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Accounting is the business discipline that studies how a company's financial information can be manipulated and presented, in a meaningful way, to enhance the decision-usefulness of that financial information. We typically think of accounting as incorporating three related disciplines: financial accounting, management accounting, and auditing

Financial accounting

Financial accounting looks to present financial information that is useful to external users, such as investors and creditors, who use this information to make resource allocation decisions between businesses.
 This information is subject to IFRS or US GAAP, is prepared using double-entry bookkeeping, and is presented in four required financial statements: the balance sheet, the income statement, the cash flow statement, and the statement of owner's equity

Management accounting

Management accounting deals with information that is used by internal users, such as a business's managers, who use this information to make resource allocation decisions within the firm. These include short-run production decisions and long-run capital budgeting decisions. (At, we look at capital budgeting decisions under Corporate Finance.) 

Management accounting information comes in a variety of financial reports, including budgets. This information is not subject to accounting standards, and how this information is prepared changes based on the costs of collecting financial information and the benefits that this information has for management decision-making. As a result, a variety of different management accounting techniques are used. 


Auditing typically refers to financial auditing of public companies. Financial audits are conducted by independant external auditors, who provide an opinion about a company's financial reports. These auditors must adhere to Generally Accepted Auditing Standards (GAAS) in the United States, and their opinions give investors reasonable assurance that financial reports are true, fair, and adhere to applicable accounting standards. The auditor must also include an opinion about the effectiveness of a company's internal controls.

In addition to the financial audit, there is a range of many different types of audit and assurance services. Many financial auditing firms also provide a range of these services, giving feedback about the effectiveness of a company's processes and procedures. These services may also be provided by in-house internal auditors that work within a single company. 

Categories within Accounting

Financial Accounting & Bookkeeping

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NPV to buy Complex Apartment

Jeff Robinson is a real estate developer who specializes in residential apartments. A complex of 40 run-down apartments has recently come on the market for $645,500. Robinson predicts that after remodeling, the 20 one-bedroom units will rent for $500 per month and the 20 two-bedroom apartments for $600. He budgets 20% of the

Cash Purchase Budget & Inventory Purchase

A company has adopted the following policies regarding merchandise purchases and inventory. At the end of any month, the inventory should be $18,500 plus 80% of the cost of goods to be sold during the following month. The cost of merchandise sold averages 75% of sales. Purchase terms are generally net 30 days. A given month's

Capital budgeting using the NPV method

EnterTech has noticed a significant decrease in the profitability of its line of portable CD players. The production manager believes that the source of the trouble is old, inefficient equipment used to manufacture the product. The issue raised, therefore, is whether EnterTech should (1) buy new equipment at a cost of $120,00

Net present value decisions

The division managers of Chester Construction Corporation submit capital investment proposals each year for evaluation at the corporate level. Typically, the total dollar amount requested by the divisional managers far exceeds the company's capital investment budget. Thus, each proposal is first ranked by its estimated net pr

Return on average investment, Payback, PV & NPV

Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage. The new equipment would cost $1,728,125, with an estimated five-year life and no salvage value. The estimated annual operating results with the new equipment are as follows: Revenue from sales of new luggage . . . . .

Midwest Region, The Restaurant Chain "Bites and Bits."

You are the manager of the Midwest Region, a 27-restaurant division that is part of the chain "Bites and Bits." The restaurants offer casual dining and compete with such chains in your region as Olive Garden and Outback Steakhouse . You receive an annual cash bonus of 5 percent of sales when residual income in your region exc

Issues of using ROI as performance evaluation tool

Jennifer Baskiter is president and CEO of Plants& , an Internet company that sells plants and flowers. The success of her startup Internet company has motivated her to expand and create two divisions. One division focuses on sales to the general public and the other focuses on business-to-business sales to hotels, re


An investment center in Shellforth Corporation was asked to identify three proposals for its capital budget. Details of those proposals are: Capital Budget Proposals A B C Capital required . . . . .

Variance Analysis for AGRICHEM INDUSTRIES

AgriChem Industries manufactures fertilizer concentrate and uses cost standards. The fertilizer is produced in 500-pound batches; the normal level of production is 250 batches of fertilizer per month. The standard costs per batch are as follows:

E24.6 Marlo Enterprises

Marlo Enterprises produces radon mitigation pumps. Information pertaining to the company's monthly direct labor usage is provided below: Standard labor rate per hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16 Standard hours allowed per radon mitigation pump . . . . . . . . . . . .

Material Price Variance, Material Quantity Variance & Overhead Volume Variance

Gumchara Corporation reported the following information with respect to the materials required to manufacture amalgam florostats during the current month: Standard price per gram of materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4 Standard quantity of materials per amalgam florostat . . . .

Computing Cash Collections and Ending Balances

On March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget for March, April, and May. All of the company's sales are made on account. The following information has been provided by Spicer's management: Month Credit Sales Jan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Characteristics for Operating Successful Responsibility

The president of Cold Moo Ice Cream Company, a chain of ice cream stores in the Midwest, was unhappy with the actual six-month profit figures for the company recently prepared by the CFO. The president asked the CFO for a profit breakdown, by store, of the actual six-month results. When the president received the report, he w

Exercise 20.1: Accounting Meaning

Listed below are nine technical accounting terms introduced in this chapter: Variable costs Relevant range Contribution margin Break-even point Fixed costs Semivariable costs Economies of scale Sales mix Unit contribution margin Each of the following statements may (or may not) describe one of these technical terms. For each

Manufacturers Murder Mystery Parlor Games

MURDER TO GO! writes and manufactures murder mystery parlor games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product: Unit sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30 Variable c

Overhead Analysis Structures

The idea of the predetermined overhead analysis is an important one for fixed costs. The first is a comparison of actual fixed to actual budget. How would this change in the given range of plant production? The actual could change by an increase in insurance costs in the year or supervisor salaries could increase causing someth

Schmeltz Industries - Job costing

Schmeltz Industries organized in January and recorded the following transactions during its first months of operation: Jan. 5 Purchased materials on account for $800,000. Jan. 9 Used materials costing $450,000 on job no. 1001. Jan. 14 Used materials costing $200,000 on job no. 1002. Jan. 18 Used materials costing $100,

Activity Based Costing Management Accountant

Assume you have just been hired as the management accountant in charge of providing your firm's managers with product cost information. Identify the activities you might undertake for the following four value chain components: a. Research and development b. Production c. Marketing d. Customer service

Equivalent Units of Production - Cutting & Coating Department

Accessory World makes floor mats for the automobile industry. Finished sets of mats must pass through two departments: Cutting and Coating. Large sheets of synthetic material are cut to size in the Cutting Department and then transferred to the Coating Department, where each set is sprayed with a chemical coating for improved

Activity based costing accounting systems

Spear Custom Furniture uses an activity-based cost accounting system to apply overhead to production. The company maintains four overhead cost pools. The four cost pools, and their budgeted amounts for the upcoming period, are as follows: Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Computing Inventory and Overhead Balances and Operating Income

EXERCISE 16.6 The Ryde and Rowe Inc. had the following account balances as of January 1: Flow of Costs through Manufacturing Accounts Direct Materials Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 89,200 Work in Process Inventory . . . . . . . . . . . . . . . . . . .

Identification of product cost (direct or indirect) and period cost.

EXERCISE 16.3 Indicate whether each of the following should be considered a product cost or a period cost. If you identify the item as a product cost, also indicate whether it is a direct or an indirect cost. For example, the answer to item 0 is "indirect product cost." Begin with item a. 0. Property taxes on factory build

Accounting Terminology Statement

Listed below are eight technical accounting terms introduced or emphasized in this chapter: EXERCISE 16.1 Accounting Terminology Work in Process Inventory Cost of finished goods manufactured Conversion costs Cost of Goods Sold Period costs Management accounting Product costs Manufacturing overhead Each of the following st

Prime cost, conversion cost and total cost

Star Repairs Co. does all the repair work for a medium-sized manufacturer of handheld computer games. The games are sent directly to Star, and after the games are repaired, Star bills the game manufacturer for cost plus a 20 percent markup. In the month of February, purchases of parts (replacement parts) by Star amounted to $

NPV IRR conflict

(a) When can the NPV and the IRR methods of evaluating investment projects provide contradictory results? (b) How can this arise? (c) Which method should then be used? Why?

Capital Gains and Income Tax question

Write 10 sentences on the following subject I am unclear about: Capital gains are usually considered to have preferential tax treatment. Are all capital gains treated preferentially? What about capital losses? Is there a tax advantage for the seller who carries the mortgage on the property and treats the transaction as an

Component of (cost of capital) discount rates

Components of Cost of Capital Cost of capital or discount rate or the required rate of return is an annual compounded percentage rate of return, which is used to discount back each increment of expected future return to a present value (Pratt, 2004). It is forward looking and also represents the expectations of the investors.

A comparison of Government accounting practices

Please provide detailed, accurate and comprehendible answer for the question below. Please provide no less than 300 words. Thank You What are the basic financial statements that a state or local government now use? How are these different from the financials statement in a for profit organization? Look up the financial statem