In contract costing, “contract profit” refers to the profit earned on a specific contract, particularly for long-term projects. It is calculated as the difference between the contract price and the total cost incurred in executing the contract. Accounting Treatment The recognition of profit on contracts depends on the stage of completion and the proximity of…
Material Accounting Material refers to any commodity or substance processed in a factory for conversion into a finished product. In cost accounting, material is classified as part of inventory. The terms “material” and “raw material” are often used interchangeably. Examples of Material Material Cost Material cost refers to the expense incurred for materials used as…
Job cost cards, also known as job cost sheets or job cost records, are documents that list all expenses incurred to complete a specific project. These expenses can be recorded both during and after the project, helping businesses monitor their financial performance and manage costs effectively. The primary purpose of job costing is to determine…
Unit or Output Costing Unit or output costing is a method used to determine the cost per unit of a standardized, homogeneous product in continuous manufacturing. This method is also known as single costing and is commonly applied in industries like cement, steel, and textiles where products are identical and mass-produced. Method of Calculation: The…
Cost accounting, financial accounting, and management accounting are three primary branches of accounting. These branches are interconnected yet serve distinct purposes. Cost accounting provides essential data for both financial and management accounting, which in turn supports financial management decisions for both internal and external stakeholders. Financial management utilizes these data points to make strategic decisions…
Management accounting is a vital branch of accounting that plays a crucial role in internal decision-making. Through management accounting, organizations can make informed business decisions that maximize long-term profitability. Management accounting employs various statistical methods and techniques to analyze financial data. These include graphs, tables, maps, regression analysis, time series analysis, and sampling methodologies, to…
Managerial accounting, also called management accounting, is a method of accounting that creates statements, reports, and documents to help management make better business decisions. It is primarily used for internal purposes. Evolution of Management Accounting Management accounting has evolved over centuries, transitioning from simple record-keeping to sophisticated systems that leverage data analytics. Initially, it was…
Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond valuation comprises calculating the present value of future interest payments and face value to determine a bond’s theoretical fair value. The bond’s future interest payments also known as its cash flow, and the bond’s value upon maturity also known…
Accounting ratios are metrics used to compare two or more financial data points from a company’s financial statements to measure its profitability, efficiency, and overall financial health. These ratios are typically expressed in various forms, such as proportions, fractions, percentages, or terms of the number of times one value relates to another. Equation for Ratios:…
Both reserves and provisions refer to the amount retained by an organization to deal with all possible contingencies in the future. In accounting parlance, reserves are appropriations out of profits and provisions are charges against profits. Although the IFRS Standards sometimes call provisions a ‘reserve’, they are not the same thing – a provision is…