Articles , Page 2
Disadvantages of accounting profit
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 indicators
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
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...
Fixed costs
Fixed costs are costs that do not relatively change with the level production over the short term and are incurred even if there is no production. So if the level of production decreases, fixed costs remain unchanged and fixed cost per unit increases, and vice versa. Examples: CFO salary; rent
Semi-variable costs / Mixed costs
Semi-variable costs or mixed costs are costs that have both fixed and variable components. They are variable until certain production level, then increase in step and after that grow variably again. (58) They include for example costs with a standing (fixed) fee and a variable comp
Distinction between economic and accounting profit
The general definition is valid for both economic and accounting profit: income - expenses But the terms differ in: what is included in the formula: economic profit: explicit (i.e. expenses in the profit and loss) and implicit costs (i.e. costs that would be sacrified if we would
Quick ratio / Acid test ratio
Quick ratio (Acid test ratio) is one of liquidity indicators, which informs us about how many times the firm would be able to pay its current liabilities, if it converts its short-term receivables and financial assets to cash. This indicator deducts the least liquid component from the current
Cash ratio / Absolute liquidity ratio
Cash ratio (Absolute liquidity ratio) is one of liquidity indicators which informs us about how many times the firm would be able to pay its current liabilities, if it converts its financial assets to cash. The indicator has only the most liquid component in the numerator - (short-term) financ
Forecasting and budgeting
The series aims to describe the fundamental aspects of forecasting and budgeting - planning process, the difference between forecast and budget and description of the basic types of budgets (fixed vs. flexible, static vs. continuous, incremental vs. zero-based budget and top-down or bottom-up budget
Costing methods according to the cost types included
Costing methods differ also in the cost types that will be included in the value of inventory (costs of goods sold) and which shall be booked directly to the statement of profit and loss as period costs. Cost accounting methods include: Full costing or full production costing methods, e
Indirect costs (overheads)
Indirect costs are costs not directly and clearly identifiable with cost object (usually product or service). Together with direct (prime) costs they form total costs of the entity. Indirect costs can be both fixed and variable, production and non-production or external and internal. They are oft
Gross margin
Gross margin is one of profitability indicators. It can be expressed as a difference % Comparisons gross margin % will vary considerably between industries, so comparing companies in different industries makes little sense it makes sense to compare with the
Current liquidity ratio / Working capital ratio
Current liquidity ratio / Working capital ratio is one of liquidity indicators, which informs us how many times the firm would be able to pay its current liabilities, if it converts all of its current assets to cash. Calculation formula Disadvantages &nb
Steps during budget preparation
1. CEO appoints budget committee and budget coordinator. Budget committee is a group of people that are responsible for budget preparation, review and approval. It is usually formed by senior managers including finance director. (26) 2. Review the system of responsibility (budget) c
Cost accounting
Cost accounting is a set of management accounting methods, techniques and procedures used mainly to determine actual or planned costs of cost objects (cost center, product, cost unit, department, process, activity). Cost accounting is not an exact discipline. It involves a set of well tried-o