...PRINCIPLES OF COST ACCOUNTING This page intentionally left blank PRINCIPLES OF COST ACCOUNTING 15E E D W A R D J. V A N D E R B E C K Professor Emeritus Department of Accountancy Xavier University Principles of Cost Accounting, 15th Edition Edward J. VanDerbeck ª 2010, 2008 South-Western, Cengage Learning ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced, transmitted, stored or used in any form or by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, Web distribution, information networks, or information storage and retrieval systems, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the publisher. Vice President of Editorial, Business: Jack W. Calhoun Acquisitions Editor: Matt Filimonov Developmental Editor: Lauren Athmer Marketing Manager: Kristen Hurd Marketing Coordinator: Heather McAuliffe Content Project Manager: Corey Geissler Production Technology Analyst: Starratt Alexander Media Editor: Scott Fidler Sr. Manufacturing Coordinator: Doug Wilke Production Service: Cadmus Sr. Art Director: Stacy Shirley Internal Designer: Jennifer Lambert, Jen2Design, LLC Cover Designer: cmiller design Cover Image: ªGetty Images For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission...
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...Generally Accepted Accounting Principles in Healthcare Generally Accepted Accounting Principles or GAAP was developed from different accounting entities, one of which was the Financial Accounting Standards Board or FASB. GAAP is a group of standards for accounting with common industry language developed over many years and used by businesses to organize financial information. The main purpose for GAAP is to make a standard way for anyone to pick up a financial statement and be able to compare financials using the same set of rules. GAAP is an accounting method used in health care facilities. These are specific policies that are used when the health care institution must make important financial decisions. To understand financial statements, the importance and relevance of GAAP must be understood. These standards guide accountants in the measuring and reporting of financial events of healthcare entities such as hospitals, clinics, not-for-profit groups, and other healthcare related businesses. The information used in these financial statements must be relevant, reliable, and comparable. Some of the concepts or principles used in the preparation of financial statements by way of GAAP are discussed below. Accrual Principle The accrual principle simply means that accounting transactions should be recorded in the period that they occur rather than when the cash flows related to them occur. In the healthcare field, all revenue earned for in-house patients should be recorded...
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...Checkpoint 1: Accounting assumptions, principles, constraints Accounting Assumptions, Principles, and constraints The basic Assumptions of accounting are: monetary unit assumption, time period assumption, economic entity assumption, and going concern assumption. Monetary unit assumption is when records only show data that can be expressed in terms of money. Health of owners, the quality of service, and morale of employees are not included because companies cannot qualify this information in terms of money (Accounting in action). Going concern assumption is when the business is assumed to have a continuous life of existence it will not close or be sold. Since the business is assumed to have a continues life of existence the life of the business is divided into equal periods that when these equal periods are over the accountant prepares the financial statement, this called the time period assumption. this period can be yearly, annually, monthly or quarterly it depends. and finally entity assumption wherein the business considered as a separate and distinct entity apart from the owner. The principles of accounting: the first principles is the cost principle, this dictate the company's assets at their cost. This means the amount spent when the item was obtained whether it was purchased today or 20 years ago. Cost will be recorded as purchased even if the cost has had increase in value over time, this is referred to as historical cost. This basic accounting principle is the basis...
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...Generally Accepted Accounting Principles in Healthcare HCS/571 May 30, 2011 Generally Acceptable Accounting Principles in Healthcare Generally Accepted Accounting Principles (GAAP) are used to regulate the process of financial accounting and the preparation of financial statements for organizations. GAAP are essentially a set of rules, established by the Financial Accounting Standards Board, that provide a framework for formalized accounting systems that keep track of the financial health and well-being of organizations such as private and publicly traded firms, non-profit organizations and not-for-profits such as healthcare organizations (Finkler, Kovner, & Jones, 2007). GAAP are comprised of a group of requirements and rules, used to prepare the four primary statements used in financial accounting: balance sheets, statements of operation, statements of cash flow, and statements of changes in net assets (Cleverly, Song, & Cleverly, 2011). These statements help organizations to report on their overall financial health and ability to exist as a viable financial entity. There are a number of basic financial principles that make up GAAP. These include: • Entity concept • Going-concern concept • Matching principle and cash vs. accrual accounting • Cost principle • Objective evidence • Materiality • Consistency • Full disclosure Entity Concept According to Cleverly, Song, & Cleverly...
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...For my role as a staff accountant, I was assigned to research the appropriate accounting for revenue treatment of construction contracts for a client, LabCo. In specific, I was assigned to oversee LabCos’ contract involving a six-axis laser-cutting machine with Halibut Co. After researching and developing a theory based on the Financial Accounting Standards Boards’ Codification, I have concluded that LabCos’ treatment of revenue was reasonable; however, they should have changed revenue recognition principles sooner. In this situation, there are three possible ways they can handle changing their accounting method: Retrospective Application, Change in Accounting Estimate Method, or Change in Estimate Affected by Accounting Principle. The revenue treatment principle for a construction type principle states, “In accounting for contracts, the basic accounting policy decision is the choice between two generally accepted methods: the percentage-of-completion method including units of delivery and the completed-contract method. The determination of which of the two methods is preferable is based on a careful evaluation of circumstances because the two methods should not be acceptable alternatives for the same circumstances (ASC 605-35-25-1).” LabCo agreed to build a six-axis laser-cutting machine for Halibut. The contract entered into was a fixed price contract. A fixed price contract is, “An agreement to perform all acts under the contract for a stated price” (ASC 605-35-15-4)...
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...CHAPTER 2 Generally Accepted Accounting Principles Introduction Need of Accounting Principles Generally Accepted Accounting Principles Characteristics of Accounting Principles Objectivity Application Reliability Feasibility Understandability Accounting Concepts Separate Entity Concept Money Measurement Concept Dual Aspect Concept Going Concern Concept Cost Concept Period Accounting Period Concept Periodic Matching of Costs and Revenues Concept Realisation Concept Accounting Conventions Conservatism Consistency Materiality Full Disclosure Your Check Your Understanding Descriptive Questions Interview Questions Accounting for Managers 24 2.1 INTRODUCTION Accounting is the language of business. When we speak in any language, our intention is our ideas are to be understood by others. Language can be understood only when words used by us convey the same meaning to the listener. Both the speaker and listener should mean the same for the words used. Equally, every language has grammar of its own. When we write or speak, we follow the principles of grammar. Similar is the case with accounting. Most of the activities, be it official, social or personal, are guided by a set of certain rules or conventions. Some of the conventions are as follows: ♦ In India, we always drive on the left hand side of the road. ♦ Overtaking the vehicle, either two-wheeler or four-wheeler, is to be made on the right side, alone. ♦ As a citizen of India...
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...Generally Accepted Accounting Principles HCS/571 Generally Accepted Accounting Principles Health care organizations are required to have financial records audited or examined at least once a year by a certified public accountant (CPA). During the audit, the CPA is looking for substantial errors, evaluating the hospital’s accounting system, and making certain that financial statements are being prepared in accordance with generally accepted accounting principles (GAAP). GAAP is a set of guidelines established by the Financial Accounting Standards Board (FASB) to determine the financial position of an organization by providing detailed information such as fiscal returns, balance and outstanding debt of the health care organization. According to Finkler, Kovner, & Jones (2007), “A few of the most common and important GAAP include the following: entity concept, going-concern concept, matching principle and cash versus accrual accounting, cost principle, objective evidence, materiality, consistency and full disclosure” (p. 183). The entity concept is the unit that is being accounted for. Entities can be the whole organization (i.e. nursing home, nursing school, surgical center, etc.) or each individual department within the hospital. When defining the entity two points must be taken into consideration: once defined the resources cannot be mixed with other entities, and the finances should be completely indicative to that specific entity. These two concepts...
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...Early Accounting * Accountancy has its roots in the earliest history of civilization. With the rise of agriculture and trade, people needed a way to keep track of their goods and of transactions. Around 7500 B.C., Mesopotamians began using clay tokens to represent goods, such as animals, tools, food items or units of grain. This helped owners keep track of their property. Instead of counting heads of cattle or bushels of grain every time one was consumed or traded, people could simply add or subtract tokens. Different shapes were used for different goods. Around 4000 B.C., the Sumerians began placing these tokens in sealed clay envelopes. Each token would be stamped into the clay of the outside of the envelope, so the owner would know how many tokens were inside, but the tokens themselves would be kept safe from tampering or loss. This practice of pressing the tokens into the clay may have been the earliest genesis of writing. A few hundred years later, more complex tokens began to be used. These tokens had special markings to denote different units or types of goods. Starting around 3000 B.C., the Chinese developed the abacus, a tool for counting and calculating. * Basic principle Revenue principle The revenue principle, also known as the realization principle, states that revenue is earned when the sale is made, which is typically when goods or services are provided. A key component of the revenue principle, when it comes to the sale of goods, is that revenue is...
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...Financial Accounting Systems Tracy Pankey HCS/571 August 20, 2012 Professor Debra Vaughn Financial Accounting Systems The profession of nursing has enveloped itself into the development of gaining the skill and knowledge of health care financial systems within the health care arena. With government regulations and measures needed to improve the health care reform, it is expected that all members of the health care organization become actively involved in terms of the aspect of financial accounting. Accounting information is useful in determining organizational performances both in the past and is a great predictor in terms of future financial viability. The purpose of this paper is to explain generally accepted accounting principles (GAAP), describe each principle, its intent, and how it relates to health care. In an effort for health care organizations to maintain financial soundness, the preparation of financial statements is a key factor in terms of identifying and correcting accounting errors. A popular accounting method used among many organizations and firms is the generally accepted accounting principles (GAAP). For example, Finkler, Kovner, & Jones (2007) stated “GAAP are rules established by the Financial Accounting Standards Board (FASB). Certified public accountants (CPA) are experienced in accounting and the performance of audits. CPA’s examine financial records, seek to identify errors found in the financial documents, evaluate the organization’s...
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...Generally Accepted Accounting Principles and Healthcare University of Phoenix Online December 23, 2013 Generally Accepted Accounting Principles and Healthcare Accounting measures allow the public, those granting credit and investors, the opportunity to review a business’s financial performance through the review of financial statements. The financial market is grounded on the truthfulness of financial statements that allow investors to estimate the value of securities. The usage of generally accepted accounting principles (GAAP) is part of an organized and regulated method for financially educated professionals to create financial statements. GAAP outlines in detail the components necessary for large and small businesses to disclose their financial performance as accurate as possible to avoid bias (Federal Accounting Standards Advisory Board, 2013). GAAP addresses the wide range of accounting practices down to the small and specialized business. Accounting Principles “Generally accepted accounting principles (GAAP) are rules established by the Federal Accounting Standards Advisory Board (FASAB)” (Finkler, Kovner, & Jones, 2007, p.104). The development of accounting principles became emergently necessary because of the trend of major financial disasters. The stock market crash and demise of Enron were a result of faulty and deceptive accounting practices which failed to disclose the true state of the organizations. Events like these precipitated the need for GAAP...
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...1. Introduction: Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power. The central need for financial accounting is to reduce the various principal-agent problems, by measuring and monitoring the agents' performance and thereafter reporting the results to interested users. Financial accountancy is used to prepare accountancy data for people outside the organization or for those, who are not involved in the mundane administration of the company. Management accounting, provides accounting information to help managers make decisions to manage and enhance the business. In short, financial accounting is the process of sum-arising financial data, which is taken from an organization's accounting records and publishing it in the form of annual or quarterly reports, for the benefit of people outside the organization. Financial accountancy is governed not only by local standards but also by international accounting standard. 2. Role of Financial Accounting: • Financial accounting generates some key documents, which includes profit and loss account, patterning the method of business traded for a specific period and the balance sheet that provides a statement, showing mode...
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...Generally Accepted Accounting Principles Paper The term “generally accepted accounting principles” (GAAP) has a specific meaning for accountants and auditors, established by the Federal Accounting Standards Advisory Board (FASAB) in October 1999. According to the FASAB which is responsible for identifying the “GAAP hierarchy” for federal reporting entities. “The GAAP hierarchy consists of the sources of accounting principles used in the preparation of financial statements of federal reporting entities that are presented in conformity with GAAP and the framework for selecting those principles. The hierarchy lists the priority sequence of sources that an entity should look to for accounting and reporting guidance; this language is used in the business of health care (fasab, 2011).” The five principles of accounting include accounting entity, money measurement, duality, cost valuation, and stable monetary unit (Cleverly, Song, & Cleverly, 2011). This paper will include a brief description of each principle with the intention behind the principle and relate each principle to health care. Accounting Entity According to Cleverly, Song, and Cleverly (2011) the accounting entity is an organization for which financial information is recorded and reported. In health care, accounting entities may include surgical centers, hospitals, clinics, or others that are part of a larger corporation. Problems may occur when accounting entities differ. An example of accounting entity is a physician...
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...Accredited Tertiary Courses Listing 2012 Accredited Tertiary Courses Listing 2012 – as at 26 September 2012 1 2012 Accredited Undergraduate Courses AUSTRALIAN CAPITAL TERRITORY The Australian National University University of Canberra NEW SOUTH WALES Australian Catholic University Australian Institute of Higher Education Avondale College Charles Sturt University Kings Own Institute Macquarie University Southern Cross University Top Education Institute The University of New England The University of New South Wales The University of Newcastle The University of Sydney University of Technology, Sydney University of Western Sydney University of Wollongong Williams Business College NORTHERN TERRITORY Charles Darwin University QUEENSLAND Australian Catholic University Bond University Central Queensland University Christian Heritage College Griffith University James Cook University Queensland University of Technology The University of Queensland The University of Southern Queensland University of the Sunshine Coast SOUTH AUSTRALIA Flinders University Kaplan Business School The University of Adelaide University of South Australia Open Universities (conferred by Uni of SA) TASMANIA University of Tasmania VICTORIA Australian Catholic University Cambridge International College Carrick Higher Education Deakin University Holmes Institute Holmesglen Institute of TAFE La Trobe University Melbourne Institute of Technology Monash University Northern Melbourne Institute of TAFE RMIT...
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...Generally Accepted Accounting Principles Tonya Krell Phoenix Generally Accepted Accounting Principles Accounting standards that record and report financial information in a consistent manner is known as Generally Accepted Accounting Principles (GAAP). There are four primary financial statements in which GAAP is used to guide the rules and requirements. The financial statements include a balance sheet, statement of operations, statement of cash flow, and statement of changes in net assets (Cleverley, Song, & Cleverley, 2011). Professionals, to prepare financial documents based on a common standard, implement the principle. GAAP is beneficial to companies as it alleviates the difficulties of comparing a company’s financial statements, establishes creditworthiness of a company, and provides financial strength ("How does GAAP aid in health care," n.d.) GAAP is reinforced by eight accounting concepts. The concepts are as follows: (a) Entity concept, (b) Going-concern concept, (c) Matching principle, (d) Cost principle, (e) objective evidence, (f) Materiality, (g) Consistency, and (h) Full disclosure (Finkler, Jones, & Kovner, 2012). This paper provides a description of each concept and how the concept relates to health care. In accounting there must be an entity that is used to prepare financial statements such as balance sheets for the health care organization. This can include the organization as a whole but typically is broken down into units or departments. Identifying...
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...For my role as a staff accountant, I was assigned to research the appropriate accounting for revenue treatment of construction contracts for a client, LabCo. In specific, I was assigned to oversee LabCos’ contract involving a six-axis laser-cutting machine with Halibut Co. After researching and developing a theory based on the Financial Accounting Standards Boards’ Codification, I have concluded that LabCos’ treatment of revenue was reasonable; however, they should have changed revenue recognition principles sooner. In this situation, there are three possible ways they can handle changing their accounting method: Retrospective Application, Change in Accounting Estimate Method, or Change in Estimate Affected by Accounting Principle. The revenue treatment principle for a construction type principle states, “In accounting for contracts, the basic accounting policy decision is the choice between two generally accepted methods: the percentage-of-completion method including units of delivery and the completed-contract method. The determination of which of the two methods is preferable is based on a careful evaluation of circumstances because the two methods should not be acceptable alternatives for the same circumstances (ASC 605-35-25-1).” LabCo agreed to build a six-axis laser-cutting machine for Halibut. The contract entered into was a fixed price contract. A fixed price contract is, “An agreement to perform all acts under the contract for a stated price” (ASC 605-35-15-4)...
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