Profit as a basic profitability indicator used by companies has the following drawbacks: profit does not equal net inflow of money, costs do not equal expenditures and incomes do not equal receipts profit includes the results of operations that are ad-hoc and will not be repeated in the future various methodologies particularly in the ar...
Liquidity is the entity´s ability to convert its assets into cash for the purpose to settle its obligations, ideally with the lowest possible transaction costs. (14) Indicators of liquidity Liquidity indicators show the extent to which the current assets of the company in various forms cover its short-term obligations. Thus, the num...
Standard costing is a cost accounting measurement basis that predicts unit costs and production quantities based on predetermined standards before the production even begins and as such it is an alternative method to historical cost accounting. It is suitable for production, which is standardized and mass or repetitive. Standard costing serves as...
In common production process are simultaneously processed two (or more) products. If both products are of similar economic importance, they are JOINT PRODUCTS. But if they are not, one is considered to be MAIN and the second BY-PRODUCT. And what are the factors to take into account to distin
Explicit costs are costs that are really incurred by the entity. Opposite to explicit costs are implicit (opportunity) costs.
Replacement cost is the cost which would need to be paid to buy the asset today. It is used mainly during asset replacement decisions.
Costs are usually debited as an expense in the entity´s profit and loss statement. But it is not often the case for costs incurred in the inventory production process. Direct costs, usually together with allocated production indirect costs (production overheads), form the value of various form
Pure historical costs – only actual costs are used for all types of costs. But even if historical costs are used, a number of allocations are usually necessary (e.g. overheads) to obtain unit cost. (3) Normal historical costs – historical (actual) costs are used for direct material
Contract costing is a type of costing method that calculates the costs for separate contracts. Contracts are “bigger jobs”, typically very expensive that take a long time. It is therefore very similar to job costing method which calculates costs for separate jobs. The difference is tha
Shut-down costs are unavoidable costs which will be incurred even if the production is shut down (e.g. rent which is the entity obliged to pay).
Differential cost is a difference in costs resulting from adopting different alternatives or costs in different time periods. They are opposites to sunk costs.
The purpose of financial accounting is to present true and fair information about financial position, financial performance and cash-flow of the entity for the external stakeholders such as shareholders, investors, creditors or government. Financial accounting looks mainly into the history and is (m
Throughput costing is a type of costing method under which only direct material costs are included to the value of the product (or job, contract, batch, process, etc.). Other costs are expensed when incurred. It is not acceptable for inventory valuation either under IAS 2 or US GAAP but it may be
Job costing is a type of costing method that calculates the costs for separate and unique jobs - often one-off product or service. In other words, each work order is costed separately. Example of a job: development or implementation of a software or tailor-made furniture Timesheets are of
Activity based costing (ABC) is costing method, under which all costs are allocated to company activities according to what are the drivers of the activities. Costs are then allocated to products based on product´s consumption of these activities. ABC was developed to overcome the disadvanta