Accounts Management

Advising people about how to most effectively invest their hard-earned money is an important responsibility. Mutual funds can be a great addition to your client's portfolio , but with so many different investment options, it may be difficult to assess which products and strategies are best for any one individual. In some cases, mutual funds may not be the right fit, so it is important to know when other options may be more suitable. By discussing your client's investment goals and gaining a clear understanding of what she wants to achieve, you can determine if mutualfunds are right for her. Make sure to cover the following topics in detail when discussing mutual funds with your client to ensure you recommend products that meet her needs. Risk Tolerance The first step in determining the suitability of any investment product is to assess your client's risk tolerance. This is the ability and desire your client has to take on risk in return for the possibility of h

A budget is a financial plan for a defined period of time, usually a year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses , assets, liabilities and cash flows . Companies, governments, families and other organizations use it to expresses strategic plans of activities or events in measurable terms.[1] A budget is the sum of money allocated for a particular purpose and the summary of intended expenditures along with proposals for how to meet them. It may include a budget surplus, providing money for use at a future time, or a deficit in which expenses exceed income. Purpose[edit] A budget helps in planning actual operations by forcing managers to consider how the conditions might change and what steps should be taken now, and by encouraging managers to consider problems before they arise. It also helps to co-ordinate the activities of the organization by compelling managers to examine relationships between their own operati

The variable cost ratio is an expression of a company's variable production costs as a percentage of sales, calculated as variablecosts divided by total revenues. It compares costs that change with levels of production to the amount of revenues generated by production. This contrasts with fixed costs that remain constant regardless of production levels. BREAKING DOWN 'Variable Cost Ratio' Consideration of the variable cost ratio, which can alternately be calculated as 1 - contribution margin ratio, is one factor in determining profitability, since it indicates if a company is achieving, or maintaining, the desirable balance where revenues are rising faster than expenses. The variable cost ratio quantifies the relationship between revenues and the specific costs of production associated with the revenues . It is a useful evaluation metric for a company's management in determining necessary minimum profit margins, making profit projections and in identifying t

In taxation and accounting , transfer pricing refers to the rules and methods for pricing transactions between enterprises under common ownership or control. Because of the potential for cross-border controlled transactions to distort taxable income, tax authorities in many countries can adjust intragroup transfer prices that differ from what would have been charged by unrelated enterprises dealing at arm’s length (the arm’s-length principle).[1][2] The OECD and World Bank recommend intragroup pricing rules based on the arm’s-length principle, and 19 of the 20 members of the G20 have adopted similar measures through bilateral treaties and domestic legislation, regulations, or administrative practice .[3][4][5] Countries with transfer pricing legislation generally follow the OECD Transfer Pricing Guidelines forMultinational Enterprises and Tax Administrations in most respects,[5] although their rules can differ on some important details Where adopted, transfer pricing rules all

Throughput Accounting (TA) is a principle-based and simplified management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting. It is an approach that identifies factors that limit an organization from reaching its goal, and then focuses on simple measures that drive behavior in key areas towards reaching organizationalgoals . TA was proposed by Eliyahu M. Goldratt[1] as an alternative to traditional cost accounting. As such, Throughput Accounting[2] is neither cost accounting nor costing because it is cash focused and does not allocate all costs (variable and fixed expenses, including overheads) to products and services sold or provided by an enterprise. Considering the laws of variation , only costs that vary totally with units of output (see definition of T below for TVC) e.g. raw materials, are allocated to products and services which are deducted from sales to dete

Strategic management is the formulation and implementation of the major goals and initiatives taken by a company's top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes.[1] Strategic management provides overall direction to the enterprise and involves specifying the organization's objectives, developing policies and plans designed to achieve these objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision making in the context of complex environments and competitive dynamics.[2] Strategicmanagement is not static in nature; the models often include a feedback loop to monitor execution and inform the next round of planning.[3][4][5] Michael Porter identifies three principles underlying strategy: creating a "unique and valuable [market] p

Margin is the difference between a product or service's selling price and its cost of production or to the ratio between a company's revenues and expenses . It also refers to the amount of equity contributed by aninvestor as a percentage of the current market value of securities held in amargin account . Margin is the portion of the interest rate on an adjustable-rate mortgage added to the adjustment-index rate. BREAKING DOWN 'Margin' In a general context, margin refers to the edge or border of something or the amount by which an item falls short or surpasses another item. Both of these definitions underscore the word's usage in numerous financial contexts including investing, accounting and lending . " To margin " means to use borrowed money to purchase securities. What Does Margin Mean in Investing? To margin, also called buying on margin, refers to the practice of buying an asset where the buyer pays only a percentage of the asset's val

What is 'Managerial Accounting' Managerial accounting is the process of identifying, measuring , analyzing, interpreting and communicating information for the pursuit of an organization's goals. This branch of accounting is also known as cost accounting. The key difference between managerial and financial accounting is managerial accounting information is aimed at helping managers within the organization make decisions, while financial accounting is aimed at providing information to parties outside the organization. BREAKING DOWN 'Managerial Accounting' Managerial accounting encompasses all fields of accounting aimed at informing management of business operation metrics. Managerial accountants use information relating to the costs of products or services purchased by the company. Budgets are also extensively used as a quantitative expression of the business’ plan of operation. Individuals in managerialaccounting utilize performance reports to note devi

Management information system (MIS) refers to the processing of information through computers and other intelligent devices to manage and support managerial decisions within an organization. The concept may include systems termed transaction processing system, decision support system, expert system, or executive information system. The term is often used in the academic study of businesses and has connections with other areas, such as information systems, information technology, informatics, e-commerce and computer science; as a result, the term is used interchangeably with some of these fresh cut areas. Management information systems (plural) as an academic discipline studies people, technology, organizations, and the relationships among them.[1] This definition relates specifically to "MIS" as a course of study in business schools . Many business schools (or colleges of business administration within universities) have an MIS department, alongside departments of accoun

In management accounting or managerial accounting , managers use the provisions of accounting information in order to better inform themselves before they decide matters within their organizations, which aids their management and performance of control functions. Definition One simple definition of management accounting is the provision of financial and non-financial decision-making information to managers.[2] According to the Institute of Management Accountants (IMA): " Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy".[3] Management accountants (also called managerial accountants) look at the events that happen in and around a business while considering the needs of the business. From this, data and estimates

The purpose of Lean Accounting is to support the lean enterprise as a business strategy. It seeks to move from traditional accountingmethods to a system that measures and motivates excellent business practices in the lean enterprise. Introduction What we now call lean manufacturing was developed by Toyota and other Japanese companies. Toyota executives claim that the famed Toyota Production System was inspired by what they learned during visits to the Ford Motor Company in the 1920s and developed by Toyota leaders such as Taiichi Ohno and consultant Shigeo Shingo after World War II. As pioneer American and European companies embraced lean manufacturing methods in the late 1980s, they discovered that lean thinking must be applied to every aspect of the company including the financial and management accounting processes.[1] (See also, William Deming.) There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company's accounti

Though investing can be an excellent way to generate income , your earnings are probably subject to income tax like any other type of income. Mutual funds are a popular investment option for many reasons, but they can actually create a significant tax burden in some cases. Because individual investors do not have any control over the investment activity of a mutualfund , it is important to ensure your mutual fund is tax-efficient. There are a number of factors that dictate your fund's tax efficiency, including the frequency of trading activity, the longevity of each investment in the portfolio and the types of distributions your fund makes. Mutual Fund Income: The Basics To avoid paying corporate income taxes on their profits, mutual funds are required to distribute all their net gains to shareholders at least once a year. The income you receive from your mutual fund investment falls into one of two categories: capital gains distributions and dividend distributions.

Financial accounting is the process of recording, summarizing and reporting the myriad of transactions resulting from business operations over a period of time. These transactions are summarized in the preparation of financial statements , including the balance sheet , incomestatement and cash flow statement, that encapsulate the company's operating performance over a specified period. BREAKING DOWN 'Financial Accounting' Financial accounting utilizes a series of established accounting principles . The selection of accounting principles to use during the course of financial accounting depends on the regulatory and reporting requirements the business faces. For public companies in the United States, businesses are required to perform financial accounting in accordance with Generally Accepted Accounting Principles (GAAP). International public companies also frequently report financial statements in accordance to International Financial Reporting Standards. The est

How Do Mutual Funds Distribute Income? Mutual fund distribute income to shareholders through capital gains distributions or dividend distributions. Interest earned by a fund's assets is paid as a dividend distribution. To avoid paying taxes on earnings , mutual funds are required to pass on all net income to shareholders at least once each year. However, if the assets in the fund's portfolio pay interest more frequently, such as monthly or quarterly, the fund is likely to make dividend distributions that match the payment schedule of its assets. Bond Funds Bond funds, as the name implies, invest in corporate orgovernment-issued debt . While not all bonds pay interest annually, the vast majority do; the interest paid by a bond fund is a direct result of the couponpayments generated by the bonds in its portfolio. Unless the fund includes zero-coupon bonds, each security in the portfolio pays a set amount of interest each year, called its coupon rate, which is then

Management accounting information differs from financialaccountancy information in several ways: while shareholders, creditors , and public regulators use publicly reported financial accountancy , information, only managers within the organization use the normally confidential management accounting information while financial accountancy information is historical, management accountin g information is primarily forward-looking; while financial accountancy information is case-based, management accounting information is model-based with a degree of abstraction in order to support generic decision making; while financial accountancy information is computed by reference to general financial accounting standards, management accountinginformation is computed by reference to the needs of managers, often using management information systems. Traditional versus innovative practices The distinction between traditional and innovative accounting practices is perhaps best ill

Cost-volume profit (CVP) analysis is based upon determining the breakeven point of cost and volume of goods and can be useful for managers making short-term economic decisions . Cost-volume profit analysis makes several assumptions in order to be relevant including that the sales price , fixed costs and variable cost per unit are constant. Running this analysis involves using several equations using price, cost and other variables and plotting them out on an economic graph. BREAKING DOWN 'Cost-Volume Profit Analysis' CVP analysis is a method of cost accounting that is concerned with the impact varying levels of sales and product costs will have on operating profit. CVP analysis is only reliable if costs are fixed within a specified production level. All units produced are assumed to be sold and all costs must be variable or fixed in a CVP analysis . Another assumption is all changes in expenses occur because of changes in activity level. Semi-variable expenses must

Cost–benefit analysis (CBA), sometimes called benefit costsanalysis (BCA), is a systematic approach to estimating the strengths and weaknesses of alternatives (for example in transactions, activities, functional business requirements or projects investments); it is used to determine options that provide the best approach to achieve benefits while preserving savings.[1] The CBA is also defined as a systematic process for calculating and comparing benefits and costs of a decision, policy (with particular regard to government policy) or (in general) project Broadly, CBA has two main purposes: To determine if an investment/decision is sound (justification/feasibility) – verifying whether its benefits outweigh thecosts, and by how much; To provide a basis for comparing projects – which involves comparing the total expected cost of each option against its total expected benefits.[3] CBA is related to (but distinct from) cost-effectivenessanalysis . In CBA, benefits and costs

What is 'Contribution Margin' Contribution margin is a cost accounting concept that allows a company to determine the profitability of individual products. The phrase "contribution margin" can also refer to a per unit measure of a product's gross operating margin calculated simply as the product's price minus its total variable costs. This metric allows an entity to evaluate different areas of business to determine which service or product line to emphasize based on the highest margin. BREAKING DOWN 'Contribution Margin' Contribution margin is calculated by reducing the sales price by the total variable costs – regardless if the cost is materials, labor or overhead. For example, Company XYZ sells an item for $100. The company incurs a unit variable direct material expense of $12, unit variable labor expense of $25, $10 of variable overhead per unit and $8 of fixed overhead per unit. The contribution margin of one unit is ($100 - $12 - $25 - $

(CPPA) is an accounting model approved by the InternationalAccounting Standards Board (IASB) as an alternative to traditional historical cost accounting under hyper-inflationary environments.[1] Under this system, financial capital maintenance is measured in units of constant purchasing power (CPP) in terms of a CPI (consumer price index) during low inflation. During high inflation and hyperinflation it can also be measured in a monetized daily indexed unit of account (e.g. the Unidad de Fomento in Chile) and in terms of a daily relatively stable foreign currency parallel rate or daily index. Authorized by the IASB during low inflation[edit] In the IASB´s original Framework (1989), Par 104 (a), CPPA was authorized as an alternative to the traditional HCA model at all levels of inflation and deflation, including during hyperinflation as required in IAS 29. Income statement constant items like salaries, wages, rents, pensions, utilities, transport fees, etc. are normally valued i

Administrative Accounting The financial reporting of factors that influence decisionmaking , operational control and managerial planning. Administrative accounting focuses on management planning and control to accomplish the company's administrative goals. BREAKING DOWN 'Administrative Accounting' Administrative accounting involves a formal methodology for gathering, reporting and evaluating financial data that deals with management planning and control. The reports can help administrators and managers evaluate the day-to-day activities of the operation. What Do Other Investors Know That You Don't? If it seems like you're always late to the party when the market is swinging, it's because other investors are beating you to the news. Stay ahead of the pack by getting the latest insight and analysis in your inbox every morning and after the market closes. If you're tired of making losing trades day after day and are looking for an edge then w

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It is not uncommon for Retail companies to go back and forth between the merits of cost and retail method of accounting (but not to make frequent changes to their accounting methods….) The question of which is the “best” method continues to be a topic of debate.  Technology has come a long way, tracking inventory at both cost andretail but how to decide when to use retail vs cost? Understanding the fundamental differences between the two methods will support the Retailer’s decision and help them choose the method most appropriate for their particular business model. Inventory tracking with the retail method is at a level higher than SKU, usually department and category or class, whereas the cost method assigns a true cost (usually weighted average) to each individual selling SKU.  In the retail method inventory valuation at both retail and cost is impacted by markdowns/markups. The price change decision has an immediate impact. In the cost method, there is no cos

Accountants prepare product costs to serve two purposes: Decision making by managers, and external reporting . Decision making product costs approximate the marginal costs economists discuss, i.e., the unit costs includes the amount that total company costs increase when an additional unit is produced. Product costs for external reporting in contrast include a portion of company costs that do not vary with units produced. These product costs include material costs, labor costs, and overhead costs. Product Costs for Decision Making In many manufacturing companies labor costs remain constant over wide ranges of output, so managers can consider labor a fixed cost for many short-term output decisions . In addition, most overhead costs change only when managers decide to restructure the company, so these costs do not change as output fluctuates from day to day. The only costs that definitely does go up and down with production is the material cost. Estimating Materia

Many cases you will study in your MBA program will present you with product costs that have been developed for external reporting. These costs do not approximate marginal costs, so you have to modify the product costs to arrive at the values you need. First, consider how an accountant develops the unit cost used for external reporting. Developing a Unit Cost for External Reporting Labor Cost Assume an accountant wants to develop a unit cost for external reporting for the paint sprayer illustrated above. First, the accountant must estimate the amount of labor cost for the product. A product routing shows every step a product goes through in the manufacturing process, and these routings usually include labor times for each step. So the accountant can use these labor times from the routing to estimate the labor time required to make the product. Assume in this case the total labor time equals 10 hours to make the paint sprayer. Next the accountant reviews payroll recor