Artificial Intelligence - AI Agents in Accounting and Financial Management Processes - F&A Processes

About AI Agents

Artificial Intelligence - AI Agents - Articles, Books, Case Studies - Bibliography

https://nraomtr.blogspot.com/2025/07/artificial-intelligence-ai-agents.html

Agents in Accounts and Finance Processes

Order-to-cash: Finance managers face challenges in order-to-cash processes due to time-consuming manual procedures, which can increase risks, cause delays, and hinder competitiveness. AI-powered agents can provide real-time, data-driven insights to enhance decision-making, reduce inefficiencies, and improve customer satisfaction. It streamlines finance operations by automating order validation, invoice reconciliation, and accounts receivable management.

Commercial credit sales intelligence for banking : This solution automates data extraction, customized client offerings, and rule-based decision-making, which transforms commercial banking credit sales by providing immediate, personalized support to credit underwriters. AI agents can provide comprehensive company analysis, conduct credit and financial assessments, automate compliance checks, and identify potential risks.

https://newsroom.accenture.com/news/2025/accenture-expands-ai-refinery-and-launches-new-industry-agent-solutions-to-accelerate-agentic-ai-adoption

Good article

https://www.fastcompany.com/91306553/how-ai-agents-are-shaping-the-future-of-finance

https://www.processexcellencenetwork.com/ai/news/accenture-ai-agents-automate-processes

How to Build a Finance AI Agent : Step-by-Step Process

Finance AI Agent development

https://www.aalpha.net/blog/how-to-build-a-finance-ai-agent/

Creating an AI Agent for Financial Report Analysis

DataCamp

30K views  Streamed 4 months ago

Resources (including link to code along notebook): https://bit.ly/41cgavS

https://www.youtube.com/watch?v=77aMTfqdlu4

ICAI Collection of Use Cases

https://ai.icai.org/usecases.php

AI & CA Office Automation

AI AGENT FOR CA OFFICE AUTOMATION

Author: CA. Vishnu Acharya

Watch on Youtube

https://ai.icai.org/usecases_details.php?id=18

AI for Financial Advisory and Decision-Making

AI Agents + RAG + Custom LLM for Financial Research & Compliance Chatbot

Author: CA. Shubham Patel

https://ai.icai.org/usecases_details.php?id=51

Press Releases

Infosys BPM Unveils AI Agents

Infosys BPM Unveils AI Agents to Revolutionize Finance and Accounting Services

New Agentic AI-powered solution set to redefine accounts payable operations with significant efficiency gains, enhanced accuracy and improved user experience

Bengaluru, India – May 30, 2025

Infosys BPM, the business process management arm of Infosys (NSE, BSE, NYSE: INFY), today announced the launch of AI agents for invoice processing within its flagship Infosys Accounts Payable on Cloud solution. Powered by Infosys Topaz, the innovation redefines invoice processing by moving from a human-driven, AI-supported model to an autonomous AI-first approach, which ensures greater efficiency and accuracy.

Designed to operate autonomously, the solution leverages AI agents equipped with advanced decision-making capabilities to handle complex business scenarios with precision and speed. Autonomous AI-first approach enables end-to-end workflow management, allowing AI agents to handle dynamic processes, adapt to changing business logic, and perform intricate tasks with minimal human oversight. The new Agentic AI-powered Accounts Payable on Cloud solution aims to boost operational efficiency significantly, enabling businesses to scale quickly and effectively. Powered by Microsoft’s AI stack, the solution combines Azure AI Foundry and other LLMs with custom AI agents. The integration of Cognitive Services with Azure's Platform-as-a-Service (PaaS) offerings enables the delivery of scalable, intelligent, and enterprise-ready AI solution.

This solution was developed in close collaboration with Americana Restaurants, the largest out-of-home dining and quick service restaurant operator across the Middle East, North Africa, and Kazakhstan, with more than 2,600 restaurants. Building on the successful deployment of Accounts Payable on Cloud solution for Americana, Infosys BPM is now integrating Agentic AI to make their invoice processing largely autonomous, further enhancing its efficiency and accuracy.

Harsh Bansal, Chief Financial Officer and Chief Growth Officer, Americana Restaurants, said, “At Americana Restaurants, we are committed to leading digital transformation, and as we scale our operations, intelligent automation is key to achieving greater efficiency and agility. With AI-powered Infosys Accounts Payable on Cloud, we have made invoice processing faster, enhanced accuracy, and improved efficiency. The addition of Agentic AI takes this a step further, reducing manual dependencies and bringing more intelligence and autonomy into our invoice processing. We are delighted that we have pioneered this initiative with Infosys and look forward to closely working with Infosys BPM to lead us collectively into a future of smarter and more agile operations."

Stephen Boyle, Global Leader, GSIs, ESIs and Advisories, Microsoft, said, "We commend Infosys BPM for launching Microsoft AI agents within its Accounts Payable on Cloud solution, showcasing AI's ability to streamline complex workflows and enhance critical business operations. This innovation underscores Infosys’s transformative potential and sets the stage for intelligent automation to drive future business success."

Anantha Radhakrishnan, CEO & Managing Director, Infosys BPM, said, "With the introduction of Agentic AI into Infosys Accounts Payable on Cloud solution, we are redefining what is possible in the finance and accounting functional domain. By integrating Infosys Topaz with a purpose-built multi-agent framework, along with Microsoft’s AI stack, we’ve developed a solution that is autonomous by design, responsive to change, and built to evolve. This exemplifies our commitment to pioneering innovation and delivering unparalleled business value to enterprises worldwide."

https://www.infosys.com/newsroom/press-releases/2025/revolutionize-finance-accounting-services.html

What Tasks Can AI Agents Perform in Accounting?

https://www.linkedin.com/pulse/what-tasks-can-ai-agents-perform-accounting-hulisa-grow-s20mf/

https://newsroom.accenture.com/news/2025/accenture-and-sap-join-forces-to-help-companies-enable-connected-intelligence-across-the-enterprise-to-drive-speed-and-agility-in-the-ai-era

https://capitalmarketsblog.accenture.com/leveraging-intelligent-agents-operations

https://www.floqast.com/blog/what-are-ai-agents-a-practical-guide-for-accounting-teams

https://www.metal-am.com/accenture-and-siemens-business-group-for-ai-manufacturing/

https://www.cio.com/article/3543730/accenture-forms-new-nvidia-business-group-focused-on-agentic-ai-adoption.html

Ud. 24.8.2025

Pub 7.7.2025

The Role of Accounting in Organizations

Accounting is a major means of helping managers of an organization, equity investors of an organization, potential equity investors, creditors and bond holders of an organization, potential creditors and bond holders of an organization, suppliers and customers of an organization and other stake holders to take decisions.

 ________________________________________________

Purposes of Accounting Systems

Accounting is a major means of helping managers of an organization, equity investors of an organization, potential equity investors, creditors and bond holders of an organization, potential creditors and bond holders of an organization, suppliers and customers of an organization and other stake holders to take decisions.

Accounting provides information for three major purposes:

1. External reporting: These reports are used investors, creditors, government authorities, and other outside parties.

2. Routine internal reporting: These reports which are periodically generated are used by managers of the company for their internal decisions.

3. Nonroutine internal reporting: This information or reports are generated to support projects and other decisions that come up as the need arises from them.

While the reports are prepared in different formats and basic data is manipulated or summarized in various ways to facilitate decision making, there is one data base maintained by the accounting system that contains data in the form debits and credits to various accounts maintained in the accounting system. Accountants combine these data items in various ways to provide information to internal or external users.

Distinction Between Financial Accounting, Cost Accounting and Management Accounting

Horngren’s distinction between them is interesting.

 

Management accounting as a discipline focuses on accounting information that facilitates decision making by managers of the organization. If focuses on routine and nonroutine accounting reports.

Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles (GAAP). Executive compensation is tied to profit figures reported in the financial statements and equity share valuation is also based to a large extent on these financial statements.

Cost accounting provides information to facilitate both management accounting and financial accounting. Its focus is measuring and reporting financial and nonfinancial information that is related to the cost of acquiring or consuming resources by an organization.

Cost Management

Cost management is an activity of managers related to planning and control of costs. Managers have to take decisions regarding use of materials, processes, product designs and have to plan costs or expenses to support the operating plan for their department or section. All these activities come under cost management. Information from accounting systems help managers in cost management activities.  But the cost accounting system and the reports it generates is not the cost management system. Accounting system can be interpreted as a part of cost management system of an organization.

Cost management is not cost reduction alone. It is much broader.  Organization increase advertising expenditure to increase sales, increase research and development expenditures to promote new products. Here the concerned managers are deliberately incurring additional costs in a period (compared to the previous period) as they expect profits from such decisions or expenditures. Cost management system has to ensure that a cost is incurred with the expectation of adequate profit.

The Role of Management Accounting

The role of management accounting is also described as problem solving, score keeping and attention directing.

Problem solving: The role of accounting in problem solving is to provide information useful in evaluating alternatives.

Scorekeeping: Scorekeeping records the results of various actions of the managers and helps in assessing whether the results expected from the various actions are realized or not.

Attention directing: The scorekeeping function in combination with expected results, and comparative analysis of scores of various companies, divisions and departments, comparative analysis of present period scores or results with previous periods show opportunities of focusing attention of managers to improve things.

 

Value Chain

Value chain is a visualization of complete business as a sequence of activities in which usefulness is added to the products or services produced and sold by an organization. Management accountants provide decision support for managers in each activity of value chain.

Design of Management Accounting System

The design of management accounting system has to take into consideration the decision needs of the managers. Also it has to take into consideration the new themes and challenges that managers face currently.

Horngren identified four such themes in the tenth edition of his book.

1. Customer focus: The challenge for managers it invest sufficient resources to enhance customer satisfaction. But every action of the organization has to result enhanced profitability or maintained profitability for the organization.

2. Key Success Factors: These are nonfinancial factors which have an effect on the economic viability of the organization.

Cost, quality, time and innovation are important key success factors. Management accounting systems need to have provisions for tracking the performance of the organization and its divisions as well as competitors on these success factors.

3. Continuous improvement: Continuous improvement or kaizen is a popular theme. Innovation related to this area in costing is kaizen costing .

4. Value Chain and Supply Chain Analysis: Value chain as a strategic framework for analysis of competitive advantage was promoted by Michael Porter. Management accountants have to become familiar with the framework and provide information to implement the framework by strategic planners.

The term supply chain describes the flow of goods, services and information from cradle (the mines sources of raw materials) to grave (where discarded products or dumped), regardless of whether those activities occur in the same organization or many organizations.

Key Guidelines for Management Accounting System Design

Cost Benefit Approach: In the system design resource allocation decisions are to be made. Examples would be software to buy and associates to employ. A cost-benefit approach should be used for all such decisions. Resources should be spent only when there is profit to the organization due to that expenditure.  Each incremental addition to the accounting system must be supported by incremental profit to the organization.

Behavioral and Technical Considerations: Management has human dimension and it has to focus on how to help individuals to do their jobs better. Managing people involves discussion of managers with his associates on improving performance. The behavioral responses of people to reports highlighting their underperformance have to be understood. Management accounting should lead to cordial relations and climate.

Different Costs for Different Purposes: It is to be noted that there are several cost concepts and cost measures can be created for each of these concepts. Cost accountants have to careful to provide appropriate cost to the managers. The accounting system has to have some precautions to make sure that the accountant understands the decision situation of a manager and provides appropriate cost measures.

Professional Ethics

Like other professionals, accountants also face ethical dilemmas. They need ethical guidelines.  Institute of Management Accountants (IMA), USA published guidance note on ethics to be followed by management accountants.

Competence, confidentiality, integrity and objectivity are important themes of the guidance note.

References

Horngren, Charles T., George Foster, and Srikant Datar, Cost Accounting: Managerial Emphasis, Tenth Edition, Prentice Hall, Inc., Upper Saddle River, New Jersey, USA, 2000
Cost Accounting - Horngren et al., Book Information and Review


Originally Posted in
http://knol.google.com/k/ the-role-of-accounting-in-organizations 

Ud 7 August 2021

pub 28 Jan 2012

Financial - Cost and Management Accounting - Subject Update Articles

                                      Narayana Rao K.V.S.S. on Cover Page of Business Today 

October 22 - November 6, 1997

2020

Video Lectures on Financial Accounting by Prof. Elbarrad
https://www.youtube.com/channel/UCXQAlFxCIlihCazcGq65wBA


Cost Effective Supply Chain
Brand owners require effective processes for collecting and managing cost data from manufacturing partners, item suppliers and logistics partners at the individual item and bill-of-material (BOM) levels. E2open’s Cost Management application enables multi-tier cost capture and management by providing a single view of BOMs, cost forecasting and rebate management. The result is efficient, optimized processes and lower supply chain costs.
https://www.e2open.com/intelligent-applications/supply-management/cost-management/

2019

Bain and Company
______________

______________



Save-to-transform as a catalyst for embracing digital disruption
Deloitte's 2019 Global Cost Survey
Cost-management remains a strong imperative around the world.
https://www2.deloitte.com/us/en/pages/operations/articles/global-cost-management-survey.html

Strategic Cost Transformation - Capgemini

https://www.capgemini.com/wp-content/uploads/2017/07/Strategic_Cost_Transformation.pdf

Manufacturing cost transformation

Situation
Our client, which primarily serves coal power generators, faced a unique set of market challenges driven by fossil fuel price and regulatory uncertainty:
https://www.strategyand.pwc.com/power-utilities/infrastructure-mining/casestudy/cost-transformation

Cost Transformation

We help you embark on major cost reduction—without losing focus on profitable growth.
https://www.atkearney.com/operations-performance-transformation/cost-transformation

IBM: Cost transformation for the digital era

In the new digital era, the classical dichotomy of grow and invest, or reduce costs has changed and it’s no longer an either/or choice. Organizations have new opportunities to identify cost take-out, rethink operational efficiency and fund growth from the inside out.
https://www.ibm.com/thought-leadership/institute-business-value/report/cognitive-cost

How do you take your enterprise cost reduction strategy from alienating to engaging?
https://consulting.ey.com/take-enterprise-cost-reduction-strategy-alienating-engaging/


February 5, 2019

IMA Releases Enhanced Management Accounting Competency Framework for Professionals in the Digital Age

IMA® (Institute of Management Accountants) has released its enhanced Management Accounting Competency Framework. The updated Framework reflects the skills management accountants will need to remain relevant and be future-ready.
https://www.imanet.org/about-ima/news-and-media-relations/press-releases/2019/2/5/ima-releases-enhanced-management-accounting-competency-framework?ssopc=1

IMA Management Accounting Competency Framework 

Strategy, Planning & Performance
The competencies required to envision the future, lead the strategic planning process, guide decisions, manage risk, and monitor performance.

Reporting & Control
The competencies required to measure and report an organization’s performance in compliance with relevant standards and regulations.

Technology & Analytics
The competencies required to manage technology and analyze data to enhance organizational success.

Business Acumen & Operations
The competencies required to contribute as a cross-functional business partner to transform company-wide operations.

Leadership
The competencies required to collaborate with others and inspire teams to achieve organizational goals.

Professional Ethics & Values
The competencies required to demonstrate the professional values, ethical behavior, and legal compliance essential to a sustainable business model.
Download full framework from https://www.imanet.org/career-resources/management-accounting-competencies?ssopc=1

2018

Strategic Cost Transformation

by Dr. Reginald Tomas Lee
Publisher: Business Expert Press
Release Date: December 2018
https://www.oreilly.com/library/view/strategic-cost-transformation/9781631578809/

Virtual Issue on Empirical Management Accounting Research

Journal of Accounting Research, August 2018
Margaret A. Abernethy
University of Melbourne, Department of Accounting
Dennis Campbell
Harvard University - Accounting & Control Unit

Review of empirical papers published in JAR over the past 10 years examining management accounting and control systems in organizational contexts that are complex, ambiguous and where performance is difficult to measure. These papers use a variety of newer economic models of organization culture, relational contracts and related theories from sociology and psychology to provide a direction to management accounting.

2015

Cost Transformation Model of CGMA

http://www.cgma.org/Resources/Tools/pages/cost-transformation-model.aspx

Cost Transformation - Tata Steel Europe Case Study

http://www.cgma.org/Resources/Tools/Documents/Cost_Transformation_COL_TATA.PDF


2014

May 2014
Corporate and Integrated Reporting
HBS working paper
http://hbswk.hbs.edu/item/7502.html


Jan 2014
Environmental Accounting - ACCA
http://www.accaglobal.com/zw/en/student/acca-qual-student-journey/qual-resource/acca-qualification/f5/technical-articles/Env-MA.html


2009

How to Cut Cost Strategically

Harvard Business Review
Published on 22 Sep 2009
Cesare Mainardi, managing director of Booz & Company, details how executives should cut costs--but often dont.
______________

______________


1997

Effective Management of Future Costs through New Product Target Costing

Effective cost management must start at the design stage. As much as 90-95% of a product's costs are added in the design process. That is why effective cost management programs focus on design and manufacturing. The primary cost management method to control cost during design is a combination of target costing and value engineering.
Target Costing and Value Engineering - Robin Cooper - 1997
https://nraoiekc.blogspot.com/2019/07/target-costing-and-value-engineering.html
Value Analysis and Engineering - Online Book

Financial, Cost and Management Accounting - Review Notes List

Top 100 Management Theory Articles of the blog

Updated on 28 July 2019,  29 May 2019,  10 December 2015

Financial, Cost and Management Accounting - Review Notes List

 

                                   Narayana Rao K.V.S.S. on Cover Page of Business Today 

October 22 - November 6, 1997

Financial Accounting - Horngren - Review Notes List

Introduction to Financial Accounting - Google Books Link

Links to review notes and power point presentations accompanying the book are available as follows:

1. Accounting: The Language of Business

2. Measuring Income to Assess Performance

3. Recording Transactions

4. Accrual Accounting and Financial Statements

5. Statement of Cash Flows

6. Accounting for Sales

7. Inventories and Cost of Goods Sold

8. Long-Lived Assets and Depreciation

9. Liabilities and Interest

10. Stockholder's Equity

11. Intercorporate Investments and Consolidations

12. Financial Statement Analysis

Cost Accounting
1. Role of Costing and Cost Accounting in the Organization
2. Introduction to Cost Terms - Review Notes
3. Traditional Cost Objectives and Their Utility
4. Job Costing - Review Notes

Variance Analysis, Flexible Budget and Management Control



Management Accounting

1. Managerial Accounting or Management Accounting - Role in Business and Industrial Organizations

MBA Knowledge Revision Schedule

January  - February  - March  - April  - May   -   June

July       - August     - September  - October - November  - December


Updated 6 August 2017, 27 June 2014

Recording Transactions - Review Notes

The basic summary device of accounting is the account. An account is the detailed record of all the changes that have occurred in an individual asset, liability, or owners’ (or stockholders’) equity during a specified period. Business transactions cause the changes in accounts.

Accountants record transactions first in a journal, which is the chronological record of transactions. Accountants then post the data to the book of accounts called the ledger.  One can describe it as copying the journal post in the ledger. A list of all the ledger accounts and their balances is

called a trial balance.

The ledger (book of accounts) contains the accounts grouped under these headings:

● Assets, Liabilities, and Stockholders’ Equity
● Revenues and Expenses

Companies prepare a chart of accounts to show the list of all their accounts along with the account numbers.

Charts of accounts vary from business to business, though many account names are common to all companies’ charts of accounts.


Accounting is based on transaction data. Each transaction represents exchange of value and it has two sides: The receiving side and  The giving side.

Accounting uses the double-entry system, which means that we record the dual effects of each transaction. As a result, every transaction affects at least two accounts. It would be incomplete to record only the giving side, or only the receiving side, of a transaction.

The T-Account
A shortened form of the general ledger account is called the T-account because it takes the form of the capital letter T. The vertical line divides the account into its left and right sides, with the title at the top. For example, the Cash account appears as follows.

Debit Side                   Credit Side
________________________________
                                |
                                |

Increases and Decreases in the Accounts

The account category (asset, liability, equity) governs how we record increases and decreases. For any given account, increases are recorded on one side, and decreases are recorded on the opposite side.

Whether an account is increased or decreased by a debit or a credit depends on the type of account. Debits are not “good” or “bad.” Neither are credits. Debits are not always increases or always

decreases—neither are credits.

The words debit and credit abbreviate the Latin terms debitum and creditum. Luca Pacioli, the Italian monk who wrote about accounting in the fifteenth century, popularized these terms.


The amount remaining in an account is called its balance.


List the Steps of the Transaction Recording Process

In practice, accountants record transactions in a journal. The journalizing process has three steps:

1. Identify each account affected and its type (asset, liability, or stockholders’ equity).
2. Determine whether each account is increased or decreased. Use the rules of debit and credit.
3. Record the transaction in the journal, including a brief explanation. The debit side of the entry is entered first. The credit side is indented. Total debits should always equal total credits. This step is also called “making the journal entry” or “journalizing the transaction.”

Posting (Copying Information) from the Journal to the Ledger

Journalizing a transaction records the data only in the journal—but not in the ledger. The data must also be copied to the ledger. The process of copying from the journal to the ledger is called posting. We post from the journal to the ledger. Debits in the journal are posted as debits in the ledger and credits as credits



Assets = Liabilities + Stockholders’ equity

Assets
DR    CR
+         -


Liabilities
DR   CR
–        +



Common stock
DR      CR
–           +

Retained
earnings
DR    CR
–        +

Revenues
DR     CR  
–           +

Expenses
DR  CR
+       -





The Normal Balance of an Account

An account’s normal balance appears on the side—either debit or credit—where we record an increase (+) in the account’s balance. For example, assets normally have a debit balance, so assets are debit-balance accounts. Liabilities and equity accounts normally have the opposite balance, so they are credit-balance accounts. Expenses are equity accounts that have debit balances—unlike the other equity accounts. They have debit balances because they decrease equity. Revenues increase equity, so a revenue’s normal balance is a credit.

Preparing the Trial Balance from the T-Accounts

As noted earlier, a trial balance summarizes the ledger (T-accounts) by listing all the accounts with their balances—assets first, followed by liabilities, and then stockholders’ equity. In a manual accounting system, the trial balance provides an accuracy check by showing whether total debits equal total credits. In all types of systems, the trial balance is a useful summary of the accounts and their balances because it shows the balances on a specific date for all accounts in a company’s accounting system.

Accounting Terms

Account

The detailed record of all the changes that have occurred in a particular asset, liability, or owners’ equity (stockholders’ equity) during a period. The basic summary device of accounting.

Accrued Liability
A liability for which the business knows the amount owed but the bill has not been paid.

Chart of Accounts
A list of all a company’s accounts with their account numbers.

Credit side
The right side of an account.

Debit side
The left side of an account.

Double-Entry System
A system of accounting where every transaction affects at least two accounts.

Journal
The chronological accounting record of an entity’s transactions.

Ledger
The record holding all the accounts and amounts.

Normal Balance
The balance that appears on the side of an account—debit or credit—where we record increases.

Note Receivable
A written promise for future collection of cash.


Notes Payable
Represents debts the business owes because it signed promissory notes to borrow money or to purchase something.

Posting
Copying amounts from the journal to the ledger.

Prepaid Expenses
Expenses paid in advance of their use.

T-account
Summary device that is shaped like a capital “T” with debits posted on the left side of the vertical line and credits on the right side of the vertical line. A “shorthand” version of a ledger.

Trial Balance
A list of all the ledger accounts with their balances at a point in time.

Review notes - Good Notes
http://seattlecentral.edu/faculty/moneil/A210/L2/Horngren02.htm

Presentation slide
http://wps.prenhall.com/wps/media/objects/1838/1883037/powerpoints/ch_03.ppt

An excel tool on HBA alumni site
http://www.alumni.hbs.edu/new_alumni/toolkit/tools/doubleentry.xls

Notes on Analyzing Transactions
http://fgamedia.org/faculty/jnava/ng_courses/1a-b/lec_mat/lec_02.htm

Excerpts
From Financial and Management Accounting
Horngren
Book Referred

Financial, Cost and Management Accounting - Review Notes List


Updated  6 May 2019, 16 Apr 2016
8 Dec 2011

Accounting for Operations Management

Accounting is basic knowledge for operations managers. Henry Towne, President, ASME and a CEO,  said so in 1886.

He wrote, "To insure the best results, the organization of productive labor must be directed and controlled by persons having not only good executive ability, and possessing the practical familiarity of a mechanic or engineer with the goods produced and the processes employed, but having also, and equally, a practical knowledge of how to observe, record, analyze and compare essential facts in relation to wages, supplies, expense accounts, and all else that enters into or affects the economy of production and the cost of the product."

in the paper, THE ENGINEER AS AN ECONOMIST. 1886, ASME Annual Meeting
https://nraoiekc.blogspot.com/2019/04/the-engineer-as-economist-industrial.html


F.W. Taylor is the pioneer engineering manager. He was present in the ASME meeting in which Henry Towne presented his paper in 1886. Taylor responded by actually implementing the suggestions and ideas of Henry Towne. Tyalor  managed engineering activities from management perspective. He performed all management functions - planning, organizing, staffing, directing and controlling in the sphere of production or manufacturing. His first publicly presented paper was on design aspects of transmission belts (1893). This design or redesign was proposed by him based on nine years of cost data collection. The best design proposed by him would give expected minimum cost of belting system on a life cycle basis. Thus Taylor brought to light force the utility of accounting data to operations managers, production managers, and manufacturing managers

Accounting is the information system that measures business activity, processes the data into reports, 

and communicates the results to decision makers. Accounting is “the language of business.” The better you understand the language of business, the better you can manage the business. Accounting can also be described as a language of managers. Every manager has to understand the activities under his control in accounting terms and present the accounts of his responsibility center to higher level decision makers. For the company as a whole, CEO has to present accounts of the company to Board of Directors and Board of Directors have to present it to Shareholders.

Accounting -  Role in Operations Management

Operations managers to have to present accounts of the operation activities under their supervision or management. While accounts are measurements of actual activities, budget is the plan of the department or responsibility center in accounting terms. Planning the basic function of management. Therefore, we can say budgeting, a part of planning is a basic function or activity of management.

Operations managers have to learn the basic process of accounting in the academic programs and keep updating their knowledge in the career. No doubt actual accounting activities are carried out by specialists but operations managers must have the capability to verify the accounts of their department presented or reported to them by accountants and accept them or suggest if any short comings are suspected. They must be able to answer any queries of senior managers regarding the figures in statements and the reason for achieving those figures. 

Budgeting and Budgetary Control

Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as:

"The establishment of budgets relating the responsibilities of executives to the requirements of a policy (objectives), and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision".

Budget

A budget is a formal quantitative expression of management plans.

Budgets can be made by managers at any level including a single person managing a machine or operating a machine. In the context of business, budget may have revenue, expenses and profits, all in a single statement. But one can think of a budget for revenues alone, budget for expenses alone.

Master Budget

Master budget for a big organization summarizes the goals of all subunits of an organization - either business divisions if the company is organized along divisional lines or managerial functions if the company is organized along functional lines.

The master budget consists of expected or projected income statement, balance sheet, and a cash flow statement, along with supporting schedules.

Benefits of Budgeting or Imperative for Budgeting

The advocates of budgeting state that the process of preparing budget forces executives to become better managers. Budgeting schedule of a company puts planning where it belongs - in the forefront of every manager's mind. It also forces him to review his performance in the last period and identify good practices that enhanced performance and issues that contributed negatively to performance.

The formal budgeting system has the following major benefits.

1. Budgeting due to its formal time table or schedule compels managers to think ahead apart from taking care of their current activities.

2. Budgeting, due to its approval and authorization  by the superiors, provides definite expectations that are the best framework for judging subsequent performance.

3. Budgeting helps in coordinating the various departments of the organization. The budget harmonizes the goals (objectives) of the individual departments into the organization wide goals (objectives).

Budgetary control at department level is encouraging department level personnel to plan their operations for the forth coming period. Both outputs and inputs are to be planned. If possible outputs and inputs are converted into revenues and costs.

The accounting system of the company will prepare the actual revenues and costs generated at the end of the period as well as during the period. The department managers have to responsibility to carry out the day to day activities to achieve the best possible results with their plan/budget as the guiding document.

Budgets can be made flexible so that cost estimates are in relation to the output produced.

Variance analysis can be done to pin point the variables that changed during the period and their effect on actual results.

Budgetary control system facilitates participation of department managers as well as senior level managers in explicitly planning for the future. The plan can be optimized with various optimization techniques.

These techniques include linear programming (for product mix problems), transportation (for planning transport of finished goods) and assignment (assigning machines for jobs or operators for jobs) and other operations research techniques. A formal budgeting system can question the department managers on whether they have applied the optimization techniques or not and where necessary advise them to use those techniques and provide specialist support in cases where necessary.

References

Horngren, Charles, T., Gary L. Sundem, and William O. Stratton, Introduction to Management Accounting, 13th Ed., Prentice Hall, 1999.

Accounting

Accounting is the information system that measures business activity, processes the data into reports,
and communicates the results to decision makers. Accounting is “the language of business.” The better you understand the language of business, the better you can manage your own business.

A key product of accounting is a set of reports called financial statements. Financial statements report on a business or a department  in monetary terms.

We can divide accounting into two fields—financial accounting and managerial accounting.
Financial accounting provides information for external decision makers, such as outside investors and lenders in standard well regulated formats. Financial accounting's major focus is on  providing  data for outsiders.

Managerial accounting focuses on information for internal decision makers, such as the company’s managers. The basic data used by financial accounting and management accounting are same. But managerial accounting provides data for insiders to assess performance of various managers and departments and also to support managers in decision making.


Basics of Financial Accounting

A business can be organized as one of the following:

● Proprietorship
● Partnership
● Corporation
● Limited-liability partnership (LLP) and limited-liability company (LLC)
● Not-for-profit

Accounts are maintained for each of them on in others words for a business firm organized in any permissible mannger..

Accounting Concepts and Principles

The Entity Concept
The Faithful Representation Principle
The Cost Principle
The Going-Concern Concept
The Stable Monetary Unit Concept

The Accounting Equation

The basic tool of accounting is the accounting equation. It measures the resources of
a business and the claims to those resources. The equation is that resources of an organization are equal to the claims on the company by capital providers (including owners that is shareholders)

Assets (Resources) of the Company = Liabilities (Claims of Capital Providers)

Definition of  Accounting

Accounting is the process of analyzing, recording, classifying, summarizing and communicating the results of the economic events of an organization.  The economic events must be measurable in dollars, and are called transactions.

Transaction is an economic event that is a measured in dollars. Accounting is based on actual transactions, not opinions or desires. A transaction is any event that affects the financial position of the business and can be measured reliably. Transactions affect what the company owns, owes, or its net worth.

The Accounting Cycle

1.  Analyze each transaction (Decide which account is to debited and which account is to be credited)
2.  Record each transaction in a journal (ordered by date).
3.  Transfer each transaction to the accounts affected in the ledger.
     (The ledger is a set of accounts ordered by account number.)
4.  Summarize the transactions in the form of statements to help in taking decisions.

5. The overall performance of the organization is summarized in financial statements of the organization in financial accounting for reporting to outsiders.

     a.  Income Statement:  Shows the net income (profit) of the company.
     b.  Owner's Equity Statement:  Shows the owner's claim in the business.
     c.  Balance Sheet:  Shows the financial position of the company.
     d.  Cash Flow Statement:  Shows where cash came from and where it went during the period.

Similar statements can be prepared for various profit centers of the organization also.

The first step in accounting

Journalising a Business Transaction

Accounting: The Language of Business - Review Notes

Review of chapter of Horngren (Introduction to Financial Accounting) to be posted


Accounting is the information system that measures business activity, processes the data into reports,
and communicates the results to decision makers. Accounting is “the language of business.” The better you understand the language of business, the better you can manage your own business.

A key product of accounting is a set of reports called financial statements. Financial statements report on a business in monetary terms.

We can divide accounting into two fields—financial accounting and managerial accounting.
Financial accounting provides information for external decision makers, such as outside investors and lenders. Financial accounting provides data for outsiders.

Managerial accounting focuses on information for internal decision makers, such as the company’s managers. Managerial accounting provides data for insiders.

A business can be organized as one of the following:
● Proprietorship
● Partnership
● Corporation
● Limited-liability partnership (LLP) and limited-liability company (LLC)
● Not-for-profit

Accounts are maintained for each of them.

Accounting Concepts and Principles
The Entity Concept
The Faithful Representation Principle
The Cost Principle
The Going-Concern Concept
The Stable Monetary Unit Concept

The Accounting Equation
The basic tool of accounting is the accounting equation. It measures the resources of
a business and the claims to those resources.

Definition of  Accounting

Accounting is the process of analyzing, recording, classifying, summarizing and communicating the results of the economic events of an organization.  The economic events must be measurable in dollars, and are called transactions.

Transaction is an economic event that is a measured in dollars. Accounting is based on actual transactions, not opinions or desires. A transaction is any event that affects the financial position of the business and can be measured reliably. Transactions affect what the company owns, owes, or its net worth.

The Accounting Cycle

1.  Analyze each transaction (Decide which account is to debited and which account is to be credited)
2.  Record each transaction in a journal (ordered by date).
3.  Transfer each transaction to the accounts affected in the ledger.
     (The ledger is a set of accounts ordered by account number.)
4.  Summarize the transactions in the form of statements to help in taking decisions.

5. The overall performance of the organization is summarized in financial statements of the organization
     a.  Income Statement:  Shows the net income (profit) of the company.
     b.  Owner's Equity Statement:  Shows the owner's claim in the business.
     c.  Balance Sheet:  Shows the financial position of the company.
     d.  Cash Flow Statement:  Shows where cash came from and where it went during the period.

Similar statements can be prepared for various profit centers of the organization also.


Introduction to Financial Accounting
Professor Alexander Sannella
__________________

__________________
Rutgers Digital Accounting Web

Review notes - Very good detailed notes
http://seattlecentral.edu/faculty/moneil/A210/L1/Horngren01.htm

Presentation slides


http://wps.prenhall.com/wps/media/objects/1838/1883037/powerpoints/ch_01.ppt

Related chapter

http://cwx.prenhall.com/bookbind/pubbooks/horngrenacc5_ca/chapter99/medialib/corporate/ch1.pdf

Notes
http://fgamedia.org/faculty/jnava/ng_courses/1a-b/lec_mat/lec_01.htm

Foundation lecture for accounting course - PPT
www.schulich.yorku.ca/ssb-extra/intranet.nsf/Lookup/IntroductiontoAccounting/%24file/IntroductiontoAccounting.ppt

Book chapter from Pearson
http://media.wiley.com/product_data/excerpt/11/04700470/0470047011.pdf


Financial, Cost and Management Accounting - Review Notes List


Updated 25 Apr 2016,  12 Apr 2016,
8 Dec 2011

Accrual Accounting and Financial Statements - Review Notes

Review of chapter of Horngren (Introduction to Financial Accounting)


The first objective in this article  is to understand the types of adjustments typically made to the accounts, and why those adjustments need to be made.

Accrual Accounting

A simple definition of accrual accounting is:  "record all revenues in the period we earn them; record all expenses in the period we incur them."  It can also be explained as recording a business transaction as it happens without waiting for the cash payment or receipt.  For revenues, the basic approach is to determine when the revenue was earned. If  a service is performed, the revenue is accounted as earned during the period.

Expenses work in a similar way.  If an advertisement is run in the newspaper in a  month, the accounting transaction is entered in the journal, even though cash payment is done by the firm after two months,. The incurrence of the expense is recognized, rather than the timing of the cash payment.

Facts about Adjustments



Every adjustment affects one income statement account and one balance sheet account.  The income statement account will be a revenue or an expense.

Adjustments are only done at the end of an accounting period.  We will assume that the entire accounting cycle takes place in one month's time.  Therefore, the adjustments would be recorded at the end of each month.

The accountant has to  use good judgment in deciding if an adjustment is necessary.

Accrual accounting requires that adjustments be made to properly reflect periodic revenues and expenses.

There are two principles of accounting that are satisfied by the adjusting process. First, we want to make sure we record all revenues that were earned this period. This is called the revenue recognition principle. The revenue recognition principle says that "we must record all revenues in the period they were earned, regardless of whether the cash has been received."

Second, we want to match all expenses that we incurred this period to the revenues earned this period. This is called the matching principle. Some expenses such as rent expense involve paying cash for the expense. However, using up supplies is also an expense, one in which an asset other than cash is being consumed. Similarly, using up insurance and equipment are considered expenses in the adjusting process.

As the revenues and expenses come together on the income statement, these two principles are the foundation for computing net income according to accrual accounting rules.




Adjusting entries, unearned/accrued, revenue/expense
Rutgers Accounting Web
_______________

_______________





Adjusting the accounts - Review notes
http://seattlecentral.edu/faculty/moneil/A210/L3/Horngren03.htm

http://seattlecentral.edu/faculty/moneil/A210/L4/Horngren04.htm

Presentation slides

http://wps.prenhall.com/wps/media/objects/1838/1883037/powerpoints/ch_04.ppt


Flash card exercise

http://www.studystack.com/flashcard-48894

_________________



More flashcards and educational activitites at StudyStack.com
_________________


Financial, Cost and Management Accounting - Review Notes List

Updated 25 Apr 2016, 12 March 2016, 8 Dec 2011

Inventories and Cost of Goods Sold - Review Notes

Determining Cost (Accounting Value) of Inventory

Specific unit cost
 Mandated by AASB when inventory items differ (e.g. motor vehicles, jewellery)
 Average cost
 First-In, First-Out (FIFO)
 Oldest units sold first
 Last-In, First-Out (LIFO):

Calculate periodic inventory amounts under
FIFO, LIFO and average cost.

Journal Entry for Purchase of Inventory
January
Purchases (not inventory) 400
Accounts Payable (Cash) 400


FIFO

Beginning Inventory (1 @ 40)  = $40
Purchases (6 @ 45 + 7 @ 50)  = 620
Cost of goods available for sale (14 numbers)   =  660
Less: Ending Inventory (2 @ 50)   =   (100)
Cost of Sales  =  $560


LIFO
Beginning Inventory (1 @ 40)  =  $40
Purchases (6 @ 45 + 7 @ 50)   =  620
Cost of goods available for sale (14)  =  660

Cost of goods available for sale (14) =  660
Less: Ending Inventory  (1 @ 40 + 1 @ 45)  =  (85)
Cost of Sales  =   $575


Weighted Average
Beginning Inventory (1 @ 40)   =  $40
Purchases (6 @ 45 + 7 @ 50)  = 620
Cost of goods available for sale (14 @ 47 14) =  660 (14 @ 47.14)
Less: Ending Inventory (2 @ 47.14)  =  (94)
Cost of Sales  =   $566




Accounting Principles and Inventories

Several accounting principles affect inventories. Among them are consistency, disclosure, materiality, and accounting conservatism.


Consistency Principle

The consistency principle states that businesses should use the same accounting
methods from period to period. Consistency helps investors compare a company’s
financial statements from one period to the next.


Disclosure Principle

The disclosure principle holds that a company should report enough information
for outsiders to make wise decisions about the company. In short, the company
should report relevant, reliable, and comparable information about itself. This
includes disclosing the method being used to account for inventories. All major
accounting decisions are described in the footnotes to the financial statements.

Materiality Concept

The materiality concept states that a company must perform strictly proper accounting
only for significant items. Information is significant—or, in accounting terms, material—
when it would cause someone to change a decision. The materiality concept frees
accountants from having to report every last item in strict accordance with GAAP. For
example, $1,000 is material to a small business with annual sales of $100,000.
However, $1,000 isn’t material to a large company like Apple.


Accounting Conservatism

Conservatism in accounting means exercising caution in reporting items in the financial statements. Conservatism says,

● “Anticipate no gains, but provide for all probable losses.”
● “If in doubt, record an asset at the lowest reasonable amount and a liability at the highest reasonable amount.”
● “When there’s a question, record an expense rather than an asset.”
● “When you are faced with a decision between two options, you must choose the option that undervalues, rather than overvalues, your business.”

The goal of conservatism is to report realistic figures.

Lower-of-Cost-or-Market Rule
In addition to the FIFO, LIFO, and average costing methods, accounts must use the  the lower-of-cost-or-market rule (abbreviated as LCM).

LCM shows accounting conservatism in action and requires that inventory be reported in the financial statements at whichever is lower—
● the historical cost of the inventory, or
● the market value of the inventory.

For inventories, market value generally means the current replacement cost (that is, the cost to replace the inventory on hand). If the replacement cost of inventory is less than its historical cost, the business must adjust the inventory value. By adjusting the inventory down (crediting Inventory), the balance sheet value of the asset, Inventory, is at its correct value (market) rather than its overstated accounting value (cost).












Review Notes
Inventory Accounting
http://seattlecentral.edu/faculty/moneil/A210/L6/Horngren06.htm

Presentation slides

http://wps.prenhall.com/wps/media/objects/1838/1883037/powerpoints/ch_07.ppt

Financial, Cost and Management Accounting - Review Notes List

Updated 17 Apr 2016
8 Dec 2011

Long-Lived Assets and Depreciation - Review Notes

Measuring the Cost of a Plant Asset
The cost principle says to carry an asset at its historical cost—the amount paid for
the asset. The rule for measuring cost is as follows:
Measure the cost of a plant asset

Cost of an asset =
Sum of all the costs incurred to bring the asset
to its intended purpose, net of all discounts


Land and Land Improvements
The cost of land is not depreciated. It includes the following costs paid by the purchaser:
● Purchase price
● Brokerage commission
● Survey and legal fees
● Property taxes in arrears
● Taxes assessed to transfer the ownership (title) on the land
● Cost of clearing the land and removing unwanted buildings
The cost of land does not include the following costs:
● Fencing
● Paving
● Sprinkler systems
● Lighting
● Signs
These separate plant assets—called land improvements—are subject to
depreciation.


Measuring the Cost of Land
Purchase price of land ......................
Add related costs:
Property taxes in arrears...........
Transfer taxes...........................
Removal of building .................
Survey fee .................................
Total cost of land .............................

The cost of a plant asset is its purchase price plus taxes, purchase commissions, and
all other amounts paid to ready the asset for its intended use.



Buildings
The cost of a building depends on whether the company is constructing the building
itself or is buying an existing one. These costs include the following:

Constructing a Building
Architectural fees
Building permits
Contractor charges
Payments for material, labor, and overhead
Capitalized interest cost, if self-constructed


Purchasing an Existing Building

Purchase price
Costs to renovate the building to
ready the building for use, which
may include any of the charges listed
under “Constructing a Building”

Machinery and Equipment
The cost of machinery and equipment includes its
● purchase price (less any discounts),
● transportation charges,
● insurance while in transit,
● sales tax and other taxes,
● purchase commission,
● installation costs, and
● the cost of testing the asset before it is used.

After the asset is up and running, the company no longer debits the cost of insurance,
taxes, ordinary repairs, and maintenance to the Equipment account. From that
point on, insurance, taxes, repairs, and maintenance costs are recorded as expenses.


Furniture and Fixtures
Furniture and fixtures include desks, chairs, file cabinets, display racks, shelving,
and so forth. The cost of furniture and fixtures includes the basic cost of each asset
(less any discounts), plus all other costs to ready the asset for its intended use. For
example, for a desk, this may include the costs to ship the desk to the business and
the cost paid to a laborer to assemble the desk.

Capital Expenditures
Accountants divide spending made on plant assets into two categories:
● Capital expenditures
● Expenses
Capital expenditures are debited to an asset account because they
● increase the asset’s capacity or efficiency, or
● extend the asset’s useful life.
Examples of capital expenditures include the purchase price plus all the other costs
to bring an asset to its intended use, as discussed in the preceding sections. Also, an
extraordinary repair is a capital expenditure because it extends the asset’s capacity or
useful life.

Depreciation

depreciation is the allocation of a plant asset’s cost
to expense over its useful life. Depreciation distributes the asset’s cost over the time
(life) the asset is used. Depreciation matches the expense against the revenue generated
from using the asset to measure net income.

Measuring Depreciation
Depreciation of a plant asset is based on three main factors:
1. Capitalized cost
2. Estimated useful life
3. Estimated residual value
Capitalized cost is a known cost and, as mentioned earlier in this chapter,
includes all items spent for the asset to perform its intended function. The other two
factors are estimates.

Depreciation Methods
There are many depreciation methods for plant assets, but three are used most
commonly:
● Straight-line
● Units-of-production
● Declining-balance

Accounting for Research and Development
Costs
Research and development (R&D) costs are the lifeblood of companies such as Procter & Gamble, General Electric, Intel, and Boeing. In general, companies do not
report R&D assets on their balance sheets because GAAP requires companies to expense R&D costs as they are incurred.


Presentation slides

http://wps.prenhall.com/wps/media/objects/1838/1883037/powerpoints/ch_08.ppt



HBS Alumni excel tool on Depreciation methods
http://www.alumni.hbs.edu/new_alumni/toolkit/tools/depreciationcalculator.xls

Financial, Cost and Management Accounting - Review Notes List

Updated  17 Apr 2016

8 Dec 2011

Financial Accounting - Cost Accounting Revision Articles with Links

April Third Week (16 April 2016 - 19 April 2016)

Financial Accounting

Accounting: The Language of Business: http://nraomtr.blogspot.in/2011/12/accounting-language-of-business-review.html
Measuring Income to Assess Performance - Review Notes: http://nraomtr.blogspot.in/2011/12/measuring-income-to-assess-performance.html

Recording Transactions - Review Notes: http://nraomtr.blogspot.in/2011/12/recording-transactions-review-notes.html
Accrual Accounting and Financial Statements - Revision: http://nraomtr.blogspot.in/2011/12/accrual-accounting-and-financial_08.html


Accounting for Sales - Review Notes: http://nraomtr.blogspot.in/2011/12/accounting-for-sales-review-notes.html
Inventories and Cost of Goods Sold - Review Notes: http://nraomtr.blogspot.in/2011/12/inventories-and-cost-of-goods-sold.html

Long-Lived Assets and Depreciation - Review Notes: http://nraomtr.blogspot.in/2011/12/long-lived-assets-and-depreciation.html
Liabilities and Interest - Review Notes: http://nraomtr.blogspot.in/2011/12/liabilities-and-interest-review-notes.html

4th Week

22 April to 26 April 2016

Statement of Cash Flows - Review Notes: http://nraomtr.blogspot.in/2011/12/statement-of-cash-flows-review-notes.html

Financial Statement Analysis - Review Notes: http://nraomtr.blogspot.in/2011/12/financial-statement-analysis-review.html

Cost Accounting

21 April 2015
Role of Costing and Cost Accounting in the Organizations: http://nraomtr.blogspot.in/2011/12/role-of-costing-and-cost-accounting-in.html

Introduction to Cost Terms - Review Notes: http://nraomtr.blogspot.in/2011/12/introduction-to-cost-terms-review-notes.html
Traditional Cost Objectives and Their Utility: http://nraomtr.blogspot.in/2011/12/traditional-cost-objectives-and-their.html

Job Costing - Review Notes:http://nraomtr.blogspot.in/2011/12/job-costing-review-notes.html
Cost Allocation: Joint Products and By Products: http://nraomtr.blogspot.in/2011/12/cost-allocation-joint-products-and-by.html

Activity-Based Costing and Activity-Based Budgeting:http://nraomtr.blogspot.in/2011/12/activity-based-costing-and-activity.html
Process Costing - Review Notes: http://nraomtr.blogspot.in/2011/12/process-costing-review-notes.html


First Week  4 May to 8 May 2015


Cost Information for Pricing Decisions
Cost Behavior Analysis and Relevant Costs

Costing for Strategic Profitability Analysis
Cost Information for Customer Profitability Analysis

Costing for Spoilage, Rework and Scrap
Costing for Quality, Time and the Theory of Constraints

Costing for Inventory Management, JIT and Backflush
Cost Information and Analysis for Capital Budgeting

Cost Information for Management Control and Performance Control
Cost Information for Transfer Pricing

Second Week 11 May to 15 May 2015


Managerial Accounting or Management Accounting - Review Notes
Relevant Information and Decision Making - Marketing Decisions

Relevant Information and Decision Making - Production
Relevant Information and Decision Making - HR

The Master Budget - Accounting Information
Flexible Budgets and Variance Analysis - Review Notes

Responsibility Accounting for Management Control
Accounting Information for Management Control in Divisionalized Companies

Capital Budgeting - Accounting and Cost Information

Financial, Cost and Management Accounting - Review Notes List

Accounting for Sales - Review Notes

Revenue Recognition
•The timing of revenue recognition is important since itis critical to the measurement of income.

• Cash-basis
 –revenues are recognized when cash iscollected for goods or services.
• Accrual basis
 –recognition of revenue occurs at the point of sale
. Both IFRS and U.S. GAAP require the following two criteria be met for revenue recognition:
 –Revenue is earned–goods or services must bedelivered to the customer –Revenue is realized–cash or an asset virtually assuredto be converted into cash is received

Revenue Recognition
• Percentage of Completion Method
 –recognizes revenue on long term contracts as production occursand assigns the associated expenses to abide by thematching principle.
•US GAAP considers the usage of the methodappropriate only if:
 –the progress measures are dependable –contract obligations are explicit –both seller and the buyer are expected to meet their obligations.
•IFRS is not that specific with these requirements

Cash and Credit Sales Revenue
•Revenue is recorded at the present cash value of the asset received.

Sales Returns
• Sales Returns
-previously purchasedmerchandise returned to the seller for any reason

Sales Allowances
• Sales Allowance
 –reduction of the originalselling price mostly to settle customercomplaints

Cash and Trade Discounts
• Trade discounts
 –reductions to the gross salesprice for a particular class of customers or fordiffering order sizes.
• Cash discounts
 –reductions of invoice pricesfor prompt payment; rewards extended to thecustomers

Some Cash Discount Terms
• n/30
 –The full billed price (net price) due in 30days after the invoice date.•
15 E.O.M
. –The full price is due within 15 daysafter the end of the month of sale.•
2/10/n30
 –2% off invoice price, if paid within 10days of invoice date; net amount due in 30 daysafter invoice date.

Uncollectible Accounts
•Two methods to measure uncollectible accounts
 –
Specific Write-off Method
: assumes all receivablesare collectable until proven otherwise; is used bycompanies that rarely experience bad debts; writes-off the specific receivable when it is apparent that itwill not be collected.
•Pros: less costly, Cons: violates the matchingprinciple. –
Allowance method
: estimates the amount ofuncollectible accounts at year end; net income andreceivables are reduced to reflect potentialuncollectible accounts.
•Pros: better matching, Cons: prone tomanipulations

Assessing Accounts Receivable
•Cash sales produce cash instantly
•Credit sales generally cause sales to increasebut they also delay cash receipts.
 –Major credit cards
•Just a few days before credit card companytransfers cash to the company
•Some treat these receivables as cash equivalents –Company credit cards –using last year’s data
•How long did it take to collect receivables
•Is that length of time acceptable?






Review Notes  -  Merchandising Operations (Sales)
http://seattlecentral.edu/faculty/moneil/A210/L5/Horngren05.htm

Presentation slides

http://wps.prenhall.com/wps/media/objects/1838/1883037/powerpoints/ch_06.ppt

Financial, Cost and Management Accounting - Review Notes List


Updated 17 Apr 2016
8 Dec 2011