Accounting Review

Fundamental accounting concepts:

Going concern: the business is going to continue in the future

Consistency

Prudence

Accrual: Matching: Match cost with relative revenue

Objectives/ characteristics of financial accounting regulation:

Relevance: to the decision being made

Reliability: the information should be properly prepared and free from error or bias

Understandability: information in the financial statement should be capable of being understood

Comparability: the information should be prepared on the same basis where more than one period are concerned.

ROI (ROCE) = Profit before interest and tax / Total Net Assets

Liquidity Management

Current ratio (working capital ratio)

Quick ratio (acid test ratio)

Stock turnover ratio

Debtor payment period

Creditor payment period

Profitability management

ROI (ROCE)

Gross profit ratio (or trading margin)

Net profit ratio (or net margin)

Asset turnover ratio (or utilization ratio)

ROE

MANAGEMENT ACCOUNTING

Cost accounting (Direct/Indirect) a, Fixed costs

b, Semi-fixed costs

c, Variable costs

d, Semi-variable costs

Prime cost – Production related overheads – Budget (over/under absorption)

Treatment of Labour Cost – Treatment of Direct Materials

In a manufacturing environment there are three basic components of cost:

Materials cost

Labour cost

Production overheads

Direct costs:

Direct materials + Direct labour (Wages) + Direct Expense = PRIME COST

Indirect cost: These are not charged directly to a product but need to be accumulated and then apportioned out.

TREATMENT OF MATERIALS COSTS:

FIFO (First in, First out)

LIFO (Last in, First out)

Average Price (Weighted average cost)

Standard Price (from handouts)

TREATMENT OF LABOUR COSTS:...