Accounting Concepts

Objectivity in Accounting

Financial accounting can be defined as a process of designing and operating an information system for collecting, information in order to make financial decisions. It is said to collect accurate financial data and other financial information, and to accumulate and combine it in an organized and systematic way, according to the principles and rules of accounting, for reporting purpose.

Financial accounting is objective in the sense that it is not biased which means it is true and fair in review. It is very importance for any organisation because the information gathered through financial accounting can be used to make financial or economic decision making.… Read the rest

Abey Francis

The Future of Accounting Profession

In today’s business environment  professional accountants are directly responsible to their customers, companies and to the society and also they should know possible legal obligations to the stakeholders. Accounting profession is not only limited to preparing accounting statements but also involves in wide variety of functions which provides inputs to the managerial decision making. If an accounting professional is not able to perform his duty and responsibilities in satisfied level according to the universal standards it is the major liability in the hands of an accountant. Compared to other type of professions this profession has its own code of ethics hence it is dignified and respective profession which provides practical inputs for the effective decision making.… Read the rest

Abey Francis

Accounting Concepts Used for the Preparation of Financial Statements

Basic accounting concepts used for the preparation of financial statements are:

  1. Money measurement concept – Accounting normally deals with only those items that are capable of being expressed in monetary terms. Money has the advantage that it is a useful common denominator with which to express the wide variety of recourses held by a business. However, not all such resources are capable of being measured in monetary terms and so will be excluded from a balance sheet. The money measurement concept, thus, limits the scope of accounting reports.
  2. Historic cost concept – Assets are shown on the balance at a value that is based on their historic cost (that is, acquisition cost).
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Abey Francis

By-Product – Meaning and Accounting Treatment

Salable or usable products having a relatively low value incidentally realized in the course of manufacturing the main product is called by-product. In many instances, there may be several joint products and several by-products depending upon the nature of the input raw materials being processed. A by-product is an outcome that does not make tangible contribution to the sales revenue. The economic value of by-product, comparing it with the main product, is comparatively low.

By-product in the course of sugar production are Bagasse of solid waste and molasses of sweet semi-liquid product. Poultry farm in delivering chicken meat to the market gets poultry leftover parts such as poultry fathers, bones, beaks, feet and poultry fat as by-product.… Read the rest

Abey Francis

Accounting Treatment for Material Losses: Waste, Scrap and Spoilage

Meaning and Types of Waste

The loss of raw materials in processing is waste. Waste has no receivable value. It is a quantity loss of material in the process of producing goods.

Waste is brought into record by comparing the input quantity with the output quantity. Waste may occur due to shrinkage, smoke, weight loss and evaporation causing the material to become waste. They are material losses causing a quantity loss. Waste may occur in terms of a by-product which does not produce any realizable value.

For example, 20kg of potato does not give 20kg of potato chips. Thus, the fact that 15 kg of chips is produced out of 20kg potato means that 5 kg of potato is wasted in the course of making chips.

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Abey Francis

Reserves – Meaning, Objectives and Types

A reserve is a part of the profit set aside to meet future contingencies and losses. Usually, the whole amount of profit earned by the business is not distributed to the owners or shareholders. A part of the profit is retained in the business either for meeting its unexpected future liabilities and losses or for strengthening financial position. It can be created for redeeming liabilities or replacing  depreciable assets or declaring uniform rate of dividend over years. It is created out of the profit only. If there is no profit in a particular year, no reserve can be created in that year.… Read the rest

Abey Francis