Accounting Concepts

Accounting Methods Used in Financial Statement Preparation

First of all, what is the primary objective of financial statement? Financial statement is to provide information about financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions – stated by International Accounting Standards Board (IASB). For providing information of financial statement, there are two accounting methods for companies to report their financial statement. Cash accounting and accrual accounting both are the main method to prepare the financial statement.

Cash basis accounting is a very basic form of accounting. Revenue is recorded only when the cash is received, and an expense is recorded only when cash is paid.… Read the rest

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Purposes of Cost Allocation

Cost allocation is the assigning of a common cost to several cost objects. For example, a company might allocate or assign the cost of an expensive computer system to the three main areas of the company that use the system. A company with only one electric meter might allocate the electricity bill to several departments in the company. Cost allocation implies that the assigning of the cost is somewhat arbitrary. Some people describe the allocation as the spreading of cost, because of the arbitrary nature of the cost allocation. Efforts have been made over the years to improve the bases for cost allocation.… Read the rest

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Key Differences Between GAAP and IFRS

The differences between International Financial Reporting Standards (IFRS) and GAAP are numerous. International Financial Reporting Standards (IFRS) are principles-based accounting Standards, Interpretations and Framework adopted by the International Accounting Standard Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). Generally Accepted Accounting Principles (GAAP) is a term used to refer to the standard framework of guidelines for financial accounting used in any given jurisdiction which are generally known as Accounting Standards. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of financial statement.… Read the rest

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What is a Fixed Budget?

A budget can be defined as a management tools that put the managers in control of a financial health of the organisation. The objective of the budget is to measure of the financial structure of the organisation and budget is a tool that forces management to be accountable in a structured and objective way. How manager manage the budget is key to their value. Budget facilities the planning and resources allocation and help to estimate, itemized, analysis and examined the entire product and service that organisation offers to customer. Budgeting is a simple process of consolidating budget and adhere them as closely as possible.… Read the rest

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Critical Evaluation of IAS 37

The International Accounting Standards Committee (IASC) issued IAS37 Provisions, Contingent Liabilities and Contingent Assets in September 1998. It replaced parts of IAS10 Contingencies and became operative for annual financial statements covering periods beginning on or after 1 July 1999.

The objective of this standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount. The key principle of IAS37 is that a provision should be recognized only when a liability exists. Planned future expenditures are not recognized as provisions or contingencies, even if the board of directors has authorized them.… Read the rest

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International Accounting Standard 37 (IAS37)

The International Accounting Standards Committee (IASC) issued IAS37 Provisions, Contingent Liabilities and Contingent Assets in September 1998. It replaced parts of IAS10 Contingencies and became operative for annual financial statements covering periods beginning on or after 1 July 1999.

Before the announcement of IAS37, different countries use various ways to verify their provisions, which bring the problem of inconsistency. Some enterprises confirm their provisions, depending on whether to undertake current obligation or not. While some other enterprises are according to managers’ willingness of proceeding future payments to confirm their preparations. Therefore, the results are:

  • Different types of business enterprises have different classification of provisions, so it creates inconsistency.
… Read the rest
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