Variance Analysis

Variance Analysis

What is a variance analysis? The variance analysis is present in managerial accounting. It refers to the investigations of differences from financial performance from the standards defined in their organizational budgets. Explanation Variance analysis typically involved the isolation of different causes for the variation in income and expenses over a given period from the budgeted standards. Types of variances These are the main types of variances in use: Purchase price variance: It is the actual price paid for the materials used in production minus the…

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Chart of accounts

Chart of accounts

A chart of accounts is a list of the accounts identified and made available for recording transactions in the general ledger. The company has the flexibility to change the chart of accounts to suit its needs the best, including adding or removing accounts where needed. Which accounts are used? Within the chart of accounts, you will find that the accounts are generally listed in the following order. Balance sheet accounts Income statement accounts Assets Liabilities Owner’s equity Operating revenues Operating expenses Non-operating revenues and gains…

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Theory of Constraints

Theory of Constraints

The Theory of Constraints is a methodology for identifying the most important limiting factor that stands in the way of achieving a goal and then systematically improving that constraint until it is no longer the limiting factor. In manufacturing the restraint can be referred to as a bottleneck. The Theory of Constraint uses a scientific approach to improvement. It hypothesizes that every complex system, consists of multiple linked activities. Each one of them acts as a constraint on the entire system. Which methods does the…

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Throughput Accounting

Throughput Accounting

Throughput accounting is a principle-based and simplified version of management accounting. It provides management with decision support information to improve the enterprise’s profitability. It is relatively new in management account. Throughput accounting uses an approach that identifies factors that limit an organization from reaching its goal, then focuses on simple but effective measures that drive behavior in key areas towards reaching certain organization goals. This form of accounting was proposed by Eliyahu M. Goldratt as an alternative to the traditional cost accounting. Due to this,…

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Chart of accounts

Statement of retained earnings

What is a statement of retained earnings? The statement of retained earnings is the second financial statement that must be prepared. It is prepared right after the income statement and before the balance sheet. In the United States, it is required by the Generally Accepted Accounting Principles whenever any comparative balance sheets and income statements are presented. It may appear in the balance sheet or in a combined income statement and changes in retained earnings statement, or as a separate schedule. What is the purpose…

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Financial Statement

A financial statement is a formal record of the financial activities of a business. All the relevant financial information is presented in a structured manner and in a form that is easy to understand. These typically include basic financial statements that are accompanied by a management discussion and analysis. The following are the basic financial statements: Balance sheet. Income statement. Statement of cash flows. Purpose of financial statements The objective of any financial statement is to provide information about the financial position, performance and changes…

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Operating Expense

Operating Expense

What is an operating expense? An operating expense is an ongoing expense for running a business or system. It is a day-to-day expense such as administration or cleaning. A short explanation would be that it is the money a business spends in order to turn its inventory into throughput. On an income statement, operating expenses is the sum of a business’ operating expenses for a period of time such as per month or even per year. In throughput accounting, the operating expenses is the money…

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Internal Audit

Internal Audit

h2>What is an internal audit? The objective of an internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes and operating effectively. What is the value of an internal audit to the organization? Internal auditors deal with issues that are fundamentally important to the survival and prosperity of any organization. The difference between internal auditors and external auditors, is that they look beyond the financial risks and statements in order to consider wider issues. These issues are things…

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Operating Expense

Book Value

What is the book value? The book value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset minus any depreciation, amortization or impaired costs made against the asset. Traditionally, a company’s book value is its total assets minus intangible assets and liabilities. In practice, depending on the source of the calculation, the book value may variably include goodwill, intangible assets or both. When intangible assets and goodwill are…

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Matching Principle

Matching Principle

What is the matching principle? The matching principle is one the basic, underlying guidelines in accounting. It requires that expenses incurred by an entity must be charged to the income statement in the accounting period in which the revenue, (to which those expenses relate), is earned. Explanation of the matching principle Before the matching principle came into effect, expenses were charged to the income statement in the accounting period in which they were paid, even if they didn’t relate to the revenue earned during that…

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