Managerial Decisions:Accounting

When making a decision managers need to take a(interest, insurance, title search and registration,
lot of things into consideration. Accounting has anew
big impact on the manager's decisions. In thisinstallations, etc.,) these will also be included.The
article we will talk about inventory andaccounting department should also account for
capitalization policiesInventory PolicyIn businessthe depreciation of
keeping inventory can be very complicated. Everyassets. This effort will be recorded within the
companyfinancial statements
ought to do inventory on their products toas reduction in economic benefit during annual
assure that everything isreporting. The
in place and to keep track of their products tostraight-line depreciation method (it is done by
have a well-managedcalculating the cost
and functioning business. Inventory is tangibleof the asset over time) can be used as an
property held foreffective means of asset
sale, or materials used in a production process tomanagement.Justification for PoliciesThe Skeer
make a product.Medical Supply Company makes notable use of
There are two types of inventory systemsthe perpetual
perpetual inventory systemsinventory system to record every purchase and
that keep continuous records of the cost andsale on a continuum
amount of inventory onbasis. The justification for usage of this system
hand and what has been sold at the time of salelies in two schools
on a day-to-day basis.of thought. First, the advent of inventory
The periodic inventory system is the amount ofsoftware and bar code
inventory or cost ofreaders makes this process highly efficient. The
goods sold that cannot be found on a continuoussoftware is capable
basis. The inventoryof being modified to set order points, create an
must be counted, and the cost of goods soldaccounts payable
must be computed. Thetransfer interface, and prompts for both the
SKERR medical supply companies use theplacement and sale of a
perpetual system because in theparticular order. Bar coding adds the element of
medical supply field one must constantly knowfeasibility to
how supplies are beingaccurately scan what is coming in and going out.
used and the cost of production andSecondly, the
inventory.The cost of inventory is the price ofvariance in the offerings of supplies that Skeer
the inventory at the time ofMedical Supply offers
purchase. If the cost method is used toits customers requires us to get a real gauge of
determine price, the marketwhat is selling and
will have no bearing on the decision. Lower ofwhat is remaining in inventory. Throw in the fact
cost or market can bethat the company is
used; then a decline in price of inventory fallsa start-up with huge initial costs, and one can see
below the originalwhy the tightest
costs. Market price is then used to valueinventory system is in place to cut down on
inventory instead of cost.potential inventory
If market price goes back higher than cost, costerrors.The rational for the usage of the
will be used tostraight-line depreciation method
determine inventory and a company also mustfor capitalizing the assets of the Skerr Medical
agree on what type ofSupply Co., is that
inventory flow one must use. When it comes toit provides the best alternative to lower
inventory flow the SKERRdiscounted tax payments.
medical supply company use a specific invoice,When a company is not permitted to carry
this method requiresforward losses for tax purposes, a straight-line
that each unit of inventory be tagged so thedepreciation method
cost of each one can beis apt to be preferable when the discount factor
determined at the time of inventory count.for future tax
There's also the weightedpayments or the mean of future cash flows are
average, this method of inventory flow takeshigh.
the number of unitsBy using this method, comparable sales data
purchased and the total costs of all purchases,used to derive a
first-in and first-outdepreciation rate leaves little chance for opinions
(FIFO) which is the ending inventory assigned toor
costs as a result ofsecond-guessing.Alternative methods of valuation
the most recent purchases. FIFO refers to thethat were proposed for the Skeer
items sold, not to theMedical Supply Co., were the capitalization of
items of inventory. Last -in and first -out, isearnings method and the
ending inventoryasset value method. The capitalization of earnings
assigned costs as a result of the beginningmethod takes the
inventory and earliestcurrent annual income of the small business being
purchases. LIFO refers to the item sold, not tovalued and divides
the items init by the required percentage rate of return on
inventory. In general, when the purchase price ofthe investment in the
inventory is goingbusiness, minus the growth rate of the firm.
down, one must choose FIFO. When the price ofIts strong suit is that it takes into consideration
inventory is going upboth the required
choose LIFO, and when inventory goes up andreturn and the growth potential of the business.
down one must chooseThe downfall using
weighted average.Capitalization PolicyThe policythe earnings method is that it assumes that the
for capitalizing the assets of Skerr Companygrowth rate will
should becontinue at the same level...forever. There are
based on the accounting standards of GAAPtoo many fluctuations in the market to apply
(General Accepted Accountingthat method.The asset value method contends
Principles). The sole purpose is to record thethat a business success is reflected
expenditures andin its ability to accumulate assets. The argument
inventory of company assets. The capital assetsagainst using this
of Skerr wouldmethod is found in the numerous broad
include: supplies, equipment, furniture, vehicles,interpretations used to
machinery,calculate market value based on the assets that
buildings, and land associated the daily functionsare used to generate
of the company.income. A company with earnings and low asset
Company assets should be capitalized andvalue is worth more than a business with low
recorded when:* Assets are tangible* Asset isearnings and a high asset
used in the daily operations of the company*value. There were just too many interpretations
Asset had value and use at the point ofbetween both methods
purchaseThe company assets must be listed atthat gauge the net book value of a firm.Mary
their historical or estimatedAnne Winslow is a member of Essay Writing
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