Information on Loughborough

Cost Accounting For Profit With Accounting Software

Accountants

Cost Accounting For Profit With Accounting SoftwareBy Terry Cartwright

Cost accounting is a complex subject that specialist accountants use to examine and report on business expenses to ensure financial control. Such expert cost accounting might involve absorption costing, marginal costing, break even and variance analysis. Such specialist accounting techniques are not usually available to the small business as they lack a cost accountant.

The good news for small business is that the majority do not need such specialist costing analysis as then proprietor usually has intimate detailed knowledge of all business expenses incurred. Or at least the small business believes he has that knowledge.

In truth it is not until regular bookkeeping records are produced that the small business can stand back and examine the real effect of the business expenses on the profitability of the business. And by virtually taking a third party view of the costs and effect of those expenses on profitability can the financial decision be taken to improve profitability.

Producing accounts on a monthly basis using accounting software suitable for the size and accounting experience of the small business owner is the first step to improving profitability. The second step is to review those accounts and determine just which cost items can be changed.

Costs occur and behave in different ways. Some business expenses may be regarded as fixed costs which others are termed variable or semi variable costs. The impact of sales volume increases or decreases variable costs and the marginal gross profit produced while turnover has small impact on fixed costs in the short and medium timescales.

Having produced a monthly profit and loss account and started the accounting for profit review of the financial figures it is useful to separate the nature of the expenses into those that are fixed and those expenses which are variable costs and those expenses which are semi variable costs.

Fixed costs means the level of expenditure does not vary with normal changes in sales volume in the short and medium term at least. But being fixed does not mean the rice of that expense cannot be reduced by examining both the value for money obtained and whether that cost is necessary in the first place.

Fixed costs of a small business might include such items as rent and premises costs, insurance and indemnity premiums, capital costs of fixed assets, administrative, legal and professional fees. Another way to view what is and what is not a fixed cost is to determine which costs are incurred to provide the base operating facility of the business.

If by changing the base of the business or negotiating better rates for those base expenses the fixed costs can be lowered then the pressure on generating gross profit is reduced. Fixed expenses may also contain such waste expenditure and any nonessential expenditure in this area should be reviewed for potential elimination on the basis that if it can be dispensed with without affecting sales volume then chop out that expense as waste.

Variable costs depend heavily on the products or services being provided however are essential the cost of goods and services being sold. Often called direct costs the variable costs of a business should be reviewed for ways to reduce the unit cost either by sourcing cheaper supplies at the same quality levels or negotiating more effective prices. The volume of purchases can obviously affect the variable cost and consideration may be given to placing regular orders, higher volume orders or negotiating settlement discounts.

Direct costs are perhaps one of the one most influential cost areas in that the lower the direct cost that can be achieved reduces the sales volume required to reach and exceed the beak even point and also puts less pressure on the fixed costs.

Semi variable expenses would be those items which the small business makes definite decisions to buy depending upon the requirements of the products and the level of volume required. Many semi variable costs are dependent upon the management decisions of the small business owner and are a critical area in which the success or failure of the business may depend.

Semi variable costs may include the advertising and promotion costs of the business, perhaps the transport and distribution costs, direct employees and goods or services bought in to support the sales volume.

Each variable cost should be reviewed and a decision made on whether value for money is being obtained. That review should also examine whether the level of support the semi variable costs provide to the achievement of financial success is adequate, improvable or could be dispensed with.

Accounting for profit is the key area in which to examine all costs. Accounting or bookkeeping software can be a useful tool to identify the volume and levels of expense. The nature and performance of each expenditure classification should be subjected to the critical review of the small business owner to create either a higher or safer financial performance.

Terry Cartwright of DIY Accounting designs Accounting software on excel spreadsheets providing complete Small Business Accounting Software solutions for with single and double entry Bookkeeping solutions for limited companies and self employed business

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Accounting Abbreviations - Helping You Understand Accounting Jargon

Accountants

Accounting Abbreviations - Helping You Understand Accounting JargonBy David Cusimano

When you start a company or business you quickly find out that you need to understand accounting terms. Whether you are dealing with your accountant, bookkeeper or doing the accounting yourself, you will encounter accounting abbreviations. Most business people have heard of "Accounts Payable" (AP) and "Accounts Receivable" (AR). But what about AJE? That stands for "Adjusting Journal Entry" which you will likely encounter when your accountant is ready to close your accounting books for your business' fiscal year.

I have been in business for several years and have compiled a list below of some of the most common accounting abbreviations and accounting terms that you will encounter. Having this handy list available helps you focus on your business rather than spending excessive time deciphering accounting terms. Even if you use accounting software such as QuickBooks, it is still useful to become familiar with these terms.

ABC: Activity Based Costing

AJE: Adjusting Journal Entry

AP: Accounts Payable

AR: Accounts Receivable

AT: Asset Turnover

BB: Beginning Balance (see also: EB)

BV: Book Value

CJE: Closing Journal Entry

CM: Contribution Margin (= Sales less Variable Costs)

COGM: Cost Of Goods Manufactured

Cr: Credit

CVP: Cost-Volume-Profit

Dr: Debit

EB: Ending Balance (see also BB)

EPS: Earnings Per Share

EVA: Economic Value Added

FIFO: First In, First Out (see also: LIFO)

FC: Fixed Costs (see also: VC)

FS: Financial Statements

FYE: Fiscal Year End; (e.g.: FYE2010)

GAAP: Generally Accepted Accounting Principles

GL: General Ledger

IS: Income Statement

ISO: International Standards Organization

JE: Journal Entry

JIT: Just In Time

LIFO: Last In, First Out (see also: FIFO)

LOC: Line of Credit

NI: Net Income

OH: Overhead

PL: Profit/Loss Statement

PM: Profit Margin

PVA: Process Value Analysis

RE: Retained Earnings

ROI: Return On Investment

SAG Expenses: Selling, Administrative, and General Expenses

SHE: Stockholders Equity

SP: Sales Price (price of goods/services sold)

TB: Trial Balance

VC: Variable Costs (see also: FC)

WIP: Work-In-Progress

There are many other accounting terms however the above terms are the ones that I have found are a good starting in helping and assisting you understand accounting.

About the Author: DrCr.com ( http://www.drcr.com/ ) is a website with many accounting resources for small business.

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Computing Business Profitability

Accountants

Computing Business ProfitabilityBy Michael Reid

The basic foundation and ultimate goal of most businesses is to create profits from which business growth can be realized. Profit generally is the making of gain in business activity for the benefit of the owners of the business. Just like the blood that circulates throughout the body, profit is vital to the existence and expansion of a profit-seeking organization. Computing this profit is significant because it is from the result of the computation that one is able to make important decisions in the business.

Economic Profit is different from Accounting Profit. Economic profit is the increase in wealth that is made from an investment, taking into consideration all costs that are linked with that investment including the opportunity cost of capital. Accounting profit is the difference between retail sales price and the costs of acquisition (whether by harvest, extraction, manufacture, or purchase).

Computing Business Profitability affects many decisions made inside the business and externally also. How does business profit affect a business?

a. Taxation - your profit will determine the amount that is paid or not paid for taxes. b. Business Growth - this is normally determined by how profitable a business is or its potential for profitability. c. Share Price - if it's a publicly traded company then the price of the share is affected by the profit of the company. d. Financing - your profitability will help to determine the level of finance you can get for your company.

The Profit and Loss Statement This is a financial statement that shows the revenues, costs and expenses generated during a specific period of time - usually a fiscal quarter or year. These records provide information that shows the ability of a company to create profit by increasing revenue and reducing costs. The profit and loss statement is also called "statement of profit and loss", an "income statement", or an "income and expense statement".

The format of the profit and loss statement is basically your revenues less your cost of business operations. That is Sales - (Cost of Goods + operating expenses+ tax expense + interest expense) = Profit

Here's an example of an income statement:

Sales $250,000.00 Cost of goods sold $100,000.00 Revenues:

GROSS PROFIT $150,000.00

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Expenses:

ADVERTISING £ 22,967.00

INSURANCE 6,765.00

LEGAL & PROFESSIONAL SERVICES 725.00

OFFICE EXPENSES 33,557.00

OTHER BUSINESS PROPERTY 12,860.00

LICENSES 5,234.00

PROMOTIONAL 2,397.00

BANK & CREDIT CARD FEES 2,180.00

TITLES & FEES 5,854.00

BOOKKEEPING 540.00

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Total Expenses $93,079.00

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NET PROFIT £ 56,921.00

There are many factors that affect and contribute to a business' profitability that could never be covered in one article. Just keep in mind that the purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. Then from that information, decisions can be made effectively.

Michael Reid

Michael Reid - marketing/promotions Small Business Promotions, Inc http://www.submitarticlesforfree.com

you can redistribute this article freely however you must keep my contact information including my website address.