This document is a summary that contains not only the lecture slides but notes based on what professors said and explained that cover all of what there is to know about the course accounting in the first year of IBA. Furthermore, this summary contains and explains exercises that can prepare you for...
• Accounting is information to…
o Make decisions as a firm, e.g.,
Prices
Investments yes/no
Strategy, take-overs etc etc
o Make decisions as investors, as banks
o Determine tax payments
o Etc
Accounting: Provide information to…
• Make decisions
Prices
investments Y/N
takeovers
strategy
marketing campaigns
• Inform people having an interest in the firm
Investors
Owners
Employees
• Fulfill duties to society (e.g. pay taxes)
• Summarize all kind of actions, decisions, results, transactions into figures to steer the business
and inform stakeholders
Three stages in accounting:
1. Identification
2. Recording
3. Communication
,Different ‘Languages’
• What generally accepted accounting standards to use?
o US? U.S. GAAP-FASB Financial Accounting standards board
o Europe? IFRS-IASB International Accounting standards board
• Why differences?
What is the truth? What is the actual value of a machine you bought?
o What you paid for it?
o What someone else is willing to pay?
o How much profit you can make with it?
So standard setters make a rule based on how users on how users of accounting information get
the most relevant and reliable information
Two Types of information
1. Financial Accounting:
external financial reporting and bookkeeping (for stakeholders)
2. Management Accounting:
Internal information for decision-making, performance evaluation, and control
,Three broad functions of management:
1. Planning: manager looks ahead and establishes responsibilities
2. Directing: manager coordinates the company’s diverse activities and human resources to produce a
smooth-running operating
3. Controlling: the company is kept on track and the realizing of the goals is checked
Cost and cost behavior:
Manufacturing:
o Activities and processes that convert raw materials into finished products
Raw materials:
o Basic raw materials and parts used in the manufacturing process
Direct materials:
o Raw materials that can be physically and directly associated with the finished product during
the manufacturing process (e.g., flour, syrup in the making of bread)
Indirect materials:
o (1) they do not physically become part of finished goods, (2) they are impractical to trace to
the finished products because their physical association with the finished product is too
small in terms of costs
Direct labor:
o work of factory employees that can physically and directly be associated with converting
raw materials into finished goods
manufacturing overhead:
o consists of costs that are indirectly associated with the manufacture of the finished product
, Total manufacturing costs = direct material + direct labor costs + manufacturing overhead
Direct material = start inventory + purchased inventory + end inventory
Cost of goods manufactured = total manufacturing costs + beginning work in process inventory –
ending work in process inventory
WIP (work in progress) → direct material, direct labor, portion of manufacturing, manufacturing
overhead (control account), work in process
Total cost of work in progress = Beginning work in process inventory + total manufacturing costs
Cost of goods manufactured = total cost of work in process - ending work in process inventory
Cost accounting
Measuring, recording and reporting product costs
Compares determine both the total cost and the unit cost of each product
1. Process cost system: accumulates product- related costs for a period of time instead of
assigning costs to specific products or job orders. Large volumes of similar products
2. Job cost system: the company assigns costs to each job or each batch of goods.
Objective: compute the cost per job. Need for distinguishing characteristics
A form used to record the costs chargeable to a specific job and to determine the total
and units costs of the computed job
Companies assign raw materials costs to job when their materials storeroom issues the
materials in response to requests
Companies assign factory labor costs to jobs based on time tickets prepared when the
work is performed
Job order cost flow:
• Accumulation
o The company first accumulates costs by purchasing raw material, incurring labord costs and
incurring manufacturing overhead costs
• Assignment to jobs
o Once the company has incurred manufacturing costs, it must assign them to specific jobs if
they cannot be assigned by themselves (e.g., raw materials – manufacturing overhead)
• Completed jobs
o As jobs are completed, the company transfers the cost of the completed job out of work in
process inventory into finished goods inventory
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