Accounting

Accounting — No Comments
18
Jan 12

Over and Under Absorption of Overheads

Overhead expenses are those expenses which cannot be easily traced or allocated to the product which is being manufactured and therefore they are added to the total cost of production when it comes to allocation of such expense. Companies usually decide the amount in advance for overhead expenses and that leads to over or under absorption of overhead.

Over absorption of overhead happens when the actual expense incurred by a company is less than estimated overhead while under absorption of overhead happens when the actual expense incurred by a company is more than estimated by the company in the budget. There are many causes behind over/under absorption of overhead like output being more or less than planned or price fluctuation in the raw material and so on.

Close look at the variance can be quite be useful for a company because it will help the company in future in controlling the factors which have lead to such disparity and therefore leading to better cost control and cost reduction by the company.

 

Accounting — No Comments
9
Jan 12

Current Assets and Current Liabilities Examples

While analyzing a balance sheet of a company it is of paramount importance that you have an idea about current assets and current liabilities. Current assets are those assets which can be easily converted into cash within 12 months, given below are some of the examples of current assets -

  1. Cash balance available with company
  2. Inventories which includes raw materials, work in progress and finished goods.
  3. Bank balance of the company
  4. Sundry Debtors of the company (in the balance sheet sundry debtors are shown after deducting provision for bad debts).
  5. Bills receivables or accounts receivables
  6. Prepaid expenses
  7. Short term investments like bonds, money market bills, mutual funds and stocks which are expected to be sold in less than a year.

Current liabilities are those liabilities which are due for the payment within a short period of time usually 12 months, given below are some of the examples of current liabilities –

  1. Sundry Creditors
  2. Bills Payable or Account Payable
  3. Outstanding or Accrued Expenses like salary outstanding, rent outstanding etc…
  4. Unearned Income
  5. Short Term Loans
  6. Bank loan, which is due within a year
  7. Interest, tax and Dividend Payment
Accounting — No Comments
25
Dec 11

Idle time

Idle time is the concept which is used in the context of cost accounting, idle time is relevant for manufacturing concern because it is that time where though the companies pay to labors or workers but there is no production on the part of workers. Idle time can be of 2 types –

  1. Normal Idle time – It is that idle time which happen during the normal course of business and therefore it is difficult to stop it, some examples of idle time is when worker goes from one machine to another or when worker goes to washroom and so on.  Normal idle time treatment in the books of account is done and they are added to the cost of production and they are part of the factor cost in the books of a accounts.
  2. Abnormal Idle time – It is that idle which is not normal and it arises due to certain abnormal factors, some examples of abnormal idle time are when there is power failure in the factory, non availability of raw materials leading to stoppage of production, strike by workers and so on. Abnormal idle time is not shown in cost of production in cost account rather it shown as separate item in profit and loss account. Management should take steps to avoid that abnormal idle time which is controllable as some factors are beyond the control and therefore there will be always some abnormal idle time as far as workers are concerned.
Accounting — No Comments
1
Nov 11

Journal Entry for Depreciation

Before looking into journal entry for depreciation one must know about depreciation, deprecation is an expense for a company but it is a non cash expense as company does not have to pay anything for it but company have to make provision for depreciation because assets have to be replaced in few years. Given below is the journal entry for depreciation –

Depreciation Account  Dr

To Accumulated Deprecation

In the above journal entry depreciation is debited because the profit of a company reduces due to depreciation and accumulated depreciation is a contra account and it is shown in asset side of the balance sheet by way of deduction from the value of fixed assets so as to arrive at net figure of fixed assets.

Accounting — No Comments
17
Sep 11

Variance Analysis

Variance analysis is the term which is used in the context of budgeting, it can be compared with a report card of students, If as a parent you had excepted your child to score between 70 to 80 percent marks but report card show 60 percent marks then that is variance and you as a parent would look into factors which resulted in lower marks.

In the same way a company makes certain budgets for costs and revenue and when the actual revenues and costs are different from planned costs and revenues then the analysis of that difference is called variance analysis. It can be better understood with the help of an example, suppose a company has a budget of $100000 for manufacturing a product and the sales target of a company is $150000 but the actual costs turned out to be $120000 and sales turn out to be $125000 than there is a variance of $20000 in cost and $25000. Variance analysis involve finding out the reasons for variance between the actual and budget and taking steps to make sure that next time there is no such variance.

Variance can be in many forms like it can be sales price variance, labor rate variance, material price variance and so on. The main reason behind variance analysis is to improve the productivity of the company by reducing the variance and thereby increasing the profitability of the company.

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