MBA - Accounting For Managers

ACCOUNTING FOR MANAGERS

2005

Accounting for Managers

Introduction

As a `social science , there is a clear distinction between accounting and applied sciences . In applied sciences , like Biology or Chemistry observation of physical objects produces conclusions and findings Conclusions made by biologist or chemists are `non-negotiable ' and 100 objective . Accounting science , on the other hand , is a set of systems that come from observation of economical and social tendencies . Because economical and social conditions are greatly influenced by human behaviors , conclusions made by accounting experts cannot be 100 objective

p In spite of the amount of tests and challenges an accounting principle has gone trough , there is no actual guarantee that the principle will be relevant for different times , different places , or different social and economic conditions

Since the times of Luca Paccioli , finder of the Basic Rules of Bookkeeping , economists and business practitioners has developed accounting into a complex subject . Even though the challenge of subjectivity (as mentioned above ) is great , worldwide accounting experts have acknowledged the Generally Accepted Accounting Principles (GAAP ) as trustworthy standards of accounting practices . The principles have been guiding practices of financial reporting all over the world for decades Nevertheless , experts admit that there are still `debatable issues within the current standards of financial reporting . The simple truth is , unlike applied sciences , the subject of accounting will always require continuous academic contributions , like debates and discussions in to maintain the relevancy of the values within the science

In this elaboration , I am discussing the strengths and weaknesses of financial statements , as the results of financial reporting contemporary practices . Accounting theories and current accounting practices will guide the course of the discussion . This also contains discussion of costing methods and its strength and weaknesses . Theories and current practices of Management Accounting will guide this discussion

Financial Statements and Financial Ratios

II .1 Financial Statements

II .1 .1 Philosophy of Financial Statements

One of the main purposes of creating accounting standards is to obtain a sense of comparability between the performances of different business entities . This is the first reason that gave birth of the GAAP . Four major organizations , which have profound `roots ' in the world of accounting , formulate the GAAP . They are : The Securities and Exchange Commission (SEC , the American Institute of Certified Public Accountants (AICPA , The Financial Accounting Standard Board (FASB ) and the Governmental Accounting Standard Board (GASB (Kieso , 2004

Underlining the GAAP is the Statements of Financial Accounting Concepts (SFAC , issued by the FASB . The first of the statements was issued in 1976 , contained Objectives of Financial Reporting by Business Enterprises . Since then , the SFAC produced many more statements that until today , still referred to as the basic principles of financial reporting . It is the philosophy , which guides financial reporting practices in most modern and developing countries around the world today . Thus , all discussions of strengths and weaknesses of current methods of financial statements should begin here (Kieso , 2004

II .1 .2 Objectives of Financial Statements

By logic , financial statements are mainly sets of...