Management Concept Style

The accruals concept states that revenue and costs must be recognized as they are earned or incurred, not as money is received or paid. They must be matched with one another so far as their relationship can be established or justifiably assumed, and debit with in the profit and loss account of the period to which they relate.

Financial Reporting Standards also stipulates that financial statements must be prepared under the accruals concept. This concept is a cornerstone of present day financial statements. Essentially, the accruals concept states that, in computing profit, revenue earned must be matched against the expenditure incurred in earned it.

Management Concept

The company's act gives legal recognition to the accruals concept, stating that, all income and charges relating to the financial year to which the accounts relate shall be taken into account, without regard to the date of receipt or payment. This has the effect, as we have seen, of requiring business to take credit for sales and purchases when made, rather than when paid for, and also carry unsold stock forward in the balance sheet rather than to deduct its cost from profit for the period.

Example, If company Y makes 20 shirts at a cost of 0 and sells them for 0, she makes a profit of 0. However, if company Y had only sold 18 shirts, it would have been incorrect to charge its profit and loss account with the cost of twenty shirts, as it still has 2 shirts in stock. If it intends to sell them in June it is likely to make a profit on the sale. Therefore, only the purchase cost of 18 shirts should be matched with its sales revenue, leaving it with a profit of .

http://accounting-support.blogspot.com/2009/12/62-accruals-concept-or-matching-concept.html

See Also : Motivational Techniques The Global Marketing Management Concept Style

There are four basic accounting concepts. The concepts specify and explain the guidelines that should be followed when managing the accounting of a business. Below there is a list of the these four basic accounting concepts and a brief summary of each concept.

1. Accruals Concept

Management Concept

The accruals concept states that revenue from transactions and transactions which cause liabilities are accounted for when they occur, even if cash or property has not actually been exchanged between the entities involved in the transaction. For example, a dentist, Dr. Payne orders and receives 6 months worth of toothpaste for 0 in January. Even if he does not pay for the toothpaste until February, Dr. Payne should still record the 0 liability in January and not wait until February, since he owns the goods and is liable to pay for them to the supplier. On its turn the supplier will be accounting for the sale of toothpaste to Dr. Payne.

2. Consistency Concept

Once certain accounting method has been applied by the accountant, this methods must be applied throug all the further periods for the accounting purposes. The accounting method should only be changed if there is a valid reason that requires the change. For example, if the accountant starts recording transactions using the double-entry accounting method in January, he or she should continue applying the double-entry method for the remainder of the accounting period. He or she should not begin applying the double-entry method and suddenly switch to the single-entry accounting method mid-accounting cycle for no identifiable, valid reason. This means that all the accounting methods and procedures must be applied consistently to ensure comparability of information among periods.

3. Going Concern Concept

When the accounting of a business is being managed, it should be assumed by the accountant that the business is viable and will still operational in the foreseeable future. If the accountant has any reason to believe that the business will not remain viable in the foreseeable future, he or she must state the reasons for coming to that conclusion in the financial reports of the business. If the accountant has an opinion that the company will not remain in business and there are no sufficient evidence to proof the opposite, the accountant may simply include a disclaimer in the financial reports stating that he or she believes, but cannot show evidence to prove that the business will not remain viable.

4. Prudency Concept

Liabilities are accounted for in the balance sheet even if they is only a possibility for such liabilities to occur, despite they are potential. However, revenues are accounted for in the financial statements only if the business has title for such revenue and has already collected or will collect cash or other assets in the future. If there is a doubt about this or there is no strong legal basis to recognize revenue, it is not accounted for in the accounting books. This concept helps to ensure that businesses make provisions for potential losses, not just realized losses, and do not erroneously include revenues that are simply anticipated, but not yet earned.

You can easily and comfortably learn accounting basics at home using home learning accounting courses. Why wait? Start learning accounting basics now.

Recommend : The Global Marketing

Strategic financial management is basically about the identification of the possible strategies capable of maximizing an organization's market value. It involves the allocation of scarce capital resources among competing opportunities. It also encompasses the implementation and monitoring of the chosen strategy so as to achieve agreed objectives.

The key decisions falling within the scope of financial strategy include the following:

Management Concept

1. Financial decisions - this deals with the mode of financing or mix of equity capital and debt capital. If it is possible to alter the total value of the company by alteration in the capital structure of the company, then an optimal financial mix would exist - where the market value of the company is maximized.

2. Investment decision - this involves the profitable utilization of firm's funds especially in long-term projects (capital projects). Because the future benefits associated with such projects are not known with certainty, investment decisions necessarily involve risk. The projects are therefore evaluated in relation to their expected return and risk. For these are the factors that ultimately determine the market value of the company. To maximize the market value of the company, the financial manager will be interested in those projects with maximum returns and minimum risk. An understanding of cost of capital, capital structure and portfolio theory is a prerequisite here.

3. Dividend decision - dividend decision determines the division of earnings between payments to shareholders and reinvestment in the company. Retained earnings are one of the most significant sources of funds for financing corporate growth, dividends constitute the cash flows that accrue to shareholders. Although both growth and dividends are desirable, these goals are in conflict with each other. A higher dividend rate means rate means less retained earnings and consequently slower rate of growth in future earnings and share prices. The finance manager must provide reasonable answer to this conflict.

It should be noted that the theory of corporate finance is based on the assumption that the objective of management is to maximize the market value of the company. More specifically, it is settled in finance that the main objective of a company should be to maximize wealth of its ordinary shareholders.

Do you need free autoblogs for making money online? Visit http://www.freeautoblogs.com to get yours today.

Tags : Advertising Techniques