Problem with Accounting.

What’s the difference between profits and profitability? In most companies, a net income deficiency of 30% or more, let me explain. Accounting information is at the core of virtually all of our business processes. It is axiomatic that accounting has two roles: providing financial information and providing management control information. The problem is that it is very good at the first role, and surprisingly poor at the second. Financial accounting is critical to every business. The objective is to present an accurate picture of a company’s overall performance – its profits. It grew up in the time of quill pens and arm garters, and its role is to tell shareholders how much their company earned. This discipline is well perfected and highly regulated. Just ask the Audit Committee...

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Intermediate Accounting

Accounting students usually take three years of accounting courses to complete a bachelor's degree at most educational institutions. One year of an accounting degree includes intermediate accounting, a second-level accounting class.Features Intermediate accounting introduces students to a deeper and broader level of accounting theory. The typical intermediate accounting format requires two semesters of intense conceptual course work. Topics Topics found in intermediate accounting include the conceptual framework of Generally Accepted Accounting Principles (GAAP), financial ratios analysis, equity accounting, investment strategies and financial statement preparation. Significance Because intermediate accounting courses represent the beginning...

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About Accrual Accounting

Accrual Accounting is An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial condition.  Accrual accounting is considered to be the standard accounting practice for most companies, with the exception of very small operations. This method provides...

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Accounting Information System

An accounting information system is designed to record all transactions of a business. An accounting clerk enters all business transactions into the program and the transactions automatically are posted to the corresponding accounts. This is important because any time information is needed, it can found on the computer and is organized. Accounts Payable An accounting information system allows for easier payments made on accounts payable. Many systems are designed to pay all bills due with a click of a button. A date is selected and checks are automatically made out for all bills due. Most systems allow a clerk to unselect certain bills if a company is not ready to pay a specific bill. Accounts Receivable This type of system also allows for easier billing. Information is recorded on the system...

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Value Product

The value product (VP) is an economic concept formulated by Karl Marx in his critique of political economy during the 1860s, and used in Marxian social accounting theory for capitalist economies. Its annual monetary value is approximately equal to the netted sum of six flows of income generated by production: wages & salaries of employees. profit including distributed and undistributed profit. interest paid by producing enterprises from current gross income rent paid by producing enterprises from current gross income, including land rents. tax on the production of new value, including income tax and indirect tax on producers. fees paid by producing enterprises from current gross income, including royalties, certain honorariums and corporate officers' fees, and certain leasing fees incurred...

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Value added

Value add refers to "extra" feature(s) of an item of interest (product, service, person, etc.) that go beyond the standard expectations and provide something "more" while adding little or nothing to its cost. Value added features give competitive edges to companies with otherwise more expensive products. In economics, the difference between the sale price of a product and the cost of materials and outside services to produce it is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases (of materials and services). Value Added is a higher portion of Revenue for integrated companies, e.g., manufacturing companies, and a lower portion of Revenue for less integrated companies, e.g., retail companies....

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Double counting

Double-counting in accounting is an error whereby a transaction is counted more than once, for whatever reason. But in social accounting it also refers to a conceptual problem in social accounting practice, when the attempt is made to estimate the new value added by Gross Output, or the value of total investmen...

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Statistical effects of ownership relations on the boundary between intermediate consumption and value-added

The statistical boundary between intermediate consumption and value added is affected by ownership relations. If, for example, an enterprise buys services from other enterprises, instead of producing them in-house, its own value added will be reduced, and its intermediate consumption will be increased. But because in-house production itself has intermediate inputs, the value of the increase in intermediate consumption that results from in-house production is likely to be less than the value of equivalent services purchased from another enterprise. Thus, the sizes of total value added and intermediate consumption are affected by the degree to which ancillary activities are either produced in- house by an enterprise, or bought from other enterprises within the domestic economy. Likewise, rentals...

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Included in intermediate consumption in the UNSNA system

Operating expenses such as the rentals paid on the use of fixed assets leased, and also fees, commissions, royalties, etc., payable under licensing arrangements. The value of goods or services used as inputs into ancillary activities such as purchasing, sales, marketing, accounting, data processing, transportation, storage, maintenance, security, etc. The ordinary, regular maintenance and repair of fixed assets used in production. Expenditures on durable producer goods which are small, inexpensive and used to perform relatively simple ongoing operations. Expenditures on research and development, staff training, market research and similar activities. all goods except dwellings acquired by governmental establishments engaged in the production of defence services, including expenditures by the military...

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Excluded from intermediate consumption in the UNSNA system

The value of the depreciation of fixed assets. valuables bought by enterprises such as works of art, precious metals and stones, ornaments and jewellery. Major renovations, reconstructions, or enlargements of existing fixed assets enhancing their efficiency or capacity, or prolonging their expected working lives. Military weapons such as rockets, missiles and their warheads which are actually used in fighting, and military machinery and equipment of the same type as that used by civil establishments for non- military purposes (the 2008 UNSNA revision changes the definitions somewhat). Collective services provided by the public sector (the provision of transport facilities, security, etc.). Expenditures on mineral exploration. Social transfers provided by government to househo...

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Intermediate Expenditure

intermediate expenditure is an economic concept used in national accounts, such as the United Nations System of National Accounts (UNSNA) , the US National Income and Product Accounts (NIPA) and the European System of Accounts (ESA). Conceptually, the aggregate "intermediate consumption" is equal to the amount of the difference between Gross Output (roughly, the total sales value) and Net output (gross value added or GDP). In the US economy, total intermediate consumption represents about 45% of Gross Output. The services component in intermediate consumption has grown strongly in the US, from about 30% in the 1980s to more than 40% today. Thus, intermediate consumption is an accounting flow which consists of the total monetary value of goods and services consumed or used up as inputs in production...

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Result-performance Management (R-pM)

Result-performance Management (R-pM) is the only source of knowledge and expertise on how to manage the actual business. Forward-looking enterprises are now using R-pM guidance to organize and manage their business to gain breakthrough advantages over competitors burdened by unsolvable 20th century management problems. Business management is explained and documented in the Business Management Toolkit. The Toolkit provides procedures for actual business management and maintains emerging 21st century management conventions, definitions, and standards. Management consultants who base 21st century business management services on R-pM knowledge are licensed to help enterprises learn, organize, and manage the actual busin...

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Facility records solutions are part of the business information base

Facility records solutions are enterprise information capital and form part of the enterprise business information base. Facility records must reference a business data entity and be integrated with other information capital for data, knowledge, and intelligence. Records solutions can be created from data, or intelligence and provide information used to capture data, create knowledge, gain intelligence, and assess the worth of capital on-hand. Facility record solutions are integrated with or accessed through business data to produce specific results, particularly senior- management and board-level corporate-governance resu...

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Account for the Business to Eliminate the Accounting Problem

Accounting is part of one of the top 10 problems of 20th century enterprise management A chart of accounts is laid over the business, rather than recording the actual business 20th century management historically has separated cash from other capital to be managed in financial management and to be accrued and recorded through accounting. The need for the separation has decreased due to technology and advanced solutions. Technology has also led to high-worth information and intellectual capital that needs to be accounted for and managed. But the separate focus on cash tends to prevent other capital of worth from being managed professionally. Capital and cash transactions that are recorded are recorded against a contrived chart of accounts, rather than accurately recording the complete financial...

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The Accounting Problem

Accounting does not record the actual business Due to 20th century management problem number one, the business is not organized. Therefore, accounts are not maintained on the business, but are maintained against a chart of accounts laid over the business. Some aspects of accounting, like double-entry bookkeeping and accruals are useful, and basic reports are necessary. But, historic accounting prevents comprehensive financial and non-financial record capital management, thus becoming major problem in 20th century enterprise management. Accounting is equated with record keeping but does not keep full enterprise records One problem is that accounting is equated with record keeping. The modern enterprise must maintain records capital on business reality for the full business cycle including financial, statistical,...

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IFRS (International Financial Reporting Standards)

IFRS (International Financial Reporting Standards) is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB). The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides general guidance for the preparation of financial statements rather than setting rules for industry-specific reporting. Currently, over 100 countries permit or require IFRS for public companies, with more countries expected to transition to IFRS by 2015. Having an international standard is especially important for large companies that have subsidiaries in different countries. Adopting a single set of world-wide standards will simplify accounting procedures...

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Islamic Accounting

Sharia prohibitions on interest, usury and speculative share dealing are well known. What key principles underlie sharia accounting and auditing? The basic principles of sharia are the same whatever the area, and are drawn from the five basic principles of Islam, particularly belief in God. It is how you manifest those beliefs and principles in your everyday life that makes a difference. You may approach a particular activity in the conventional way, but there are additional things you need to be concerned about. In accounting, you carry out the same basic activities of recording, reporting, measuring and, subsequently, auditing. But the difference with sharia accounting is that you need to take special care over how you record things. And, if there is a transaction between parties, you need...

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Investment

Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available, offering differing risk-reward trade offs. An understanding of the core concepts and a thorough analysis of the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure. Types of InvestmentsThe various types of investment are: Cash investments: These include savings bank accounts, certificates of deposit (CDs) and treasury bills. These investments pay a low rate of interest and are risky options in periods of inflation. Debt securities: This form of investment provides returns in the form of fixed periodic payments...

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Cash Controls

Cash is a company's most liquid asset, which means it can easily be used to acquire other assets, buy services, or satisfy obligations. For financial reporting purposes, cash includes currency and coin on hand, money orders and checks made payable to the company, and available balances in checking and savings accounts. Most companies report cash and cash equivalents together. Cash equivalents are highly liquid, short-term investments that usually mature within three months of their purchase date. Examples of cash equivalents include U.S. treasury bills, money market funds, and commercial paper, which is short-term corporate debt. Cash is a liquid, portable, and desirable asset. Therefore, a company must have adequate controls to prevent theft or other misuses of cash....

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Credit Card Sales

Retail companies, which sell merchandise in small quantities directly to consumers, often receive a significant portion of their revenue through credit card sales. Some credit card receipts, specifically those involving credit cards issued by banks, are deposited along with cash and checks made payable to the company. The company receives cash for these credit card sales immediately. Because banks that issue credit cards to customers handle billing, collections, and related expenses, they usually charge companies between 2% and 5% of the sales price. This fee is deducted when the receipts are deposited in the company's bank account, so these credit card receipts are slightly more complicated to record than other types of cash deposi...

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Callable bond

A callable bond (also called redeemable bond) is a type of bond (debt security) that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches the date of maturity.[1] In other words, on the call date(s), the issuer has the right, but not the obligation, to buy back the bonds from the bond holders at a defined call price. Technically speaking, the bonds are not really bought and held by the issuer but are instead cancelled immediately. The call price will usually exceed the par or issue price. In certain cases, mainly in the high-yield debt market, there can be a substantial call premium. Thus, the issuer has an option, for which it pays in the form of a higher coupon rate. If interest rates in the market have gone down by the time...

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Stock Splits in Company

Stock splits are probably the most misunderstood aspect in the stock market. Most investors think that a stock split involves getting twice or sometimes three times the amount of stocks that one previously owned. It is not surprising to see the value of a stock rise just before the date of a company stock split. What is a Stock Split? A stock split is a company action that increases the number of a company�s outstanding shares by dividing or splitting its current outstanding shares. There are two things to remember that happen in a stock split, By dividing the shares, the price of the shares is reduced immediately after the stock split. The company or stock�s market capitalization remains the same. To understand a stock split, consider this common example: You have a 20-pound...

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Stock Splits

A stock split simply involves a company altering the number of its shares outstanding and proportionally adjusting the share price to compensate. This in NO WAY affects the intrinsic value or past performance of your investment, if you happen to own shares that are splitting. A typical example is a 2-for-1 stock split. A company will announce that it's splitting its stock 2-for-1 in one month. One month from that date, the company's shares (having traded the day before at, say, $30) will now be trading at half the price from the previous day (so they'll open at $15). The company, which had 10 million shares outstanding, now consequently has 20 million shares outstanding. The price has been halved in order to accomodate a doubling of the share total. The most common splits are 3-for-2, 2-for-1,...

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Stock Dividend

A corporate distribution to shareholders declared out of profits, at the discretion of the directors of the corporation, which is paid in the form of shares of stock, as opposed to money, and increases the number of shares. When a corporation declares a stock dividend, it adds undivided profits, which cannot be used to pay dividends, to the capital invested in the corporation, to reflect the additional shares it is issuing. The stockholder's increased number of shares represent the same proportion of the value of the company as the stockholder originally held (that is, the stockholder owns the same percentage of the corporation as prior to the declaration of the stock dividend); however, the cash value of an individual share is not reduced. Shares issued as stock dividends are evidence...

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Cumulative Dividend

Cumulative dividend - A cumulative dividend is when a limitation is placed upon a corporation's ensured payment of preferred dividends, before they are distributed to the common shareholders. When a company fails to distribute its dividends to preferred shareholders with a cumulative dividend, they have to catch up payments, before any distributions can be sent to any of the common shareholders. Unfortunately, a company's common shares do not offer the income or security that a company's preferred shares offer to its shareholders. Preferred stocks generally have a fixed dividend, which is based on the company stock's par value. Cumulative preferred - A cumulative preferred stock refers to the fact that certain dividends cumulated on the stock in question. There is a provision that...

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Preference Shares

Preference shares offer their owners preferences over ordinary shareholders. There are two major differences between ordinary and preference shares: Preference shareholders are often entitled to a fixed dividend even when ordinary shareholders are not. Preference shareholders cannot normally vote at general meetings. The preference dividend is fixed in the sense that preference shares are often issued with the rate of dividend fixed at the time of issue and you might see something like this: '4% preference dividend £0.25'This is a preference share with a nominal value of £0.25 per share that carries a dividend of 4%, that is 4% of £0.25 every year for every share issued. If a company has issued 100,000 of these shares at par then it will have received: £100,000 x £0.25 = £25,000 from...

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Liquidation is only solution to crisis

There was ample material last week for an entire book delving into critical financial issues of our day - US Treasury Secretary Henry Paulson's proposal on Monday for financial regulation overhaul; testimony on Wednesday by Federal Reserve chairman Ben Bernanke on housing and Bear Stearns before Congress' Joint Economic Committee; the appearance on Thursday by Bernanke, New York Fed president Timothy Geithner, Treasury Under Secretary Robert Steel and Securities and Exchange Commission...

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Liquidation value

  Liquidation literally means turning a business's assets into readily available cash. The Liquidation value is the estimated amount of money that an asset or company could quickly be sold for, such as if it were to go out of business. In a normal growing profitable industry, a company's liquidation value is usually much less than the current share price. In a dying industry, the liquidation value may exceed the current share price. This usually means that the company...

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Marketing

Marketing consists of advertising and promoting your product or service in order to sell it. Your business produces goods and services. Marketing is what lets potential customers know that they are available for sale. Sales, advertising, and public relations are each essential components of marketing and each require specialized skills and expertise. While a small business may have only one person performing all these functions under the marketing umbrella, knowledge of each area is important to develop a focused effort. A focus on what the customer wants and needs is essential to successful marketing efforts. This customer-orientation should go hand-in-hand with the company's objective of maintaining a profitable volume of sales. Marketing is a creative process combining all of...

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Asset Liquidation

If you have decided to get out of business and are not able to pass your business on, merge or sell it as a going concern, liquidating the assets could be the most appropriate exit strategy. However, before you terminate your lease, sell a key piece of equipment, or disconnect your utilities, make sure you have a well-thought-out plan. Getting out of business successfully requires a well-thought-out plan from start to finish. If you have chosen asset liquidation as your exit strategy, increase your chances for success by incorporating these ten steps in your plan: Talk to your lawyer and accountant. Scrutinize your assets. Secure your merchandise. Establish the liquidation value of your assets. Make certain that a sale is worthwhile. Choose the best type of sale for your merchandise. Select...

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the difference between short-term notes payable and bonds payable

A liability is created when a company signs a note for the purpose of borrowing money or extending its payment period credit. A note may be signed for an overdue invoice when the company needs to extend its payment, when the company borrows cash, or in exchange for an asset. An extension of the normal credit period for paying amounts owed often requires that a company sign a note, resulting in a transfer of the liability from accounts payable to notes payable. Notes payable almost always require interest payments. Short-term notes payable are notes that must be repaid with 12 months. One source of financing available to corporations is long-term bonds. (Bonds are almost never short-term). Bonds represent an obligation to repay a principal amount at a future date and pay interest,...

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Capital Lease Criteria

  Transfers ownership of the property                --> to the lessee by the end of the lease term.        Contains a bargain purchase option.        Lease term is                --> equal to 75 percent or more                     ...

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International Financial Reporting Standards

In the over 100 countries that govern accounting using International Financial Reporting Standards, the controlling standard is IAS 17, "Leases". While similar in many respects to FAS 13, IAS 17 avoids the "bright line" tests (specifying an exact percentage as a limit) on the lease term and present value of the rents. Instead, IAS 17 has the following five tests. If any of these tests are met, the lease is considered a finance lease: ownership of the asset is transferred to the lessee at the end of the lease term; the lease contains a bargain purchase option to buy the equipment at less than fair market value; the lease term is for the major part of the economic life of the asset even if title is not transferred; at the inception of the lease the present value of the minimum lease payments...

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Finance lease

A finance lease or capital lease is a type of lease. It is a commercial arrangement where: the lessee (customer or borrower) will select an asset (equipment, vehicle, software); the lessor (finance company) will purchase that asset; the lessee will have use of that asset during the lease; the lessee will pay a series of rentals or installments for the use of that asset; the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee; the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price); The finance company is the legal owner of the asset during duration of the lease. However the lessee has control over the asset providing them the benefits and risks of (economic)...

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Capital Lease vs Operating Lease

Firms often choose to lease long-term assets rather than buy them for a variety of reasons - the tax benefits are greater to the lessor than the lessees, leases offer more flexibility in terms of adjusting to changes in technology and capacity needs. Lease payments create the same kind of obligation that interest payments on debt create, and have to be viewed in a similar light. If a firm is allowed to lease a significant portion of its assets and keep it off its financial statements, a perusal of the statements will give a very misleading view of the company's financial strength. Consequently, accounting rules have been devised to force firms to reveal the extent of their lease obligations on their books. There are two ways of accounting for leases. In an operating lease, the lessor...

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Long term liabilities

Long term liabilities are those that are due to be paid in more than an year. Those due in less than a year or on demand are current liabilities. The most important type of long term liability is debt. Preference shares are not debt, but given that they are "debt like" this is often something investors should adjust for. Similarly, some short term debt can keep being renewed, so it in fact provides long term funding. This sometimes happens with overdrafts: they are repayable on demand and therefore short term debt, but a company may maintain an overdraft for many years. Conversely debt instruments that originally had a long term that are now close to expiry are short term debt, and shown as such in the accounts. Long term liabilities are looked at by investors assessing a company's financial...

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Common Stock

As already mentioned in discussing the stock market, a stock is a share in the ownership of a company. Stock represents a claim on the company's assets and earnings. The more stock you are holding, the greater is your ownership stake in the company. Being a shareholder, however does not mean you have any input in the day-to-day running of the business. Instead, the degree of influence of a person holding the stock is restricted to one vote per share to elect the board of directors at annual meetings. Although meaning of the stock is quite easy to grasp, all the variations of the stock can make investing in the stock market somewhat confusing. Common stock is the most typical type of stock. When people discuss investing in stocks in general they are most likely referring...

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Treasury Stock

When analyzing a balance sheet, you're apt to run across an entry under Shareholder Equity called "Treasury Stock". This refers to the shares a company has issued and somehow reacquired either through share repurchase programs or donations. Companies sometimes buy back their shares for a variety of reasons. In most cases, it is a sign management believes the stock is undervalued. Depending upon its objectives, a company can either retire the shares it purchases, or hold them with the intention of reselling them to raise cash when the stock price rises. When a corporation purchases its own stock, the cash on hand is reduced. This lowers the total shareholder equity. In order for investors to know the reduced cash and equity was a result of share repurchases and not debt or losses,...

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Paid in capital

Paid in  capital (also called contributed capital) is a balance sheet item, showing what has been invested by stockholders through purchase of stock from the corporation (not through purchase of stock on the open market from other stockholders). When investors buy shares directly from the company, that is, the company receives and keeps the funds as contributed capital (paid in capital). When shares are bought on the open market, of course, funds go to the investor selling them. Contributed (paid in capital) capital is one of the two main categories on the balance sheet under owner’s equity (the other is retained earnings). Contributed capital, in turn, has two main components: Stated capital, which is usually defined as the stated, or par value of the shares of...

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