Quiz 1: Introduction
Accounting: Account is a developed art of recording and processing the financial data and generating useful results by presenting them in an understandable manner. Accounting starts with the very beginning of the company and continues even after the operations are completed.The comment that "Accounting is baloney. I worked for a genetic engineering company and we never looked at the accounting numbers and our stock price was always growing." Is incorrect as accounting is the backbone of any corporate entity and it benefits the managers in many ways. Also, the other statement that "I worked in a rust bucket company that managed everything by the numbers and we never improved very much". This statement also symbolizes ignoring the importance of accounting whereas in actual, accounting is Some of the benefits of accounting are: • Accounting is objective : and is based on the generally accepted accounting principles. • Accounting is reliable : In a well-run accounting department, data is preserved and procedures are properly in place to assure reliability of information. • Analysis and Interpretation: One of the major advantage of accounting is that it helps in analyzing the results that are generated out of the collective effort put during the year. Major decisions are based on the interpretations that come out of the financial statements result. Thus, the statement is false, as accounting is very important tool for the management. It could happen that share prices of the company are continuously growing and accounting has no direct relation with such changes but indirectly, it affects the decision of the stakeholders interested in the business and hence the share price. The price of share totally depends on the presentation of the accounting information and the way how an entity works. Thus, both the statements are framed in a wrong way.
Cost System A cost system is a mechanism adopted by a company to find the cost of all the resources of the company so that the pricing and the profitability of the company can be determined. In a competitive environment, it is very necessary to have an efficient cost system otherwise the company may fail in completion or may incur losses. There are several types of cost system based on different concepts. The given quote tells about the need for different cost system in a single company because of the diverse needs of the company. It highlights that every cost system provides a different output which is beneficial in different ways. To get the maximum benefit one cost system is not enough because it does not meet the all of the requirements. The given quote also says that it is not possible for a company to opt for all the cost system because it will leave no time for the managerial work. It would be too complicated to handle all the cost systems. Moreover, the benefit derived from opting many cost system may not exceed the cost involved in maintaining them. The given quote does not includes the benefits of using a single cost system as against the use of multiple cost system. Moreover, there is also no mention of the uniform cost system across the whole industry. No system is perfect in itself and hence they should be opted carefully according to the most significant needs of the enterprise and should be followed accurately.
Internal Accounting System Every business maintains its accounts based on a certain principle. There are different principles across the globe which when applied to the same data may give different results. The accounting method which is used by the management for the decision making purpose is the internal accounting system. This system is used to know the actual results or results that may help in managerial decision making. Internal accounting system may be different from the system opted for external reporting. In-country J the financial statements are prepared keeping in vies the tax implication. They opt the procedures or methods which results in lesser tax liability. This makes the reports unusable for the management use. Since the accounts have been manipulated to get a lesser tax the decision cannot be taken based on them. And hence the manager gives other factors more important than the books of accounts. In-country U there are two types of accounts are maintained. One for the taxation and external purposes and one for the internal purposes. But there is an issue in using this way. The managers pay is based on the reports prepared for external use and hence they give more importance to that reports leading to the same procedures in the internal reports also. Thus both the accounting system gets linked.Having two separate books definitely gives better tax advantage and also serves the purpose of internal managerial decisions but it also enhances the cost for maintaining two separate accounting system.