Principle vs Rule Based

Topics: Management accounting, Cost accounting, International Financial Reporting Standards Pages: 5 (1983 words) Published: August 26, 2010
Activity-based costing (ABC) is a costing method that assigns value to each activity resource to all products and services according to the cost of its usage. it gives indirect costs (overhead) into direct costs so that an organization can correctly estimate the cost of its individual products and services to identify and eliminate the unprofitable and lower the prices of the overpriced. Normally, it is used as a tool for understanding product and customer cost and profitability. But ABC has also been used to support strategic decisions like pricing, outsourcing, identification and measurement of process improvement initiatives. ABC can be used for external reports, but mostly it is used for internal purposes. External reports don’t not need to be as detailed. Some cost are reported, however breakdowns may not be included. Grenzplankostenrechnung (GPK), roughly translating to "flexible standard costing," is the costing systems used heavily in Germany and other European countries. Companies that use GPK work towards identifying cost behaviors, traceability, relevance to decision making, and cost period measurement. The main idea behind GPK is the responsibility center. GPK helps keep cost centers in control in areas such as cost planning and cost control and measures efficiency. But GPK does not give management information needed concerning indirect cost centers and it is always changing and being revised demanding more personnel. Lean accounting is designed for companies who have implemented lean manufacturing techniques. Traditional cost accounting cannot always accurately reflect the positive and cost saving measures that a lean system provides. Since many of a company's choices are made from crunching numbers that the accounting department provides, benefits are overlooked using traditional accounting methods. The principles of lean accounting are to measure and motivate. Resource consumption accounting (RCA) is a comprehensive cost management system providing managers with decision support information for enterprise optimization. RCA is fairly new, blending GPK and ABC together creating an integrated approach to management accounting. Standard costing is usually associated with a manufacturing company's costs of direct material, direct labor, and manufacturing overhead. Standard costing was developed to assist a manufacturer plan and control its operations. Instead of assigning the actual costs to a product, many manufacturers assign the expected or “standard” cost. GAAP require that a manufacturer’s financial statements meet the terms of the cost principle. Standard costing will meet the GAAP requirements, but only if the differences between the standard costs and the actual costs are properly prorated. Throughput accounting (TA) is a somewhat new approach focused for the most part on the identification of factors that limit a business from reaching its goal. It is neither cost accounting nor costing because of its focus on cash and it does not allocate all costs to products and services sold. In TA emerges the use of Theory of Constraints (TOC) used for increasing profits. However TA primarily focuses on producing more throughput. Throughput accounting is the only management accounting method that considers constraints as factors that limit the performance of the business. ****************************************************************************** U.S. GAAP (generally accepted accounting principles) are accounting rules used by accountants of many different entities, including publicly-traded and privately-held companies, non-profit organizations, and government to prepare, present, and report financial statements. The United States government does not directly set accounting standards, believing that the private sector has better knowledge and resources. During the Great Depression, after many companies and businesses went bankrupt, our government took a closer look and it was discovered that these failing...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Principal vs Rule Based Accounting Essay
  • Essay about Principles-Based Accounting and Rules-Based Accounting
  • Rule Based Approach Essay
  • Difference between rules-based and principles-based accounting standards Essay
  • rules Essay
  • Care vs. Rule Based Ethics Week 1 Essay
  • Principles-Based Versus Rules-Based Accounting Standards: the Influence of Standard Precision and Audit Committee Strength on Financial...
  • Code of Ethical Principles and Rules of Conduct Research Paper

Become a StudyMode Member

Sign Up - It's Free