XSIQ
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Accounting - Classification
Classification
The benefits of classification may be linked to departmental Profit and
Loss statements. [1]They include:
* enables assigning of responsibility to department managers
* measures performance of particular departments
* helps recording - specialised journals save time and effort
* assists control - performance figures may be compared with budget
figures
* provides information for decision making
Benefits of classifying the balance sheet include:
* identifies relative liquidity [2]of assets
* shows assets in need of depreciation and illustrates carrying cost [3]
of assets
* assists calculation of working capital
The question as to the benefit of preparing accounting reports more
frequently than once a year has appeared in past papers. Reasons include:
* assists planning and control by enabling comparisons with budgeted
figures
* business can respond more readily to both favourable and unfavourable
trends in its operations
* to help in making of policy decisions; for example, a change in prices
* more effective monitoring of the performance of the business
The repairs department may be retained despite what appears to be a
relatively poor performance because:
* after sales service attracts customers to the business to buy bicycles
* people may buy bicycles if they discover their current bicycle is
beyond repair
* repairs take up a share of overhead expenses such as rent
* the resources for repairs may not be used profitably somewhere else in
the business
It may be inappropriate to allocate cleaning according to floor space
because:
* the difficulty in cleaning the respective floor space may differ
* cleaning may involve more than cleaning the floor
Contribution margin [4] is the difference between sales revenue and the
direct costs associated with earning that revenue.
Four items likely to be regarded as 'general expenses' may be chosen from:
* security
* accounting fees
* electricity
* telephone
* managers salary
* various finance expenses
* office expenses
The general journal entry would be:
Drawings
200
Cleaning
200
Correcting entry
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Links:
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[1] http://alison.com/#
[2] http://alison.com/#
[3] http://alison.com/#
[4] http://alison.com/#
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