Generally Accepted Accounting Principles for Cost Accounting - Case Study Example

Generally accepted accounting principles for Cost accounting GASB and the principles that govern cost accounting 1/2001 Grade Contents Contents 2 Generally accepted accounting principles for 3 Cost accounting 3 Governmental Accounting Standards Board 3 Generally Accepted Accounting Principles pertaining to 5 Managerial and cost accounting 5 Changes in cost accounting 10 Conclusion 10 Works Cited 11 Generally accepted accounting principles for Cost accounting The paper explains the generally accepted accounting principles that are related to the cost accounting and on what rules are these principles based. Some light is shed on the working of Governmental Accounting Standards Board (GASB) and the Federal Accounting Standards Advisory Board (FASB) and their working. Governmental Accounting Standards Board The Governmental Accounting Standards Board is a board that governs and monitors the progress of the standards and their drafting. It also resolves the issues that are relating to the accounting standards. Introduction: The Governmental Accounting Standards Board is an autonomous body that works for the establishment and improvement of the financial reporting and accounting standards for the United States of America and its local governments. It was founded in 1984 through the agreement of Financial Accounting Foundation (FAF) along with other 10 national organizations as well as local government. It is recognized by the accounting industry and the government alike for being the source of Generally Accepted Accounting Principles (GAAP) for the local and federal government. (Board, 2010) Importance of work performed by GASB: The work performed by the GASB is very essential for both the accounting bodies as well as the local and federal government. It brings in to use the useful information for decision making for users of government while and issues communications and standards for guidance. Some of the government users of its information and standards are: Citizen group members, Municipal bond owners, Oversight bodies and Staff involved in legislation. Furthermore, the GASB provides services to educate the people involved in preparation of the financial statements, auditors and other users of the financial statements regarding the government requirements to be presented in the financial statements. Standard setting by GASB: The GASB follows the process of activities before it goes to issue any standards and applies a strict process which is planned to persuade public contribution in the setting of standards. In order to meet the above requirements, the GASB Employs advisory squad Conducts a study on the subject and does proper research Obtains public comments through publication of the document Distributes the sketch Carries out hearings to gather through the process of the final document The Governmental Accounting Standards Advisory Council also advices the GASB which constitutes of a group of 30-members that are chosen by the Financial Accounting Foundation Trustees which are characterize a variety of the GASB’s elements. Generally Accepted Accounting Principles pertaining to Managerial and cost accounting Managerial and cost accounting ought to be an integral element of the financial management system and it should be incorporated with the different parts of the system as much as feasible. Managerial costing must apply a foundation of recognition, accounting and calculation concepts as suitable for the purpose that it is intended. The information pertaining to costing which is build up for diverse purposes must be extracted from a source that is common and reports of the production must be reconcilable to one another. The cost and managerial accounting principles and standards aim to provide dependable, consistent and suitable data on the full cost of federal programs along with their outputs and performance. The managerial and cost accounting concepts are based on the generally accepted accounting principles which are explained in detail below: Basis of recognition and methods of measurement: The costs of a particular item may be accounted for in different manner and can be analyzed and reported in different ways. The cost accounting principles suggest that managerial cost accounting must supply costing information utilizing a basis of recognition and measurement which is suitable for the intentional application of the information. This implies that information supplied must make use of historical costs and accrual concepts in the measurement of the costs, mainly in the reports that are generated for a general purpose. Budgeting and decision making: In case when the cost and managerial cost accounting is employed to provide information for the evaluation and preparation and of costing budgets, the data used must be reliable and inconformity with the origin of accounting and must meet the measurement and recognition applied in the financial reporting. Furthermore, the costing data can be accustomed in order to meet the requirements for preparation of budgets. Analysis is sometimes performed for the purpose of decision making of the company and to aid the process of assessment of a short term or long term contract. In such a case the organization may perhaps require to process the costing information ahead of that which is currently presented in the general purpose financial statements. For example, when the company takes a decision of planning or to incur capital or development costs, it may require adjusting the data as appropriate for the purpose of planning. In such circumstances, the data must conform to the basic criteria of management and cost accounting. Information reconciliation: When different basis of accounting are used by the company to present the data in different manner, the users may be confused by the presentation of the information. In such circumstances, the information that uses diverse accounting bases or different applies a different measurement method or recognition criteria, must reconcile with each other the methods and bases used for the information and presentation must be explained for the user of the information. The reconciliations are considered essential in the financial reports of the federal government in order to present and describe important distinctions between the reports of the budgets and the prepared financial statements in harmony with the generally accepted accounting principles. Full Cost accounting: The calculation and presentation of the full costs of their outputs is considered essential as signified by standard for the preparation of the general purpose financial reports. This full cost includes both the direct and indirect costs, regardless of funding sources, which have a contribution to the output of the body and also contains the supporting costs of the services that are supplied by other accountability sectors of entities. However, it does not require the federal entities to report the full costs in their special purpose studies of cost or their internal reports. For example, the direct costs are the costs that are benefits and the salaries of the employees, direct material and other costs that are directly attributable in the production process. The indirect costs are costs of utilities, indirect labour and material and other services costs that are not incurred directly for the production of a product. Inter-entity services: Federal entities are relied upon by various reporting entities in order to aid and assist them in achieving their goals, inside the federal government. This is often the grant of services but may also comprise of supply of goods as well. The standard has divided such type of inter-entity activities into two different groups: Supply of services of goods supported by reimbursement Supply of services of goods without reimbursement The accounting example for such activities can be that the entity which is receiving the services from the providing entity will record it as an expense for the service it has received, which are non-reimbursable, which will equal the full cost of the expense while the receiving agency will also record the source of financing as service supplied by providing agency. On the other hand, the providing agency records the expense while credits the appropriations used. Cost accumulation: The method of collection of the data is referred to as the process of cost accumulation. It is required by the standard that the responsibility segment must costs be accumulate the costs. The cost accumulation process does not involve the transfer or apportionment of costs borne by other supporting segments and is particular for the each responsibility segment. However, this does not imply that if each responsibility segments accumulates its own cost then each responsibility segment will be required to have its own accounting system. Assignment of costs: The term assignment of costs refers to the procedure that recognizes the accumulated costs with reporting intervals and objects of cost. The cost assignment to intervals is to charge the costs either as expenses or to capitalize the cost as an asset for each phase of reporting. For example, one of the entity’s responsibility segments may provide supporting services or distributes transitional products to the other, such a cost of transitional product or supporting service shall be allocated to the segment which obtains the services or products. Consistent and regular accounting: The standards suggest the costing to be done on a consistent and regular basis keeping all the estimates and assumptions same for the periods to come. The standards defines the use of regular accounting as “establishment of measures to accumulate and account for the costs on a continuous, routine and consistent manner for the purposes of the management’s information” The obligation for the cost and managerial accounting to be done on a consistent and regular basis also maintains recent legislations. Procedures must be recognized in order to facilitate the compilation calculation, accumulation, assignment, examination understanding and statement of cost information properly. For example, if the entity uses the process costing method to account for a certain product then it should use the same method consistently unless there is a significant change in the business. Changes in cost accounting The changes in the cost accounting can be made by opting for different accounting policy such as switching the accounting of the material, labour and overheads from job order costing to process costing and vice versa. The cost accounting is not a hard and fast exercise as it can be tailored to the need of the entity but keeping in mind the consistency of the accounting carried out by the organization. The accounting records, after the change in the cost accounting, should reconcile with each other and should present a true picture. Changes can be made when the entity needs preparation of budgets or requires accounting for one-time costs such as a particular order or transaction where the changes can be made accordingly. Conclusion The cost and management accounting principles must become an integral part of the management organism and must also be incorporated with other divisions of the organization to the point that they are feasible. The responsibility segments should be defined and established by the administration of every reporting entity and the management costing must be executed in order to calculate and account for the costs of the outputs of every segment. Works Cited Board, G. A. (2010). FACTS about GASB. Connecticut. FASAB. (2008). Statement of Federal Financial Accounting Standards 4. Read More