Accounting Applications and Efficiency of a Business

Efficiency, which means producing output with maximum productivity, is what every business strives. With the resources that have been employed, any business wants to earn a maximum possible profit that can be got. While businesses may perform better with more assets (this being applicable to small and big businesses alike), they have to make do with whatever they have at their perusal.

The management makes sure the organization is run efficiently by undertaking a number of measures. It establishes the policies that are to be observed in the organization. These are directives to be followed by everyone. These establish the authority, the process for authenticating any financial transactions, time schedules that should be adhered to.

Internal controls make sure the assets are used optimally. These also ensure that the assets are safeguarded. Also, it makes sure that the financial statements are produced accurately reflecting the state of affair of the business. Efficient business has to make sure internal controls are in place.

To make sure the business is running efficiently, the management may have to take a measure of its performance. It has to make sure the business is headed in the right direction. Any changes that are needed have to be made as soon as possible. This can be done from financial statements. While these should be prepared at the end of financial year, what is needed is regular assessment of the business. Monthly or quarterly reports may work wonders when it comes to appraising the health of the business.

Management may change its internal workings if the current system is deemed ineffective. This means consulting professional accountants. This may also mean considering the size or scope of the employees. Alternative to employees, that is, automated systems may also be the solution in the quest of finding the optimum result.

Accounting applications may be used to make sure a business runs at the finest level. Not only will it make sure financial statements are prepared when the management wants it, but also that the records are kept without errors. Keeping track of employees is also done easily with accounting applications.

Time is saved by the application in many fronts: documents can be retrieved with a click, editing a document by multiple users can be done simultaneously, communicating is also facilitated. Other regular occurring activities can be tutored to be done by the management thus freeing the time to pursue a matter that the business can reap benefit from devoting their time to core business activities.

The application works with the system that the management has established, from the keeping of receipts to the hiring of capable employees thus ensuring the business is on track to effectively do what it has been established to do.

This valuable advices about online accounting applications shared by Accment for accountant or non-accountant firm. Accment provides online payroll hours, bookkeeping document management, lotto inventory management, day journal applications too.

Accounting for Inventories: US GAAP Vs IFRS

U.S. GAAP are the generally accepted accounting principles accepted in the United States. U.S GAAP was published by the Financial Accounting Standards Board, FASB, and adopted by the U.S. Securities and Exchange Commission, SEC. IFRS are international reporting standards issued by the International Accounting Standards Board, IASB. IFRS is used in over 100 countries, which is a main reason the SEC intends to switch from U.S GAAP to IFRS, but the progress has been slow. There are similarities between the frameworks, but also some substantial differences exist between the two accounting standards.

Specifically comparing standards of accounting for inventory, U.S. GAAP and IFRS are based off of similar principles. For both, inventories are defined as assets that are held for sale in the ordinary course of business, used in the process of production for sale, or materials or supplies to be consumed in the production of inventory or in the rendering of services. Similarly, they both rely on cost as the main basis in accounting for inventory.

The first difference is the inventory costing methods used and applied. U.S. GAAP permits the use of last-in first-out (LIFO) costing method. Last-in first-out assumes that assets produced or acquired first are the assets used, sold, or disposed of first. Meaning, the newest inventory goes out first. The LIFO inventory costing method is prohibited by IFRS. U.S. GAAP and IFRS use first-in first-out (FIFO) and weighted-average cost. FIFO is another asset-management and valuation method used nationally and internationally. The assets produced or acquired first are sold, used or disposed of first. Assuming the assets left in inventory at the end of the accounting period correspond to the assets that are produced or purchased most recently. The weighted-average costing method uses the average of the costs of the goods, which is achieved by taking the total cost of items in inventory and dividing that number by the total number of units available for sale. The weighted-average method produces a cost for inventory that is between the costs determined by LIFO and FIFO. With regard to application of the different costing methods, U.S. GAAP does not require the same method to be used in determining the cost of for all inventories with similar nature and use to the entity. Inversely, IFRS requires the same method used to determine cost of inventory to be applied to all inventories with similar nature and use to the entity. The additional accounting method for determining cost of inventory, LIFO, and the ability to apply different costing methods to different inventories are the first differences between U.S. and international standards when accounting for inventory.

The second difference is how each framework measures carrying value. U.S. GAAP uses the lower-of-cost-or-market method, and IFRS uses the lower-of-cost-or-net-realizable-value method. The lower-of-cost-or-market means that at the end of the accounting period the amount reported of inventory is either the cost or value of inventory in the market, whichever is the lower amount. The lower-of-cost-or-net-realizable-value method takes the lower number between the cost or the net realizable value, amount a company expects to receive from the sale of inventory. The net present value is calculated by taking the estimated selling price and subtracting out the estimated costs to complete and estimated costs to make a sale.

The third difference is the reversal of write-downs. The reversals of write-downs are prohibited by U.S. GAAP, but are required for subsequent recoveries under IFRS. A write-down is the reducing of the book value of inventory because it is overvalued compared to the market. This would occur if the carrying value of inventory subsequently could not be justified as fair value, and is unlikely that the inventory could be sold at cost or book value. For U.S. GAAP a write-down taken to reduce the book value of inventory to the lower of cost or market, cannot be reversed for subsequent increases in value. On the other hand, IFRS requires the reversal of write-downs taken to reduce the book value of inventory to the lower of cost or net present value, in the event of subsequent increases in value of inventory. IFRS limits the reversal to the amount of the original write down.

Costing methods and application, measurement of carrying value, and reversal of write downs, are the three significant differences with respect to accounting for inventory between U.S. GAAP and IFRS. If planning to grow internationally, an entity should be educated in all the differences in accounting standards between both U.S. GAAP and IFRS to be in compliance.