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Managerial Decisions:Accounting

When making a decision managers need to take
a lot of things into consideration.installations, etc.,) these will also be
Accounting has a big impact on the manager'sincluded.The accounting department should
decisions. In this article we will talk aboutalso  account  for  the  depreciation  of
inventory and capitalization
policiesInventory PolicyIn business keepingassets. This effort will be recorded within
inventory can be very complicated. Everythe  financial  statements
company
as reduction in economic benefit during
ought to do inventory on their products toannual  reporting.  The
assure  that  everything  is
straight-line depreciation method (it is
in place and to keep track of their productsdone  by  calculating  the  cost
to  have  a  well-managed
of the asset over time) can be used as an
and functioning business. Inventory iseffective  means  of  asset
tangible  property  held  for
management.Justification for PoliciesThe
sale, or materials used in a productionSkeer Medical Supply Company makes notable
process  to  make  a  product.use  of  the  perpetual
There are two types of inventory systemsinventory system to record every purchase
perpetual  inventory  systemsand  sale  on  a  continuum
that keep continuous records of the cost andbasis. The justification for usage of this
amount  of  inventory  onsystem  lies  in  two  schools
hand and what has been sold at the time ofof thought. First, the advent of inventory
sale  on  a  day-to-day  basis.software  and  bar  code
The periodic inventory system is the amountreaders makes this process highly efficient.
of  inventory  or  cost  ofThe  software  is  capable
goods sold that cannot be found on aof being modified to set order points,
continuous  basis.  The  inventorycreate  an  accounts  payable
must be counted, and the cost of goods soldtransfer interface, and prompts for both the
must  be  computed.  Theplacement  and  sale  of  a
SKERR medical supply companies use theparticular order. Bar coding adds the
perpetual  system  because  in  theelement  of  feasibility  to
medical supply field one must constantlyaccurately scan what is coming in and going
know  how  supplies  are  beingout.  Secondly,  the
used and the cost of production andvariance in the offerings of supplies that
inventory.The cost of inventory is the priceSkeer  Medical  Supply  offers
of  the  inventory  at  the  time  of
its customers requires us to get a real
purchase. If the cost method is used togauge  of  what  is  selling  and
determine  price,  the  market
what is remaining in inventory. Throw in the
will have no bearing on the decision. Lowerfact  that  the  company  is
of  cost  or  market  can  be
a start-up with huge initial costs, and one
used; then a decline in price of inventorycan  see  why  the  tightest
falls  below  the  original
inventory system is in place to cut down on
costs. Market price is then used to valuepotential  inventory
inventory  instead  of  cost.
errors.The rational for the usage of the
If market price goes back higher than cost,straight-line  depreciation  method
cost  will  be  used  to
for capitalizing the assets of the Skerr
determine inventory and a company also mustMedical  Supply  Co.,  is  that
agree  on  what  type  of
it provides the best alternative to lower
inventory flow one must use. When it comesdiscounted  tax  payments.
to  inventory  flow  the  SKERR
When  a  company  is  not permitted to carry
medical supply company use a specific
invoice,  this  method  requiresforward losses for tax purposes, a
straight-line  depreciation  method
that each unit of inventory be tagged so the
cost  of  each  one  can  beis apt to be preferable when the discount
factor  for  future  tax
determined at the time of inventory count.
There's  also  the  weightedpayments or the mean of future cash flows
are  high.
average, this method of inventory flow takes
the  number  of  unitsBy using this method, comparable sales data
used  to  derive  a
purchased and the total costs of all
purchases,  first-in  and  first-outdepreciation rate leaves little chance for
opinions  or
(FIFO) which is the ending inventory
assigned  to  costs  as  a  result  ofsecond-guessing.Alternative methods of
valuation  that  were  proposed for the Skeer
the most recent purchases. FIFO refers to
the  items  sold,  not  to  theMedical Supply Co., were the capitalization
of  earnings  method  and  the
items of inventory. Last -in and first -out,
is  ending  inventoryasset value method. The capitalization of
earnings  method  takes  the
assigned costs as a result of the beginning
inventory  and  earliestcurrent annual income of the small business
being  valued  and  divides
purchases. LIFO refers to the item sold, not
to  the  items  init by the required percentage rate of return
on  the  investment  in  the
inventory. In general, when the purchase
price  of  inventory  is  goingbusiness, minus the growth rate of the firm.
down, one must choose FIFO. When the priceIts strong suit is that it takes into
of  inventory  is  going  upconsideration  both  the  required
choose LIFO, and when inventory goes up andreturn and the growth potential of the
down  one  must  choosebusiness.  The  downfall  using
weighted average.Capitalization PolicyThethe earnings method is that it assumes that
policy for capitalizing the assets of Skerrthe  growth  rate  will
Company  should  be
continue at the same level...forever. There
based on the accounting standards of GAAPare
(General  Accepted  Accounting
too many fluctuations in the market to apply
Principles). The sole purpose is to recordthat method.The asset value method contends
the  expenditures  andthat  a  business  success  is  reflected
inventory of company assets. The capitalin its ability to accumulate assets. The
assets  of  Skerr  wouldargument  against  using  this
include: supplies, equipment, furniture,method is found in the numerous broad
vehicles,  machinery,interpretations  used  to
buildings, and land associated the dailycalculate market value based on the assets
functions  of  the  company.that  are  used  to  generate
Company assets should be capitalized andincome. A company with earnings and low
recorded when:* Assets are tangible* Asset isasset
used in the daily operations of the company*
Asset had value and use at the point ofvalue is worth more than a business with low
purchaseThe company assets must be listed atearnings  and  a  high  asset
their  historical  or  estimated
value. There were just too many
costs. The purchase price of land or anyinterpretations  between  both  methods
construction  costs  will  be
that gauge the net book value of a firm.Mary
posted at fair market value. If there areAnne Winslow is a member of Essay Writing
any  incidental  costsService counselling department team and a
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