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Financial Accounting / Elimination of Extraordinary Item Concept
« on: November 25, 2018, 05:08:44 PM »
Elimination of Extraordinary Item Concept
In January 2015, a new accounting standards update eliminated the idea of extraordinary items. This alleviated the need for companies and their auditors and regulators to assess if an extraordinary item had been classified and disclosed appropriately starting in the fiscal year of 2015. Also, companies are no longer required to evaluate the income tax effect of extraordinary items and present an EPS effect. This accounting update left reporting and disclosure requirements for unusual and infrequent events or transactions intact. While companies no longer must entitle events and their effects as extraordinary, they still have to disclose infrequent and unusual events on the income statement and their effect before income taxes. Also, GAAP allows companies to give these events more specific names, such as "Effects From Fire at Production Facility."  The International Financial Reporting Standards (IFRS) do not include extraordinary items in their accounting practices.

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BREAKING DOWN 'Extraordinary Item'

Extraordinary items, also referred to as non-recurring items, represent income or loss from extraordinary events and transactions that must be separately classified, presented, and disclosed on companies' financial statements. Before 2015, companies put a lot of effort into determining if a particular event should be deemed extraordinary. Gains and losses net of taxes from extraordinary items had to be shown separately on the income statement after income from continuing operations. However, in January 2015, U.S. generally accepted accounting principles (GAAP) were changed, and the concept of extraordinary items was eliminated to reduce the cost and complexity of preparing financial statements. Companies must still disclose infrequent and unusual events but now without designating them as extraordinary.

source:: Extraordinary Item

Faculty Sections / The 28 highest-paying jobs for workaholics
« on: November 22, 2018, 04:45:41 PM »
The 28 highest-paying jobs for workaholics
  • While the average employed American adult works a little over 39 hours a week, people in some professions tend to work more hours in a week.
        Some of these jobs pay more than others.
        Using US Census data, Business Insider found the highest-paying jobs for people who report typically working more than 45 hours a week.

Cost Accounting / Costing Accuracy vs. the Cost of Costing
« on: November 11, 2018, 12:48:15 PM »
Costing Accuracy vs. the Cost of Costing
For the profitability figures appearing in Table 7 above, the activity-based costing results may be taken as the more accurate results—more closely reflecting the "true" production costs of products A and B—than the profitability figures from the traditional costing approach. Whether or not the improved accuracy justifies the higher expense of applying this costing method, however, is something management will have to investigate and answer before committing to a comprehensive new approach to cost accounting.


Cost Accounting / Activity-Based Costing vs. Traditional Cost Accounting
« on: November 11, 2018, 12:46:02 PM »
Activity-Based Costing vs. Traditional Cost Accounting
The different approaches and outcomes from ABC and traditional costing are most accessible for illustration in the context of a product manufacturing example. However, the principles appearing here extend readily to a wide range of other business settings.
Example: Traditional Cost Accounting vs. ABC

For example, consider a firm that manufactures automobile parts through a sequence of machine operations on a metal stock. In such settings, traditional cost accounting views "product production costs" as either direct costs or indirect costs (or overhead).


Cost Accounting / Why Do Companies and Organizations Move to ABC?
« on: November 11, 2018, 12:43:12 PM »
Why Do Companies and Organizations Move to ABC?
Business people are moved to adopt ABC by a desire to improve costing accuracy, mainly to get closer to the actual cost and true profitability of individual products and services. And, they also move to ABC to understand better the actual costs and return on investment from projects, programs, or other initiatives.

ABC pursues these objectives essentially by making direct costs out of many of the expenses that traditional cost accounting treats as indirect costs. Examples below show how ABC does this.

Organizations that use ABC consistently and effectively are said to practice activity-based management (ABM).Here, managers turn to ABC to support decisions about pricing, adding or deleting items from the product portfolio, choosing between outsourcing and in-house production, and evaluating process improvement initiatives. For more on ABM, see the section below "What is activity-based management?"

The percentage of organizations currently using activity-based costing varies significantly from industry to industry. Various surveys in the period 2012-2017 report the highest rate of firms using ABC in manufacturing (20%-50%), followed by financial services (15-25%), public sector (12-18%), and communications (6-12%).


What Are the Benefits of Activity Based Costing?
Cost accountants know that traditional cost accounting can hide or distort information on the costs of individual products and services—especially where local cost allocation rules misrepresent actual resource usage. As a result, the move to ABC usually motivated by a desire to understand the "true costs" of individual products and services more accurately. Companies implement activity-based costing to:

    Identify specific products that are unprofitable.
    Improve production process efficiency.
    Price products appropriately, with the help of accurate product cost information.
    Reveal unnecessary costs that become targets for elimination.


Accounting – The Language of Business / What is Activity-Based Costing?
« on: November 11, 2018, 12:38:19 PM »
What is Activity-Based Costing?
Activity-based costingABC is a method for assigning costs to products, services projects, tasks, or acquisitions, based on:

    The activities that go into them
    Resources consumed by these activities

ABC contrasts with traditional costing (cost accounting), which sometimes assigns costs using somewhat arbitrary allocation percentages for overhead or the so-called indirect costs. As a result, ABC and traditional cost accounting can estimate the cost of goods sold and gross margin very differently for individual products. Contradictory and uncertain cost estimates can be a problem when management needs to know exactly which products are profitable and which are selling at a loss.


Financial Accounting / Bank Reconciliation Procedure
« on: October 24, 2018, 01:11:59 PM »
Bank Reconciliation Procedure:
On the bank statement, compare the company’s list of issued checks and deposits to the checks shown on the statement to identify uncleared checks and deposits in transit.
    Using the cash balance shown on the bank statement, add back any deposits in transit.
    Deduct any outstanding checks.
    This will provide the adjusted bank cash balance.
    Next, use the company’s ending cash balance, add any interest earned and notes receivable amount.
    Deduct any bank service fees, penalties, and NSF checks. This will arrive at the adjusted company cash balance.
    After reconciliation, the adjusted bank balance should match with the company’s ending adjusted cash balance.


Financial Accounting / Bank Reconciliation Procedure:
« on: October 24, 2018, 12:50:14 PM »
Bank Reconciliation Procedure:
On the bank statement, compare the company’s list of issued checks and deposits to the checks shown on the statement to identify uncleared checks and deposits in transit.
    Using the cash balance shown on the bank statement, add back any deposits in transit.
    Deduct any outstanding checks.
    This will provide the adjusted bank cash balance.
    Next, use the company’s ending cash balance, add any interest earned and notes receivable amount.
    Deduct any bank service fees, penalties, and NSF checks. This will arrive at the adjusted company cash balance.
    After reconciliation, the adjusted bank balance should match with the company’s ending adjusted cash balance.


Reasons for Difference Between Bank Statement and Company’s Accounting Record
When banks send companies a bank statement that contains the company’s beginning cash balance, transactions during the period, and ending cash balance, almost always, the bank’s ending cash balance and the company’s ending cash balance will never be the same. Some reasons for the difference are:

    Deposits in transit: Cash and checks that have been received and recorded but have not yet been recorded on the bank statement.
    Outstanding checks: Checks that have been issued by the company to creditors but the payments have not yet been processed.
    Bank service fees: Banks deduct charges for services they provide to customers but these amounts are usually not noticeable.
    Interest income: Banks pay interest on some bank accounts.
    Not sufficient funds (NSF) checks: When a customer deposits a check into an account but the account of the issuer of the check has insufficient amount to pay the check, the bank reduces from the customer’s account the check that was previously credited. The check is then returned to the depositor as an NSF check.

Nowadays, many companies use specialized accounting software in bank reconciliation to reduce the amount of work and adjustments required and allow real-time updates.

Compliance and the compliance function in banks

As part of its ongoing efforts to address bank supervisory issues and enhance sound practices in banking organisations, the Basel Committee on Banking Supervision is issuing this high level paper on compliance risk and the compliance function in banks. Banking supervisors must be satisfied that effective compliance policies and procedures are followed and that management takes appropriate corrective action when compliance failures are identified. The paper provides basic guidance for banks and sets out banking supervisors' views on compliance in banking organisations.

Using a framework of principles, the paper illustrates how compliance with the laws, rules and standards that govern banking activities helps to maintain a bank's reputation with its shareholders, customers, employees and the markets. At the same time, the paper incorporates sound practice guidance to assist banks in designing, implementing and operating an effective compliance function. To optimise its usefulness to all banks, the paper stresses that a single framework of principles for effective compliance risk management does not restrict individual banks to a single organisational or operational approach. However, each bank must be prepared to demonstrate that the approach adopted is effective in dealing with the bank's unique compliance risk challenges.


Corporate governance principles for banks

The Committee's revised set of principles supersedes guidance published by the Committee in 2010. The revised guidance emphasises the critical importance of effective corporate governance for the safe and sound functioning of banks. It stresses the importance of risk governance as part of a bank's overall corporate governance framework and promotes the value of strong boards and board committees together with effective control functions. More specifically, the revised principles:

    expand the guidance on the role of the board of directors in overseeing the implementation of effective risk management systems;
    emphasise the importance of the board's collective competence as well as the obligation of individual board members to dedicate sufficient time to their mandates and to keep abreast of developments in banking;
    strengthen the guidance on risk governance, including the risk management roles played by business units, risk management teams, and internal audit and control functions (the three lines of defence), as well as underline the importance of a sound risk culture to drive risk management within a bank;
    provide guidance for bank supervisors in evaluating the processes used by banks to select board members and senior management; and
    recognise that compensation systems form a key component of the governance and incentive structure through which the board and senior management of a bank convey acceptable risk-taking behaviour and reinforce the bank's operating and risk culture.


Accounting – The Language of Business / What is cost management?
« on: October 22, 2018, 01:08:39 PM »
What is cost management?
It is defined as the process of planning and controlling the budget of the business. It helps in predicting the expenses of the business so that one can avoid going over budget, thereby being an integral part of business management.
Cost management involves different cost accounting methods that have the goal of improving business cost efficiency by reducing costs or atleast having measures in place to restrict the growth of costs.

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