
need to learn, through study or experience, the tools to
find and analyze the relevant data necessary to make good
business decisions.

Cost accounting varies, depending on whether you manufacture
or retail goods and on whether you provide a product or a
service. In each area, the approach to cost identification varies.
The goal of all approaches is to aid strategic decision-making
and cost management. There are some constants that you need
to understand in order to talk about cost accounting. You will
want to know how much you have to sell to meet expenses. You
will want to know the effect of pricing on sales volume.

In just about all systems, you want to find what it cost to
operate and maintain the business and the amount of profit
made within a specific time period. If you manufacture, you will
want to know the value of the raw materials and the work in
process. How much did you make from finished goods sold and
how many remain to be sold? You take those results and prepare
for the activities of the next time period. You make budgets
and forecasts. You compare with past time periods and look at
any variances that might need corrective action or improvement.
These results help you control, plan, and decide.

The Fundamental Equations of Accounting

The Income Equation- We find the direct answer to these three
questions on the income and expense statement. The income
statement equation— revenue – expenses = net income—is the
key to the income statement. The result here is simple arithmetic:
revenue (the gozinta) minus expenses (the gozouta) yields net income.


The Balance Sheet Equation- The balance sheet answers another set
of crucial questions for a company. Today, what is my company worth?
What’s in my bank account? How much money do other companies or people
owe me? How much money do I owe other people or companies?

The fundamental equation of accounting underlies the balance
sheet. It looks like this:

assets = liabilities + equity
assets – liabilities = equity
assets – equity = liabilities

The physical layout of the balance sheet matches the first
equation:

assets = liabilities + equity

This makes logical sense: the value of what the company
owns (assets) minus the value of what the company owes (liabilities)
leaves you with what the company is worth (equity).

Cash Accounting And Accrual Accounting

Today i am talking about cash accounting and accrual accounting. lets first start with
Cash Accounting.

The cash basis of accounting is the most elementary form of accounting and is typically used by individuals, small businesses, and school districts. Under the cash basis, revenues are recorded when received and expenditures are recorded when monies are paid.


The virtue of cash accounting is its simplicity. As accounting is not performed
until monies are received or spent, the relationship of revenues and expenses
to the accounting period in question is dependent on the actual flow of cash.
This system makes no provision for noncash transactions; therefore, the
accounting reports may provide inadequate information for control purposes
and may limit analysis of the financial condition of the entity.

The modified cash basis of accounting is the cash basis of accounting that
incorporates modifications “having substantial support.” A modification
having substantial support is not clearly defined. However, these
modifications are frequently made to recognize certain transactions on
an accrual basis and, thereby, represent transactions that would be
reported by an entity following General Accepted Accounting Principals
(GAAP). The modifications, however, should not be considered illogical
Districts need to work with their independent auditors to resolve any
questions or issues relating to the modified cash basis of accounting.

Accrual Accounting

Accrual accounting is a system whereby revenues are recognized when
earned and expenditures are recognized in the period incurred, without
regard to the time of receipt or payment of cash. This method of accounting
allows a more accurate evaluation of operations during a given fiscal period.
Accrual accounting may be based on one of two methods: full accrual or
modified accrual.

The term “full accrual” is sometimes employed and can have one of two
meanings. Either an extensive number of categories in both revenues and
expenditures are accrued and/or this activity is continuous (daily) rather
than periodic. Increasing the degree of complexity of financial reporting
creates an associated cost in the posting, recording, and balancing of more
accounts. Full accrual is typically used in enterprise and agency funds as a
number of major items that are considered expenses in a full costing system
(such as depreciation) need to be recognized.

Modified accrual accounting falls between the cash basis and the full accrual
basis and is the most common accrual basis used by school districts. In
modified accrual accounting, most revenues and expenditures may be
handled on a “cash” basis for daily processing and converted to an accrual
basis by periodic adjustments. The determination of how frequently the
adjustments will be made is a value judgment that depends on the
significance of the items, the purposes for the accounting, the need to
reflect the operations of the enterprise, and the associated cost and
complexity of the system.

General Journal Entries Examples

The best way to learn general journal entries to work with examples. Let's get started.

Let’s first review the rules of debits and credits by working with the accounting equation (Assets = Liabilities + Stockholders’ Equity). Assets are increased with debits and decreased with credits.

Liabilities are increased with credits and decreased with debits.

Below are the some general journal entries

Transaction 1 - A new corporation issues 1,000 shares of common stock and receives $75,000 cash.

Step 2 -- The journal entry is
Cash 75,000
Common Stock 75,000

Transaction 2 -- The corporation acquires equipment. The purchase price is $100,000. The corporation pays $25,000 cash and signs a note for the balance.

The journal entry is:

Equipment 100,000
Notes Payable 75,000
Cash 25,000

This is a compound entry because it has more than one credit. A transaction can affect more than one debit and/or more than one credit account. The important point is that the total of all debits equals the total of all credits for each journal entry.

Transaction 3 -- Services are performed and clients are billed for $40,000.

The journal entry is
Accounts Receivable 40,000
Service Revenue 40,000

Transaction 4 -- Salaries of $10,000 are paid.

The journal entry is
Salaries Expense 10,000
Cash 10,000

Transaction 5 – Cash, in the amount of $20,000, is collected from clients who were previously billed. (Transaction 3 - Services were performed and clients were billed for $40,000.

The journal entry is:
Cash 20,000
AR 20,000

Transaction 6 -- $1,000 of supplies are purchased on account.

The journal entry is:
Supplies 1,000
AP 1,000

Transaction 7 -- A contract is signed with a client. The client immediately pays $15,000 for services to be performed at a later date.

The journal entry is:
Cash 15,000
Unearned Revenue 15,000

Transaction 8 -- $1,000 is paid for the supplies purchased in Transaction 6.]

The journal entry is:
Accounts Payable 1,000
Cash 1,000

Transaction 9 -- Services are performed and cash of $2,000 is received.

The journal entry is:
Cash 2,000
Service Revenue 2,000

Transaction 10 -- Dividends of $2,500 are paid to the stockholders.

The journal entry is:
Dividends 2,500
Cash 2,500

These ten examples have given you an opportunity to work with the rules of debits and credits. (Practice)

In addition, you are now comfortable with the two step process of analyzing transactions and then recording them in the general journal. (Confidence)

Accounts Payable Job Description

Here's the accounts payable job description for Accounting Technician:

GENERAL PURPOSE

Under general supervision, performs responsible accounting support and administrative work in the preparation, processing, maintenance and verification of accounting documents and records, such as utility billing, business license renewal, payroll and/or accounts payable; and performs related duties as assigned.

ESSENTIAL DUTIES

The duties listed below are intended only as illustrations of the various types of work that may be performed. The omission of specific statements of duties does not exclude them from the position if the work is similar, related or a logical assignment to this class.

An Accounting Technician with primary responsibility for accounts payable, payroll and fixed assets:

Verifies, audits, edits and prepares bi-weekly payroll and maintains payroll records; reviews employee timesheets; identifies and works with appropriate department/s and/or supervisor to resolve timesheet discrepancies; enters data in the payroll system; generates, reviews and reconciles payroll reports to ensure accuracy and completeness of payroll and deductions; transmits direct deposit information; prints and distributes checks and direct deposit check stubs; enters employee transaction information in the payroll system as necessary.

Reviews, tracks and maintains records of applicable employee benefits; prepares and generates deferred compensation payment reports; prepares, generates and provides payroll reports to PERS; as appro-priate, reconciles health and benefits provider and City benefit data; compiles and provides necessary reports and initiates payment to providers; resolves billing errors and discrepancies with providers; maintains benefits and workers compensation files; processes workers’ compensation claims.

Informs and educates new employees regarding City benefit plans during the orientation process; answers department and employee questions regarding benefits plans and deductions; explains benefits eligibility, plan coverage’s and applicable regulations and carrier policies and procedures; as necessary, develops and/or provides pertinent information to employees about changes in benefit plans; processes employee benefit changes.

Reviews, processes, inputs and, as approved, prints and distributes checks for payment of vendor invoices and other accounts payable; contacts vendors with questions and/or responds to vendor inquiries and concerns; distributes vendor invoices for approval; inputs approved invoices; prepares bi-weekly demand registers; prepares manual checks as approved.

Prepares, reviews and reconciles quarterly and annual federal and state payroll tax reports, including generating, reviewing and distributing W2s and 1099s and corresponding reports within mandated time frames.

Maintains City fixed asset records; generates, reviews and updates fixed asset reports as required; coordinates bi-annual capital asset physical inventory; communicates with departments to ensure assets are properly recorded and tagged.

What Is The Difference Between The General Ledger and The Trial Balance?

There are four Parts to think about here:

Chart of Accounts
General Ledger
Trial Balance
Financial Statements

The Chart of Accounts is exactly what it says. It is simply a list of all the names
of the accounts found in the General Ledger whether there is an account balance
or not.

The General Ledger consists of all the accounts including some that may have a
zero balance. As said earlier, all transactions are summarized into these
accounts. A detail listing of every entry is recorded in the General Ledger.

The Trial Balance consists of a list of each General Ledger account that has a
final balance in it. The purpose of the report is to make sure that the debit
numbers equal the credit numbers. In the olden days, the Trial Balance was
used to verify the balances before preparing the financial statements. In today’s
world, this report is basically redundant in that the computer immediately
indicates whether the General Ledger is out of balance. Simply running a
financial statement and reviewing the account balances from there is often
sufficient, eliminating the need for the Trial Balance.

The Financial Statements of course, are a listing of all the final balances in the
General Ledger, but reformatted into financial statement form giving summary
totals and net profit or loss information.

Sample Of A Profit And Loss Statement

First of all i will tell you The Purpose of a P&L Statement.

A Profit and Loss (P&L) statement
measures a company’s sales and
expenses during a specified period of
time. The function of a P&L statement is
to total all sources of revenue and
subtract all expenses related to the
revenue. It shows a company’s financial
progress during the time period being examined.

The P&L statement contains uniform categories of sales and expenses. The
categories include net sales, cost of goods sold, gross margin, selling and
administrative expenses (or operating expense) and net profit. These are
categories that you will use when constructing a P&L statement.

Since it is a rendering of sales and expenses, the P&L statement will give you a
feel for the flow of cash into (and out of) your business. The P&L statement is
also known as the income statement andthe earnings statement.This Business
Builder will explain, through a step-by-step process and the use of a worksheet,
how to create a P&L statement. Accounting terms will be defined as they are
introduced, and a glossary is included for your reference. This Business Builder
will define and explain the data needed to put together a P&L statement, but
before you start, it might be helpful to consider the following questions:

• Does your inventory method allow you to calculate or reasonably estimate the quantity and cost

of goods sold during a specific time period?

• Do you have records of general and administrative expenses?

• Can you separate selling-related expenses from other expenses?

Why Prepare a P&L Statement?

There are two reasons to prepare a P&L statement. One reason is
the P&L statement answers the question, “Am I making any money?”
It is a valuable tool to monitor operations.

A regularly prepared P&L statement either quarterly or monthly
for new businesses will give owners timely and important information
regarding revenues and expenses and tell them whether adjustments
might be necessary to recoup losses or decrease expenses. The P&L
statement also allows outsiders to evaluate your ability to manage
and use your company’s resources.

The second reason to prepare a P&L statement is because it is required
by the IRS. It is the record of a business’ operation that is used to assess
taxes on profits earned. It is the only financial statement required by the IRS.

Below is the Example of the profit and loss statement (click the image to enlarge)

Analysing Performance Of The Balance Sheet

The balance sheet for your business gives you a 'snapshot'
view of what the business is worth, its assets and liabilities, at
one particular moment in time. Usually this is at the end of the
financial year and allows you to compare the situation of the
business from one year to the next but you can also draw up
quarterly or even monthly balance sheets. The balance sheet
should be produced once your trading profit and loss account
has been drawn up.

The Balance Sheet

A balance sheet shows:

-The financial situation of the
organisation at a particular time

-The change from one period
(usually a year) to the next

-How much money is in the business

-The balance of assets Vs liabilities
and fixed assets Vs liquid assets

A balance sheet is concerned with 3 things:

Assets

Liabilities

Capital

What Can The Balance Sheet Tell You?

A balance sheet can tell you how much the business or organisation is worth. For
community-based organisations it also can tell you how much the community has
increased the assets under its control and therefore how powerful or healthy it is.
This can only ever be a ’general’ figure, showing the underlying value of the funds
in the organisation at that particular time. No-one can safely predict the future. But
compared with previous years it is a simple measure of performance.

List Of Online Accounting Related Resources

Accounting Terminology Guide

http://www.nysscpa.org/prof_library/guide.htm

American Accounting Association

http://aaahq.org/

American Institute of Certified Public Accountants

www.aicpa.org/

FASB: Financial Accounting Standards Board

www.fasb.org/

International Accounting Standards Board

www.iasb.org/

Internal Revenue Service

http://www.irs.gov/

National Association of Black Accountants, Inc.

http://www.nabainc.org/

U. S. Government Accountability Office

www.gao.gov/

U. S. Tax Code Online

http://www.fourmilab.ch/ustax/ustax.html

VentureLine

www.ventureline.com/

Cash And Accrual Accounting

Today we are talking about Cash And Accrual Accounting in detail, let's first we talk about some basics of Accrual Accounting.

Accrual Accounting Basics:

This is the method by which revenues are recorded when earned, and
expenses are recorded when they are incurred, as opposed to a cash-basis
method of accounting that measures revenue when cash is received and
expenses when they are paid. The accrual method must be used for financial
statements to be considered prepared according to Generally Accepted
Accounting Principles (GAAP).

Accrual vs. Cash Basis Accounting

When working with basic small business financial statements, the
accrual concept is easy to understand. However, in more complex
business environments accrual accounting can become as exacting and
tedious in its application as nuclear physics.Fortunately, we are going
to be discussing the former, not the latter.

You have read the definition of accrual vs. cash (above) so let’s use
one of the most common examples of accrual accounting found in small
businesses, i.e., Accounts Receivable and Accounts Payable. First, you
must be familiar with how debits and credits work.

Which one is better?.... It is not a question of better, it is a question
of accuracy. If you include all accrual transactions on your books, the reader
will have a more complete understanding of what is going on in your business
than if only Cash transactions are recorded. Think about it with our examples.
The Accrual transactions would show more Assets, more Liabilities and more
Revenue than the strictly Cash transactions. This reflects all the activity
going on instead of just a portion. This is why the Financial Accounting
Standards Board (FASB) requires that financial statements that are prepared
using Generally Accepted Accounting Principles (GAAP) use the Accrual
method of accounting.

Chartered Accountant Syllabus

Today i am talking about the Chartered Accountant Syllabus in India.If you are looking for information about Chartered Accountant Syllabus on the web then this article will help you a lot.

Group I – Paper 1: Advanced Accounting
(One paper – Three hours – 100 Marks)

Contents:-


1. Conceptual Framework for Preparation and Presentation of Financial
Statements

2. Accounting Standards

3. Company Accounts

4. Financial Statements of Banking, Insurance
and Electricity Companies

5. Average Due Date, Account Current, Self-
Balancing Ledgers

6. Financial Statements of Not-for-Profit
Organisations

7. Accounts from Incomplete Records

8. Accounting for Special Transactions

Paper 2: Auditing and Assurance
(One Paper – Three hours – 100 Marks)

1. Auditing Concepts

2. Auditing and Assurance Standards

3. Auditing engagement

4. Documentation

5. Audit evidence

6. Internal Control

8. Audit Sampling

9. Analytical review procedures

10. Audit of payments

11. Audit of receipts

12. Audit of Purchases

13. Audit of Sales

14. Audit of suppliers’ ledger and the debtors’
ledger

15. Audit of impersonal ledger

16. Audit of assets and liabilities

17. Company Audit

18. Audit Report


Paper 3: Law, Ethics and Communication
(One paper – Three hours – 100 Marks)

1.Business Laws

2.Company Law

3.Business Ethics

4.Ethics in Accounting and Finance

5.Business Communications

Paper 4: Cost Accounting and
Financial Management
(One paper – Three hours – 100 Marks)

Part I: Cost Accounting

Part II: Financial Management

Paper 5: Taxation
(One paper – Three hours – 100 Marks)

Part I: Income-tax

Part II: Service tax and VAT


Paper 6: Information Technology and
Strategic Management
(One paper – Three hours – 100 Marks)