Advantages And Disadvantages Of Job Order Costing

Advantages Of Job Order Costing

* Job order costing offers a detailed analysis of the costs of materials, labor cost and overheads by functions and nature.
* Job order costing makes it possible to appraise the profitability of a job.
* Job order costing facilitates the estimation of the cost of a similar job.
* Job order costing allocates overheads on the basis of a predetermined rate.
* Job order costing makes easy to identify spoilage and defects to take corrective actions.
* Job order costing evaluates efficiency of different types of jobs with cost records by using statistical techniques.

Disadvantages Of Job Order Costing

* Job order costing needs a great deal of clerical work in recording material issue, wage computation and payment and overhead charges.
* Ascertainment of overhead rate needs allocation and apportionment of the overheads from service department to production department by using reasonable parameters like selecting a suitable basis.
* Strict control of costs associated with a job is difficult since overheads are allocated on estimation.

Read More

Concept And Meaning Of Job Order Costing

A manufacturing firm generally produces goods based on demand forecasting. However,it sometimes produces them also on receipt of order from its customers. Goods produced and works done as per customers' order are called job. Therefore, the costing method designed to determine the cost of a job is very essential. Job order costing is the costing system that determines the cost of the jobs received from the client.. Thus, job order costing system estimates the costs of manufacturing products as per customers' orders.

Individual job need different quantities of raw materials, labor, and expenses depending upon the quality of the jobs to be performed. The size and quality of products requested may differ. Thus, such a job may not demand a normal manufacturing process. No two jobs are exactly alike. The end product may not be homogeneous. obviously, the cost of each job may differ with the uniqueness of the work order received from customers.
In the job order costing method, each job is treated as separate cost center. Overheads to a job are allocated on the basis of either processing hours or DLH or labor cost or machine hours.

Read More

Differences Between Government Accounting And Commercial Accounting

Following are the main differences between government accounting and commercial accounting:

1. Meaning
The accounting system maintained by the government offices is known as government accounting. The accounting system maintained by business organizations is known as commercial accounting.

2. Objective
Government accounting is maintained by the government offices to know the position of public fund. Commercial accounting is maintained by business organizations to know the profit or loss and the financial position of the business.

3. Budget
Government accounting strictly follows the government budgeting system. commercial accounting does not follow the government budgeting system.

4. Basis
Government accounting is prepared on cash basis. Commercial accounting is prepared on cash as well as accrual basis.

5. Level Of Accounting
Government accounting has the system of central level and operating level accounting. Commercial accounting has no provision of central level and operating level accounting.

6. Rules And Provisions
Government accounting is strictly maintained by following the financial rules and provisions of government. Commercial accounting is maintained by following the rules and principles of 'Generally Accepted Accounting Principles'.

7. Information
Government accounting provides information to the government about the receipts, transfer and deposition of public funds. Commercial accounting provides information to the concerned parties about the operating result and financial position of the business.

8. Auditing
An Auditor General Office audits the book of accounts kept under government accounting. A professional auditor can audit the books of accounts kept under commercial accounting.

Read More

Objectives Of Government Accounting

The following are the main objectives of government accounting:

* To record financial transactions of revenues and expenditures related to the government organizations.
* To avoid the excess expenditures beyond the limit of the budget approved by the government.
* To make expenditures according to the appropriate act, rules and legal provisions of the government.
* To provide reliable financial data and information about the operation of public fund.
* To prevent misappropriation of government properties by maintaining the systematic records of cash and store items.
* To facilitate for making auditing of the books of accounts.
* To help for preparing different financial statements and reports.
* To facilitate for estimating the annual budget by providing historical financial data of government revenues and expenditures.

Read More

Features Of Government Accounting

The following are the main features of government accounting.

1. Profit And Loss
Since government is a public institution, its main objective is to maintain law and order in the country. Therefore, the accounting system used by an institution is not supposed to reveal its profit and loss, but to reveal how public funds and properties have been used for that purpose.

2. Government Regulations
Government accounting is maintained according to government rules and regulations. The financial policies, rules and regulations determine the system of government accounting.

3. Double Entry System
Government accounting is based on the principles and assumptions of double entry system of book keeping. Accordingly, every government financial transactions are recorded showing their double effects. One aspect of the transaction is debited and the other aspect is credited for each government financial transaction.

4. Budget Heads
All the expenses of government offices are classified into different budget heads and expenditures are made only on approved budget heads.

5. Budgetary Control
Government accounting facilitates budgetary control. No government office can make expenditure more than the allocated budget amount.

6. Banking Transaction
All government transactions are supposed to be performed through banks.

7. Auditing
The concerned department of the government must audit the books of accounts maintained by government office so as to avoid misuse and misappropriation of public funds.

Read More

Meaning Of Government Accounting

Accounting is concerned with the processing of financial transactions of an entity. It generates and communicates necessary financial information to its users. It is, therefore, a process of recording, classifying and summarizing the financial transactions and communicating the results of its operations.
There are different branches of accounting. One of its branches is government accounting. Government accounting is that branch of accounting, which is used in government institution. The government accounting is different from other branches of accounting such as commercial accounting.
The accounting system used in government offices to record and report their financial transactions is known as government accounting. Government accounting is concerned with systematic and scientific recording of government revenues and expenditures. It is the systematic process of collecting, recording, classifying, summarizing and interpreting the financial transactions relating to the revenues and expenditures of government offices. It reveals how public funds have been generated and utilized for the welfare of the general public. Therefore, government accounting may be defined as an accounting system used in government institution for the purpose of recording, classifying, summarizing and communicating the financial information regarding the collection and utilization of public funds and properties. It is concerned with keeping records of government revenues and their expenditure in different development and administrative works. It reflects the receipt and payment position of the public funds.

Read More

Differences Between Balance Sheet And Statement Of Affairs

Following are the main differences between balance sheet and statement of affairs:

1.Basis
Balance sheet is prepared on the basis of double entry system of book keeping. Statement of affairs is prepared on the basis of incomplete records.

2. Purpose
Balance sheet is prepared to present financial position of the business. Statement of affairs is prepared to find out either the amount of opening capital or closing capital.

3. Financial Position
Balance sheet shows the true financial position of the business. Statement of affairs does not show the true financial position of the business.

4. Stage Of Preparation
Balance sheet is prepared at the final stage of accounting procedure. Statement of affairs is not prepared at the final stage of the accounting procedure.It is prepared before the preparation of statement of profit or loss.

Read More

Concept Of Statement Of Affairs And Its Preparation

Statement of affairs is a statement of capital, liabilities and assets. Statement of affairs is prepared under the single entry system in order to find out the amount of opening or closing capital of the business. For the purpose of determining the amount of opening capital, the statement of affairs is prepared on the opening date. The statement of affairs is prepared on the closing date for the purpose of determining the amount of closing capital. It is also known as the balance sheet of single entry system.

Preparation Of Statement Of Affairs
Statement of affairs is prepared like the balance sheet. All the liabilities are shown on left-hand side and all the assets are shown on right-hand side. The difference between the total assets and total liabilities is considered as the amount of capital.
Capital = Total Assets - Total Liabilities

Read More

Calculation Of Profit Or Loss Under Single Entry System

The following method is used for the calculation of profit or loss under single entry system.

Net Worth Method
Net worth method is also called statement of affairs method or capital comparison method. According to this method profit or loss of the business is determined by making comparison between the capital of two dates of a period. For example,
Capital as on 1st January 2009 = $ 150000
Capital as on 31st December 2009 = $ 200000
Profit for the year 2009 = Closing capital -Opening capital = $200000-$150000 = $50000.

If there are other capital related items such as drawing, additional capital, interest on capital etc. are to be adjusted to ascertain the amount of profit or loss.
These items include:

* Drawing: If the drawing is made during the year, it should be added to the amount of closing capital.
* Additional capital: If additional capital is introduced in the business during the year, it should be deducted from the amount of closing capital.
* Interest on capital: If the interest is provided on capital, it should be deducted from the amount of closing capital.

Read More

Differences Between Single Entry And Double Entry System

The following are the differences between single entry and double entry system:

1. Meaning
Single entry system is an incomplete system of recording financial transactions. Double entry system is a complete system of recording and reporting financial transactions.

2. Duality
Single entry system is not based on the concept of duality. Double entry system is based on the concept of duality.

3. Accounts
Single entry system maintains only personal accounts of debtors and creditors and cash book. Double entry system all personal, real and nominal accounts.

4. Trial Balance
Single entry system can not prepare a trial balance and hence, arithmetical accuracy of books of accounts can not be checked. Double entry system prepares trial balance and hence, arithmetical accuracy of the books of accounts can be checked.

5. Profit Or Loss
Single entry system can not ascertain the true amount of profit or loss of the business as it does not maintain nominal accounts. Double entry system ascertains true profit or loss of the business as it maintains all nominal accounts.

6. Financial Position
Single entry system can not ascertain the true financial position of the business because it does not maintain real accounts except cash book. Double entry system ascertains financial position of the business as it maintains all personal and real accounts.

7. Suitability
Single entry system is suitable to a small business where only limited number of transactions are performed. Double entry system is suitable for a large business.

8. Tax Purpose
Single entry system is not acceptable for the purpose of assessment of tax. Double entry system is acceptable for the purpose of assessment of tax.

Read More

Disadvantages Of Single Entry System

The following are the notable disadvantages of single entry system:

1.Unscientific And Unsystematic
The single entry system is unsystematic and unscientific system of recording financial transactions. It does not have any set of fixed rules and principles for recording and reporting the financial transactions.

2. Incomplete System
Single entry system is incomplete system because it does not record the two aspects or accounts of all the financial transactions of the business. It does not maintain any record of the transactions relating to the nominal account and real account except cash account.

3. Lack Of Arithmetical Accuracy
Single entry system is not based on the principles of debit and credit. It fails to provide the arithmetical accuracy of the books of accounts. Trial balance can not be prepared under this system to check the arithmetical accuracy of books of accounts.

4. Does Not Reflect True Profit Or Loss
Under single entry system, the true amount of profit or loss can not be ascertained because it does not maintain the nominal accounts.

5. Does Not Reflect True Financial Position
The single entry system does not maintain real accounts except cash book. Therefore, it can not reveal the true financial position of the business.

6. Frauds And Errors
The single entry system of book-keeping is incomplete, inaccurate and unscientific. It does not help to check the arithmetical accuracy of the books of accounts. Therefore, there is always a possibility of committing frauds and errors in the books of accounts.

7. Unacceptable For Tax Purpose
The single entry of book keeping has incomplete records of the financial transactions of the business. Hence, the tax office can not accept the account maintained under this system for the purpose of assessment of tax.

Read More

Advantages Of Single Entry System

The following are the important advantages of single entry system:

Simple And Easy
Single entry system is simple to understand and easy to maintain as it has no fixed set of principles to follow while recording financial transactions.

Economy
Single entry system is an economical system of recording financial transactions. It does not require hiring skilled accounting personnel to record financial transactions of the business. Further, it does not require large number of books to record the limited number of financial transactions.

Easy To Calculate Profit
Under single entry system, the amount of profit can be determined easily. The amount of profit or loss of the period can be determined by making comparison between the amounts of closing capital and opening capital.

Suitable For Small Business
The single entry system is simple, easy, and economical system. It is suitable for small businesses because they can not afford the cost of double entry system. Besides, small business are not required to maintain their books of accounts under double entry system.

Read More

Meaning And Features Of Single Entry System

Meaning Of Single Entry System
Single entry system is an incomplete form of recording financial transactions. It is the system, which does not record two aspects or accounts of all the financial transactions. It is the system, which has no fixed set of rules to record the financial transactions of the business. Single entry system records only one aspect of transaction. Thus, single entry system is not a proper system of recording financial transactions, which fails to present complete information required by the management. Single entry system mainly maintains cash book and personal accounts of debtors and creditors. Single entry system ignores nominal account and real account except cash account. Hence, it is incomplete form of double entry system, which fails to disclose true profit or loss and financial position of a business organization.

Features Of Single Entry System
The following are the main features of single entry system:

1. No Fixed Rules
Single entry system is not guided by fixed set of accounting rules for determining the amount of profit and preparing the financial statements.

2. Incomplete System
Single entry system is an incomplete system of accounting, which does not record all the aspects of financial transactions of the business.

3. Cash Book
Single entry system maintains cash book for recording cash receipts and payments of the business organization during a given period of time.

4. Personal Account
Single entry system maintains personal accounts of all the debtors and creditors for determining the amount of credit sales and credit purchases during a given period of time.

5. Variations In Application
Single entry system has no fixed set of principles for recording financial transactions and preparing different financial statements. Hence, it has variations in its application from one business to another.

Read More

Differences Between Receipts And Payments Account And Income And Expenditure Account

The following are the main differences between receipts and payments account and income and expenditure account:

1. Nature
Receipts and payments account is a summary of cash transactions for a period and it is a real account. Income and expenditure account is a summary of expenditure and income like trading and profit and loss account and it is a nominal account.

2. Objective
Receipts and payments account is prepared to show cash and bank receipts and payments during the period to derive closing balance of cash and bank. Income and expenditure account is prepared to show the net result of the operation during the period to derive surplus or deficit.

3. Recording
All cash and cheque receipts are recorded on debit side of receipts and payments account where as all cash and bank payments are recorded on credit side. In income and expenditure account all expenditure of revenue nature are recorded on debit side and all incomes of revenue nature are recorded on credit side.

4. Capital And Revenue Items
There is no distinction between capital and revenue receipts and payments in receipts and payments account. All expenses and incomes of revenue nature are recorded on accrual basis in income and expenditure account.

5. Contents
Receipts and payments account contains only cash and bank transactions. Income and expenditure account contains both cash and non-cash expenses and incomes of revenue nature.

6. Balance Sheet Requirement
Receipts and payments account is not required to prepare balance sheet. Income and expenditure account is required to prepare balance sheet.

7. Adjustments
No adjustments are required in receipts and payments account. In income and expenditure account adjustments are made because it is prepared on accrual basis.

Read More

Concept And Features Of Income And Expendiutre Account

Concept Of Income And Expenditure Account
Income and expenditure account is prepared by non-trading concern to reveal the surplus or deficit arising out of the operating activities during the accounting period. It is one of the final accounts of non-trading concern like the profit and loss account of trading concern. All the revenue incomes during the accounting period are shown on income side and all of the revenue expenses during the period are shown to debit (expenditure) side of income and expenditure account. The excess of credit side over the debit side or excess of income over expenditure is termed as surplus, where the excess of expenses over the revenue income is termed as deficit. The surplus or deficit of income over expenditure is transferred to capital fund. The surplus is added to capital fund and vice-verse. Income and expenditure account is prepared on the accrual basis.

Features Of Income And Expenditure Account

* Income and expenditure account is prepared on accrual basis.
* Income and expenditure account records all cash and non-cash expenses and income, which are revenue nature.
* Income and expenditure account is debited with the expenses and losses and credited with the incomes and gains.
* The closing balance of income and expenditure account either surplus or deficit is transferred to capital fund in the balance sheet.

Read More

Concept Of Receipts And Payments Account, Its Features And Limitations

Concept Of Receipts And Payments Account
Receipt and payment account is a summary of cash receipts and payments during the accounting period. It records all cash receipts and cash payments including capital receipts and revenue revenue receipts irrespective of accounting period. All cash receipts are recorded on debit side or receipts side and all cash payments are recorded on credit or payments side of receipts and payments account.

Features Of Receipts And Payments Account
The essential features of receipts and payments account are as follows:

1. Summary Of Cash Transactions
All cash receipts and payments made by the concern during the accounting period are recorded in this book. Therefore, receipts and payments account can be taken as a summary of cash transactions.

2. Cash And Bank Items In One Column
All receipts either cash or bank are recorded in receipts column of receipts side where all cash and bank payments are recorded in one column of payment column of receipts and payments account. The cash and bank transactions are merged to avoid contra entries of cash and bank transactions.

3. No Distinction Between Capital And Revenue
All cash receipts and cash payments irrespective of capital and revenue nature are recorded in receipts and payments account. No distinct is made for capital receipts , revenue receipts, capital expenditures and revenue expenditures.

4. Opening And Closing Balance Of Cash
Receipts and payments account starts from opening balance of cash and bank ends with the closing balance of cash and bank.

5. Recording Of Cash Receipts And Payments
All cash and cheque receipts are recorded on debit side where as all cash and cheque payments are recorded on credit side of receipts and payments account.

6. Ignores Non-cash Transactions
Receipts and payments account does not record non-cash transactions.

Limitations Of Receipts And Payments Account
The receipts and payments accounts suffers from the following limitations:

1. Receipts and payments account does not differentiate capital and revenue expenses and incomes.
2. Receipts and payments account fails to show expenses and incomes on accrual basis.
3. Receipts and payments account fails to show surplus and deficiency.
4. Receipts and payments account fails to show non-cash transactions such as depreciation of fixed assets, pilferage etc.

Read More

Concept Of Non-Trading Concern And Its Accounting System

The organizations, which are established for the purpose of rendering social services to its members and to the society is known as non-trading concern. Such organizations include clubs, schools, colleges. hospitals, libraries, trusts, professional associations and unions. These organizations render their service to the members and to the general public, such as a club provides sports and other recreational services to the members. Schools and colleges provide education services, hospital provides treatment and services to the patients.
The sole object of non-trading concern is to provide necessary services to its members and the society at large through welfare activities. The aim of such organization is not to make profit. They should prepare systematic books of account to provide necessary information about receipts and payments. It also helps to know, whether the current income is sufficient to meet the current expenditures or needs. The balance sheet is prepared to know the financial position, besides providing information about the proper utilization of grants, donations, and so on.
Proper accounting is essential for non-trading concern to provide the required information. Such institutions prepare receipts and payment account to show the receipts and payments of cash. Income and expenditure account is prepared to know the surplus or deficit for the period. Balance sheet is prepared to know the financial status of the concern.
The detailed and transparent financial information of non-trading concern can be obtained by preparing receipts and payment account, income and expenditure account as well as balance sheet.

Read More

Differences Between Reserve And Provision

The following are the main differences between reserve and provision:

1. Mode Of Creation
Reserve is created against the charge of the profit and loss appropriation account. Provision is created against the charge of the profit and loss account.

2. Objective
Main objective of reserve is to strengthen the financial position and to meet future unknown losses and liabilities. Objective of provision is to meet known losses and liabilities the amount of which is not certain.

3. Accounting Treatment
Reserve is shown on debit side of profit and loss appropriation account and liabilities side of balance sheet. Provision is shown on debit side of profit and loss account and assets side of balance sheet as deduction from the concerned asset.

4. Relation With Profit
Reserve is created when there is enough profit in the business. Provision is created even if there is loss in the business.

5. Distribution
Reserve can be distributed to shareholders as dividend. Provision can not be distributed as dividend to shareholders.

6. Future Requirement
Reserve is created without considering the future requirement of the business. Provision is created by estimating the future requirement of the business.

7. Impact
Impact of reserve will be on financial position. Impact of provision will be on profit or loss of the business.

Read More

Meaning And Objectives Of Provision

Meaning Of Provision
A provision is the sum of amount set aside by charging against the profit and loss account. It is created for meeting a known loss or liability. Provision is maintained for meeting an anticipated loss or liability of uncertain amount. Such amount of anticipated loss or liability can only be estimated. If the present regular transactions undoubtedly bring certain losses or liabilities of unknown amount in further then provisions should be made for them in current year's book. Such provisions should be made every year by debiting the profit and loss account without considering whether the business is in profit or loss. A provision is always created for the specific purpose. It is not for the distribution to the shareholders. The provision, in fact, reduces the figure of profit and not the figure of divisible profit.
Generally, a business maintains different types of provisions with some specific purposes. They are as follows:

* Provision for doubtful debts
* Provision for discount on debtors
* Provision for taxation
* Provision for repairs and renewals

Objectives Of Provision
Some of the important objectives of maintaining provisions are as follows:
* To Meet Anticipated Losses And Liabilities
Provisions are created for meeting anticipated losses and liabilities such as provision for doubtful debts, provision for discount on debtors and provision for taxation.
* To Meet Known Losses And Liabilities
Provisions are created for meeting known losses and liabilities such as provision for repair and renewals.
* To Present Correct Financial Statements
In order to present correct financial statements and to report true profit and financial position, the business must maintain provision for known liabilities and losses.

Read More

Concept Of Secret Reserve, Its Objectives, Advantages And Disadvantages

A reserve which maintained to strengthen the financial position of the business without disclosing it in the book is known as secret reserve. Secret reserve is hidden reserve which is not disclosed by the balance sheet. Secret reserve is also known as internal reserve. It is created by showing the figure of net profit less than actual. Its existence makes the financial position of the business better than what the balance sheet is disclosing. Generally, it is maintained by bank, Insurance and other financial institutions.
A secret reserve is created in any of the following ways:
* By depreciating the fixed assets at excessively high rates.
* By undervaluing the current assets.
* By eliminating the assets altogether from the books.
* By over-valuing the liabilities.
* By showing contingent liabilities as real assets.
* By creating excessive amount of reserve for future contingencies.
* By treating capital expenditure as revenue reserve.
* By ignoring accrued income or treating income as liability.

Objectives And Advantages Of Secret Reserve
The following are the objectives and advantages of secret reserve:
* Secret reserve helps in strengthening the financial position of the business.
* Secret reserve gives the sense of financial stability to the shareholders and creditors by equalizing the rate of dividend.
* Secret reserve helps in eliminating unhealthy competition by not showing true profit to the competitors.
* Secret reserve provides additional working capital.

Disadvantages Of Secret Reserve
The following are the disadvantages of secret reserve
* The existence of secret reserve is known to the management only and not to the real owners or shareholders.
* Secret reserve makes the information of financial statements false and inaccurate.
* Secret reserve may be the strong cause of loosing trust and confidence of the shareholders and outsiders.
* Secret reserve may cover up the inefficiency and fraud committed by the managers and directors.

Read More