Financial Concepts for Loans and Real Estates

After a huge discussion on financial chapter we have come to “Standard Costing” chapter to discuss about it. About it management says that it is the standard costing is an important tool to planning and cost control.

Objectives of Standard Costing:

Meaning of Standard Costing

Nature of Variance Analysis

Calculate Variances

According to the ICMA, London Standard Cost is, “the pre-determined cost based on technical estimate for materials, labour and overhead for a selected period of time and for a prescribed set of working conditions.”

You should know that Standard Cost is different from “Estimated Cost” and it express what should be the cost, in advance of actual production.

Along with we should know about Standard Costing also. The definitions of Standard Costing also look from ICMA, London, “the preparation of standard costs and applying them to measure the variations from standard costs and analyzing the causes of variations with a view to maintain maximum efficiency in production.”

Standard Costs involves in:

a. Ascertainment of standard costs for each element costs – material, labour, overhead
b. Use of standard costs as a guide and measure of actual costs
c. Measurement of actual costs
d. Comparison of actual costs with the standard costs
e. Measurement and analysis of deviations of actual costs from standard costs

After having understood about the standard costs we should proceed with Variance Analysis. According to the MBA book of SMU variance is, “the difference between a standard cost and the actual cost incurred during a period.

In the variance analysis mainly two elements involved which are:

Measurement of individual variances and
Identification of causes of each variance

We can illustrate here some formula about variance:

Material usage variance = (Standard Quantity – Actual Quantity) x Standard Price

[MUV = (SQ –AQ) x SP]

Computing mix variance:

Material mix variance = [standard cost of standard mix] – [standard cost of actual mix]

Or

[Standard mix – actual mix] x standard rate per unit

Or

[Revised standard mix of actual input – actual mix] x Standard price.

I think now all the things are clear about the standard costs and variance from the financial book. I have already explained the entire chapter before much clearly with some example. I think to publish here about some new chapter of finance and loans also.

Management accounting is not only for the record keeping but also it has broader aspects. The managers use the financial statements as resources to make decision in the field of accounting. About the management accounting we can take a look from MBA book of SMU, “Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that helps managers to fulfill organizational objectives.”

Here with the definition of management accounting we can say it is for the fulfill of organization objectives by the managers to use all the financial statements and resources.

Objectives of Management Accounting:

Scope of management accounting

Need for financial statements analysis and inter-firm comparisons

Relevance of cost analysis – overhead analysis, job cost analysis and process cost analysis

Relevance of marginal cost and C.V.P. analysis for short-run decision-making

We should know that all the management process single and most upper goal is decision making. So, decision-making is known as the nucleus of management process. Here we will look a chart to understand of decision-making process:

Meaning and Scope of Management Accounting:

About the meaning of management accounting Charles T. Horgren writes, “Management accounting is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting and communicating information that helps managers to fulfill organizations objectives.”

As I have already mentioned that management accounting is not only the process of keeping records. Records keeping is the process of data accumulation however management accounting is the decision making process. So, the management accounting scope has broader then financial statements and record keeping.

About the evaluation of management accounting the history says that it comes with the industrial revolution from the 18th century. Management accounting is the results of capitalist system.

Management accounting has been divided into four parts – book keeping, financial accounting, accounting and cost accounting and social responsibility accounting.

Like this management accounting has one more main part that is MIS (Management Information Systems). MIS for management accounting is most important process because it collects data and gives the right way to analysis that data to take good decisions by managers.

At last we can give some facts which are necessary in functions of management accounting:

Formulation of a business plan

Implementation of the plan

Designed to achieve the goals of the plan

Formulation of business plans

These are the main function of management accounting an organization. However, we have already discussed on the management accounting chapter. Now, I think I will cover some more facts in the next chapter of financial management accounting chapter.

After having completed primary books chapter now we will discuss here about secondary books from the financial accounting chapter. We already have known the nature, works and format for primary books so; I think here we should start with the introduction of secondary books in the chapter.

When we discussed about secondary books, a question comes in our mind that what is the need of secondary book? Here is the definition of secondary books from the MBA books, “To generate information out or raw data, these are to be classified in such a manner that necessary information is readily available. It calls for identifying the nature of various transactions recorded in the primary books and giving an appropriate name to an identical class of transactions and, finally, re-recording the transactions in another set of books according to the defined class. That ‘another set of books’ is called secondary books. It is ‘secondary’ because transactions are recorded for a second time.” I think now it is clear that secondary book is needed for record primary second time.

In another word we can say secondary book is a ledger book. About the work of secondary book mainly it is defined for salary account and whatever you spent in a financial account has been recorded in secondary book. In the term of secondary book we can say ledger is a set of accounts which is defined as per the requirements of an organization.

Types of Secondary Books

After the introduction of secondary books we have to read about it types. Secondary books broadly have divided into two parts – Main Ledger and Subsidiary Ledger. In the last Subsidiary ledger has been divided into three parts – General Ledger, Debtors Ledger and Creditors Ledger. Here is a diagram which will clear you about the types of secondary books:

Here is most important ledger is “General Ledger” because it is self sufficient in the terms of all entries. All the data of primary books has been entered in the general ledger of secondary books. However, Debtors ledger has separate accounts for each customer to show the transactions. Similar to it creditors ledger has a separate account for each supplier to show the transactions.

Do you know the need of subsidiary ledgers? It is for reducing the burden on the main ledger.

In the secondary books there are some more things which have to study us that are – account, sundry debtors account, sundry creditors account and balancing.

At last, the chapter secondary books is full of the example of all the entries format however all the format will be published by me further.