What is Accrual basis of accounting?
According to accrual concept or accrual principle or accrual basis of accounting revenues and expenses are recorded in books of accounts when they are earned or incurred and not when they are received or paid in cash. In essence events of business are captured in accounting system when they are actually happening and not when […]
What is the difference between revenue, income, profit, gain and return?
Every student who starts accounting and get an idea of these terms, the instinct of differentiating kicks in and he/she starts looking for the differences among these terms. Though there are sometimes minor and sometimes major differences among these terms but these days, with an exception of few, these terms are used interchangeably. For example, […]
What is the difference between Cost and Expense?
Most of the time the difference between the terms Cost and Expense is ignored and are used interchangeably. However, the difference is significant from accounting perspective and being an accountant it is good if we keep these two terms separate to cause lesser confusion and clearer communication of financial information. Cost can be defined as […]
What is meant by Shadow prices?
Shadow price or dual price is a quantitative technique to analyze the improvement in the contribution or costs by having one additional unit of a resource which is causing a bottleneck. This analysis basically helps management in deciding whether a struggle to uplift the constraint is worthwhile or not. Before we look at the definition […]
How POSSESSION and CONTROL of an asset are different in financial acconuting?
Possession of an asset might mean just having a physical control of the asset. The party who holds the asset is the possessor of such asset. But the word control holds special meaning in the business world. Especially in financial accounting. And understanding the meaning of control and ability to differentiate between the possession and […]
What is meant by Substance over form?
“Substance over form” if said in a complete phrase, from this term is extracted, then it will be something like this: Economic substance of the transaction will be preferred over the legal form of transaction for accounting purposes. Economic substance refers to the economic benefits and economic losses or any kind of economic implications related […]
What is the difference between Cost accounting and Management accounting?
Usually the terms, Cost accounting and Management accounting, are used interchangeably and are used in one and the same sense. However, there are differences between these two terms conceptually and in application. Cost accounting deals with calculation and measurement of resources utilized for different business activities usually production and service provision. It relates to calculation […]
What is meant by Apportionment of overheads?
Most of the time overheads are not caused by a single product or a cost center and are jointly incurred on one or more product or by one or more departments. Therefore, we cannot charge such overheads specifically to each department or simply they cannot be allocated. Even though we cannot charge some kinds overheads […]
What is meant by Allocation of overheads?
While calculating overheads and especially working out overheads distribution sheet we came across the term “allocation” and during the distribution of overheads, we allocate, apportion and re-apportion overheads. Each term has separate meaning and should not be considered as one and the same. It must also not be confused with usual division of overheads. Allocation […]
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 […]
