What is Throughput (Through put) costing / accounting?
Throughput accounting is a production management philosophy introduced by M. Goldratt. According to throughput theory, managing the business with a view to maximize profit is not only ignoring the much important variables (like customers demands, needs and affordability) but also push the organizations towards inter-departmental conflicts. According to throughput accounting, management should be concentrating on […]
What is the difference between Account and Ledger?
If we sum up the whole story in one line then it will be like this; Account is a place where transactions are recorded and Ledger is a place where accounts are maintained. Basically when the transaction occurs, we identify the nature of the transaction and then it is recorded in the proper account. Different […]
What is Private ledger?
Private ledger is basically such book of accounts in which such accounts are maintained which are maintained to be confidential. Therefore, any such account which might cause some privacy issues or the one that is crucial for the owners’ of the business than such account is maintained under Private ledger. It cannot be treated as […]
What is meant by direct overheads? Does allocated overheads mean direct overheads?
First of all we need to understand the definitions of overheads, direct expenses, allocation and apportionment itself in order to explain the answer of this question. Overheads mean such costs and expenses that were incurred during the production process but it is impossible to identify or trace such costs back to a particular product or […]
What is conversion cost?
Conversion cost is the sum of all such costs that are incurred in converting one article into intended output. Mostly, coversion costs represents the costs of all such activities or resources that have been applied in converting raw materials to finished items. In mathematical or equation form conversion costs are forumalated as follows: Conversion cost […]
What is prime cost?
Prime cost is a sum of all the direct costs i.e. prime cost is the aggregate of all such costs that can be traced back to products (cost units) or cost centers. Thus prime cost means sum of direct material costs, direct labour costs and direct expenses. Direct material costs include cost incurred on material […]
Why capital account is not debited to record drawings?
When owner of the business withdraw funds or goods from the business, we do not debit capital account instead we open record these withdrawals in another account which is usually named as Drawings account. So, we record such transactions without disturbing capital account in drawings account. Drawings account is also a capital account as this […]
What is nominal ledger?
First of all students must not confuse the accounts with ledgers. These are two totally different things. Even though these terms are loosely used for each other but they are certainly not the same. Ledgers can be regarded as big registers where we write up and update different accounts. So, it means accounts are specific […]
What is the difference between negative assurance and positive assurance?
Positive assurance is a positive assertion or in other words when opinion is stated in “positive form”. On the other hand, negative assurance is simply an opinion expressed in negative wordings. We call negative assurances negative because of the sentence structure. Sentences that contain NOT in them are called negative sentences or negation But such […]
Why do we add back depreciation and interest income / expense in cash flow statements?
The answer to this question is hidden right in the word “indirect method”. When we prepare statement of cash flows using indirect method we have to use income statement to find out the cash flows indirectly from it. Now, we can understand that the basic purpose of Income statement or Trading and Profit & Loss […]