The Accounting Reports

Date: 2015-10-07; view: 457.

The Functions of Accounting

A. Business accounting may be described as the process of identifying, collecting, measuring and reporting information of business activity. Managers use the information to control cur­rent business operations and plan future activities. Investors, creditors, governments, unions, and others use accounting information to make decisions on such questions as where to loan or invest funds, what taxation policies and procedures are best, and what employee wage rates are fair.

The control and planning features of accounting have been described as managerial accounting: the process of reporting to investors, creditors, and others has bean referred to as financial accounting. But the essential features of the accounting discipline are the same in both areas.

The Business Record. An important function of accounting is to maintain a record of the past financial activities of a company. While a business manager could use other methods, the accounting mechanism is the most widely used technique for collecting and reporting this type of data. The advantage of the accounting mechanism over other methods is that it provides for complete recording of the significant activities of company operations in a concise manner. From the recorded data, various reports may be prepared which describe the operations of a company.

B. The Appraisal Function - the appraisal reports

One of the most difficult functions of management is to motivate employees to carry out company plans in an efficient manner. To reward those who perform well and correct those who do not, and thus control company operations, management must have information on the efficiency with which activities are carried out. Accounting appraisal reports reveal efficiency by compar­ing actual performance with some standard of desirable performance. For example, if it normally costs a company $ 10 to make one unit of product, any variation from this cost would be considered favourable or unfavourable performance. It the company made 90 units of products in July for $ 987, an appraisal report would reveal the variation from the normal cost as follows:

Actual costs (July) - 90 units ....................….. $ 987

Normal Cost - 90 units at $ 10 each ...…. 900

Unfavorable (Inefficient) Variation ..........…..... $ 87

Budget comparisons are typical of the appraisal reports used by management to control company operations. By comparing actual with budgeted expenses and revenues and reporting variations from the budget, the accountant reveals the effectiveness with which various segments of the company accomplished budgeted plans.

Budget Comparison Reports. A typical appraisal report comparing actual results with the budget is presented below: