The Best Practice Network Guidelines | The Best Practice Network » Types of Accounting http://www.best-practice.com Definition of a best practice. 'Best Practices' are rules, standards, regulation relating to compliance, audit, risk management. Sat, 14 Sep 2013 10:48:44 +0000 http://wordpress.org/?v=2.8.6 en hourly 1 Methods of Depreciation http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/methods-of-depreciation/methods-of-depreciation-04102012/ http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/methods-of-depreciation/methods-of-depreciation-04102012/#comments Thu, 04 Oct 2012 05:15:09 +0000 Matthew S. http://www.best-practice.com/?p=2417 The fall in an asset’s value is known as depreciation. It is for a fixed period and is considered an expense. The value has to be added in expenses of that period, as it has a direct impact on profit/loss. In the same way, the amount is subtracted from the asset’s value to reach book value for every year.

As per the IFRS, an organization must select a depreciation policy at the start of the business. However, it also allows the business to change its policies, if there is a genuine reason.

There are several methods of depreciation. Generally, businesses choose the one that syncs well with the nature of the assets.

Some very commonly used methods of depreciation are:

Straight-line Depreciation

The simplest and most commonly used depreciation method is the straight-line method. In this method, the company estimates the asset’s salvage value (resale value when the company decides to sell it), which is subtracted from the original value of the asset.  Salvage value may be zero or in negative.

After subtracting the salvage value, the remaining amount is divided by the useful life of asset, as clearly shown in the formula below:

The main reason for the success of this method is the fact that it is very easy to compute. However, due to the ambiguous nature of the estimate, some companies do not consider it the right option.

Declining Balance Method

This method gives a higher depreciation charge in the first year, as the balance keeps on declining every year. This method is a more realistic approach, as assets are most useful when they are new. It is understood that the value declines with time.

However, an upgrade might increase the value of an asset. This method of depreciation allows accountants to re-evaluate the value of an asset, if the requirement meets the criteria set by the IFRS.

Formula: Annual Depreciation = Depreciation Rate * Book Value at Beginning of Year

Sum-of-the-years’ Digits Method

In this method, the depreciation value is multiplied by a schedule of fractions to determine the annual depreciation amount. Just like declining balance method, the value of the asset keeps on decreasing every year (with a different percentage), and finally reaches a salvage value, where it is disposed off or sold in the market.

Formula: Depreciable Cost = Original Cost − Salvage Value

Formula: Book Value = Original Cost − Accumulated Depreciation

There are a few other methods of depreciation too such as:

(1) Units-of-production method

(2) Units-of-time method

(3) Group depreciation method.

However, the above mentioned methods are the most commonly used methods by most accountants.

]]> http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/methods-of-depreciation/methods-of-depreciation-04102012/feed/ 0 Types of Accounting: An Overview http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/types-of-accounting-an-overview-10082012/ http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/types-of-accounting-an-overview-10082012/#comments Fri, 10 Aug 2012 07:00:22 +0000 Matthew S. http://www.best-practice.com/?p=2047 The accounting process forms a key element in determining the success and failure of a business. When doing business in accordance with best practices, owners tend to adhere to certain types of accounting to ensure continual prosperity and success in their businesses.

For management accounting, its function is to check the mark, quantity and apprehension of the products being manufactured. It also keeps an eye on the transactions made to and from the company and keeping records for the balance sheets made at the end of each fiscal year. Dealing with workforce payments is also a task included in management accounting.

Public accounting involves issues of tax collection and tariffs along with insurance issues like premiums and payments etc. This type of accounting deals with bringing out the profit and financial management policies of a company in the open. This includes decision makers like investors, taxation authorities and managers etc.

Government accounting deals with the maintenance of expense records. The expenses and savings made by the government will determine its ability to spend on the public. If there are enough savings deposited in the government’s reserve, prosperity shall rise as more facilities will be available for the people. But if the reserve is low on cash due to extra spending on unnecessary statute structures, then people might have to resort to the thought that they won’t be getting their wages or salaries on time.

When it comes to businesses of all sizes, internal auditing is a very sensitive matter. As it deals with the private accounts of a company’s owner along with the accounts of the workforce, a thorough examining is required. Internal auditing helps clear any follies associated with the company’s account prior to being investigated by other auditing organizations hired by third parties or the government.

]]> http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/types-of-accounting-an-overview-10082012/feed/ 0 Forensic Accounting – A More Exotic Accounting Type http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/forensic-accounting/forensic-accounting-%e2%80%93-a-more-exotic-accounting-type-21032011/ http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/forensic-accounting/forensic-accounting-%e2%80%93-a-more-exotic-accounting-type-21032011/#comments Mon, 21 Mar 2011 11:32:19 +0000 Matthew S. http://www.best-practice.com/?p=485 Forensic accounting is one of the little covered types of accounting because not many individuals are willing to venture into it. However, it is a very lucrative field where they can earn a six-figure salary. To understand more about this form of accounting, read on.

About Forensic Accounting

Forensic accounting is a type of accounting that helps clients discover economic information. It is used in a court of law, which is why forensic accountants are bound to appear in court to provide expert evidence. Because this form of accounting is exotic in nature, only large accounting firms and boutique firms have their own forensic accounting departments set up.

Types of Forensic Accounting

There are a few branches of forensic accounting which are offered by major accounting companies, and those are:

  • Legal Aid Assistance Accounting – Accountants specialized in this branch of forensic accounting are in charge of uncovering the economic situation of parties involved in a lawsuit or are acting as witnesses in a legal case.
  • Investigative Accounting – This branch of accounting and reporting is used most by the FBI, CIA and government institutions. It mainly focuses on discovering and tracking down the financial records of companies or individuals.
  • Insurance Claims Accounting – Some accounting firms offer forensic accounting for insurance claims, which usually include personal injury claims. Accountants will be in charge of estimating all claims before the insurance company pays.
  • Fraud Claims Accounting – Fraud claims are popular in today’s business world. Accountants spend a lot of time and paperwork to investigate claims from different industries based on business operations, finances or management.

Necessities of Forensic Accounting

Forensic accounting depends on understanding the company or person under investigation fully. Therefore, information on how much the person or company makes, the business’ value in the market, and other important information. This data can be collected from financial statements, bank statements and credit statements. However, any other financial document will also be helpful in this type of accounting.

Forensic accounting is an important tool for companies and individuals to ensure their compliance with their industry’s best practices. Therefore, its need will continue as long as business operations are run.

]]> http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/forensic-accounting/forensic-accounting-%e2%80%93-a-more-exotic-accounting-type-21032011/feed/ 0 What is Cost Accounting? http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/cost-accounting/what-is-cost-accounting-09122010/ http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/cost-accounting/what-is-cost-accounting-09122010/#comments Thu, 09 Dec 2010 14:35:38 +0000 Matthew S. http://www.best-practice.com/?p=307 Cost accounting is the branch of accounting which directly pertains to the overall cost of running and managing a business. The concepts and formulae involved in this branch of accounting are based on standard accounting practices.

Cost accounting takes into consideration the expenses and the cash flow of an organization to analyze the cost of running it. Many mistakenly believe that cost accounting itself is an all-inclusive branch of accounts whereas that really isn’t the case. It is just the branch which deals with the cost of the business functions. Standard accounting practices are usually carried out side by side with cost accounting.

Here are some of the basic objectives for which cost accounting is utilized:

Measuring Company Resources:

Cost accounting helps provide data for the resources of the company being utilized. Identification of production costs related to a particular event and the creation of its data is the primary purpose of cost accounting. Also, cost accounting helps in identifying the cost of production through the three business cycles.

Marketing Strategies and Product Development:

Marketing strategies and product development plans are also addressed by using cost accounting. When it comes to product development, cost accounting can measure the cost of the product and determine whether it is right for the business or not. Similarly, cost accounting can also determine whether the marketing budget for the product is appropriate or not. Through cost accounting techniques, the effectiveness of the marketing plan can also be reckoned.

Decision Making:

Cost accounting plays an important role in making the right decisions for the company. The techniques involved to reach this stage usually compare the total cost of the product to the anticipated benefits.

Those handling cost accounting should keep in mind that the sole purpose of this branch of accounting is to manage costs and provide data for further consideration. Cost accounting itself is not responsible for making marketing plans or the creating action strategies.

]]> http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/cost-accounting/what-is-cost-accounting-09122010/feed/ 0 The U.S. Department of Labor’s Four Types of Accounting http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/the-us-department-of-labor-four-types-of-accounting/the-u-s-department-of-labor%e2%80%99s-four-types-of-accounting-23102010/ http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/the-us-department-of-labor-four-types-of-accounting/the-u-s-department-of-labor%e2%80%99s-four-types-of-accounting-23102010/#comments Sat, 23 Oct 2010 15:34:42 +0000 Matthew S. http://www.best-practice.com/?p=164 In general, there are various classifications of accounting. However, the U.S. Department of Labor has categorized accounting into the following:

Public Accounting:

Public accounting is the branch which usually deals with issues like taxation, insurance, profit management and financial accounting of companies. The major role of public accounting is to assess the financial information of a company and make it available to investors, managers, tax authorities and other decision makers who are involved in the process.

Management Accounting:

Management accounting encompasses areas of accounting like cost accounting and financial analysis. The role of management accounting is to assess the transactions the company is making and to maintain them in order to provide in depth analysis by the year’s end. Management accountants are therefore responsible for creating financial strategies based on the data they have collected. Management accountants are also responsible for corresponding with internal auditors to make sure all records are up to date, verified and accurate before further policies are made based on them.

Internal Auditing:

Internal auditing is a very strict form of accounting. Previously, not much significance was given to this particular type, and that resulted in various fraudulent activities. Today, however, federal regulations have become stricter when it comes to internal auditing. The main role of internal auditing is to maintain financial integrity and records of the organization to assure all records are accurate. It is the responsibility of the internal auditor to check and verify the financial records of the company before they are handed over to third party auditors.

Government Accounting:

Government accounting is about maintaining the financial records of government organizations, auditing companies, and other similar organizations that are bound by federal regulations. Some government accounting companies also work indirectly for the Internal Revenue Service. The two major branches of government accounting are government budgeting and cost analysis.

]]> http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/the-us-department-of-labor-four-types-of-accounting/the-u-s-department-of-labor%e2%80%99s-four-types-of-accounting-23102010/feed/ 0 An Introduction to Management Accounting http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/an-introduction-to-management-accounting/an-introduction-to-management-accounting-23102010/ http://www.best-practice.com/best-practice-in-reporting-accounting/types-of-accounting/an-introduction-to-management-accounting/an-introduction-to-management-accounting-23102010/#comments Sat, 23 Oct 2010 15:32:46 +0000 Matthew S. http://www.best-practice.com/?p=162 Management accounting is a part of accounting that deals with the internal accounting and financial needs of the business. Usually, people confuse management accounting with financial accounting. However, both types are completely different. Whereas financial accounting merely focuses on the external reporting and history of an organization, management accounting focuses on in-house accounting needs. Yet, both of them work together to eventually provide the organization with a finalized accounting report on a monthly, quarterly, or annual basis.

In computer accounting, management computer accounting is usually made a part of the financial accounting software in order to provide stakeholders and corporate customers with accurate cost information. However, it should be remembered that the integration of management accounting into cost accounting is only observed in some cases of computer accounting.

Usually, management accounting departments are seen in manufacturing companies because of the need of an in-house system to calculate the cost of the products being manufactured. In such an environment, management accounting typically focuses on deciding the cost of the processes. In addition, management accounting does have a role in financial transactions. The job of the management accounting department is to control the quality, quantity and expectations linked to the manufacturing of products. Cost accounting is therefore an integral part of management accounting, especially since it is used to analyze and determine budgets, profits and loss ratios, and the costs occurring during the manufacturing processes.

Another popular term for management and cost accounting is Activity Based Accounting. Activity Based Accounting, or ABC, is used to measure the exact activity cost in order to assign indirect costs to products. However, this particular system is rarely used by companies because it is expensive to implement. Activities and the methods of measuring the cost of those activities can differ dramatically; therefore it is best to work with the basic strategies of management accounting.

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