COST

ACCOUNTING
Lala Lajpatrai College

FYBMS - B
Group 4

Submitted to Prof. Preeti

 LIST OF MEMBERS

• Mariam Banatwala - 9100167

• Rahul Malhotra - 9100170
• Shruti Mane - 9100173
• Dhananjay Bhartiya - 9100176
• Aman Sanghavi - 9100197
• Karan Sanghavi - 9100199
• Harash Sheth - 9100212
 COST ACCOUNTING

In management accounting, cost accounting establishes budget and

actual cost of operations, processes, departments or product and the
analysis of variances, profitability or social use of funds. Managers use
cost accounting to support decision-making to cut a company's costs and
improve profitability. As a form of management accounting, cost
accounting need not follow standards such as GAAP, because its primary
use is for internal managers, rather than outside users, and what to
compute is instead decided pragmatically.

Costs are measured in units of nominal currency by convention. Cost

accounting can be viewed as translating the Supply Chain (the series of
events in the production process that, in concert, result in a product) into
financial values.

There are various managerial accounting approaches:

• Standardized or Standard Cost Accounting

• Lean accounting
• Activity-based Costing
• Resource Consumption Accounting
• Throughput Accounting
• Marginal Costing / Cost-Volume-Profit Analysis

Classical Cost Elements are:

1. Raw Materials
2. Labor
3. Indirect Expenses / Overhead
 Accounting Information Systems

Accounting Information Systems (AISs) combine the study and practice of accounting
with the design, implementation, and monitoring of information systems. Such
systems use modern information technology resources together with traditional
accounting controls and methods to provide users the financial information necessary
to manage their organizations.

Ais Technology

Input

The input devices commonly associated with AIS include: standard personal
computers or workstations running applications; scanning devices for standardized
data entry; electronic communication devices for electronic data interchange (EDI)
and e-commerce. In addition, many financial systems come "Web-enabled" to allow
devices to connect to the World Wide Web.

Process

Basic processing is achieved through computer systems ranging from individual

personal computers to large-scale enterprise servers. However, conceptually, the
underlying processing model is still the "double-entry" accounting system initially
introduced in the fifteenth century.

Output

Output devices used include computer displays, impact and nonimpact printers, and
electronic communication devices for EDI and e-commerce. The output content may
encompass almost any type of financial reports from budgets and tax reports to
multinational financial statements.

Management Information Systems (MIS)

MISs are interactive human/machine systems that support decision making for users
both in and out of traditional organizational boundaries. These systems are used to
support an organization's daily operational activities; current and future tactical
decisions; and overall strategic direction. MISs are made up of several major
applications including, but not limited to, the financial and human resources systems.
Financial applications make up the heart of an AIS in practice. Modules commonly
implemented include: general ledger, payables, procurement/purchasing, receivables,
billing, inventory, assets, projects, and budgeting.

Human resource applications make up another major part of modern information

systems. Modules commonly integrated with the AIS include: human resources,
benefits administration, pension administration, payroll, and time and labor reporting.

Ais—information Systems in Context

AISs cover all business functions from backbone accounting transaction processing
systems to sophisticated financial management planning and processing systems.

Financial reporting starts at the operational levels of the organization, where the
transaction processing systems capture important business events such as normal
production, purchasing, and selling activities. These events (transactions) are
classified and summarized for internal decision making and for external financial
reporting.

Cost accounting systems are used in manufacturing and service environments. These
allow organizations to track the costs associated with the production of goods and/or
performance of services. In addition, the AIS can provide advanced analyses for
improved resource allocation and performance tracking.

Management accounting systems are used to allow organizational planning,

monitoring, and control for a variety of activities. This allows managerial-level
employees to have access to advanced reporting and statistical analysis. The systems
can be used to gather information, to develop various scenarios, and to choose an
optimal answer among alternative scenarios.

Development

The development of an AIS includes five basic phases: planning, analysis, design,
implementation, and support. The time period associated with each of these phases
can be as short as a few weeks or as long as several years.

Planning—project management objectives and techniques

The first phase of systems development is the planning of the project. This entails
determination of the scope and objectives of the project, the definition of project
responsibilities, control requirements, project phases, project budgets, and project
deliverables.
Analysis

The analysis phase is used to both determine and document the accounting and
business processes used by the organization. Such processes are redesigned to take
advantage of best practices or of the operating characteristics of modern system
solutions.

Data analysis is a thorough review of the accounting information that is currently

being collected by an organization. Current data are then compared to the data that the
organization should be using for managerial purposes. This method is used primarily
when designing accounting transaction processing systems.

Decision analysis is a thorough review of the decisions a manager is responsible for

making. The primary decisions that managers are responsible for are identified on an
individual basis. Then models are created to support the manager in gathering
financial and related information to develop and design alternatives, and to make
actionable choices. This method is valuable when decision support is the system's
primary objective.

Process analysis is a thorough review of the organization's business processes.

Organizational processes are identified and segmented into a series of events that
either add or change data. These processes can then be modified or reengineered to
improve the organization's operations in terms of lowering cost, improving service,
improving quality, or improving management information. This method is appropriate
when automation or reengineering is the system's primary objective.

Design

The design phase takes the conceptual results of the analysis phase and develops
detailed, specific designs that can be implemented in subsequent phases. It involves
the detailed design of all inputs, processing, storage, and outputs of the proposed
accounting system. Inputs may be defined using screen layout tools and application
generators. Processing can be shown through the use of flowcharts or business
process maps that define the system logic, operations, and work flow. Logical data
storage designs are identified by modeling the relationships among the organization's
resources, events, and agents through diagrams. Also, entity relationship diagram
(ERD) modeling is used to document large-scale database relationships. Output
designs are documented through the use of a variety of reporting tools such as report
writers, data extraction tools, query tools, and on-line analytical processing tools. In
addition, all aspects of the design phase can be performed with software tool sets
provided by specific software manufacturers.
Reporting is the driving force behind an AIS development. If the system analysis and
design are successful, the reporting process provides the information that helps drive
management decision making. Accounting systems make use of a variety of
scheduled and on-demand reports. The reports can be tabular, showing data in a table
or tables; graphic, using images to convey information in a picture format; or
matrices, to show complex relationships in multiple dimensions.

There are numerous characteristics to consider when defining reporting requirements.

The reports must be accessible through the system's interface. They should convey
information in a proactive manner. They must be relevant. Accuracy must be
maintained. Lastly, reports must meet the information processing (cognitive) style of
the audience they are to inform.

Reports are of three basic types: A filter report that separates select data from a
database, such as a monthly check register; a responsibility report to meet the needs of
a specific user, such as a weekly sales report for a regional sales manager; a
comparative report to show period differences, percentage breakdowns and variances
between actual and budgeted expenditures. An example would be the financial
statement analytics showing the expenses from the current year and prior year as a
percentage of sales.

Screen designs and system interfaces are the primary data capture devices of AISs and
are developed through a variety of tools. Storage is achieved through the use of
normalized databases that assure functionality and flexibility.

Business process maps and flowcharts are used to document the operations of the
systems. Modern AISs use specialized databases and processing designed specifically
for accounting operations. This means that much of the base processing capabilities
come delivered with the accounting or enterprise software.

Implementation

The implementation phase consists of two primary parts: construction and delivery.
Construction includes the selection of hardware, software and vendors for the
implementation; building and testing the network communication systems; building
and testing the databases; writing and testing the new program modifications; and
installing and testing the total system from a technical standpoint. Delivery is the
process of conducting final system and user acceptance testing; preparing the
conversion plan; installing the production database; training the users; and converting
all operations to the new system.

Tool sets are a variety of application development aids that are vendor-specific and
used for customization of delivered systems. They allow the addition of fields and
tables to the database, along with ability to create screen and other interfaces for data
capture. In addition, they help set accessibility and security levels for adequate
internal control within the accounting applications.

Security exists in several forms. Physical security of the system must be addressed. In
typical AISs the equipment is located in a locked room with access granted only to
technicians. Software access controls are set at several levels, depending on the size
of the AIS. The first level of security occurs at the network level, which protects the
organization's communication systems. Next is the operating system level security,
which protects the computing environment. Then, database security is enabled to
protect organizational data from theft, corruption, or other forms of damage. Lastly,
application security is used to keep unauthorized persons from performing operations
within the AIS.

Testing is performed at four levels. Stub or unit testing is used to insure the proper
operation of individual modifications. Program testing involves the interaction
between the individual modification and the program it enhances. System testing is
used to determine that the program modifications work within the AIS as a whole.
Acceptance testing ensures that the modifications meet user expectations and that the
entire AIS performs as designed.

Conversion entails the method used to change from an old AIS to a new AIS. There
are several methods for achieving this goal. One is to run the new and old systems in
parallel for a specified period. A second method is to directly cut over to the new
system at a specified point. A third is to phase in the system, either by location or
system function. A fourth is to pilot the new system at a specific site before
converting the rest of the organization.

Support The support phase has two objectives. The first is to update and maintain the
AIS. This includes fixing problems and updating the system for business and
environmental changes. For example, changes in generally accepted accounting
principles (GAAP) or tax laws might necessitate changes to conversion or reference
tables used for financial reporting. The second objective of support is to continue
development by continuously improving the business through adjustments to the AIS
caused by business and environmental changes.

These changes might result in future problems, new opportunities, or management or

governmental directives requiring additional system modifications.

Attestation

AISs change the way internal controls are implemented and the type of audit trails
that exist within a modern organization. The lack of traditional forensic evidence,
such as paper, necessitates the involvement of accounting professionals in the design
of such systems. Periodic involvement of public auditing firms can be used to make
sure the AIS is in compliance with current internal control and financial reporting
standards.

After implementation, the focus of attestation is the review and verification of system
operation. This requires adherence to standards such as ISO 9000-3 for software
design and development as well as standards for control of information technology.

Periodic functional business reviews should be conducted to be sure the AIS remains
in compliance with the intended business functions. Quality standards dictate that this
review should be done according to a periodic schedule.

Enterprise Resource Planning (ERP)

ERP systems are large-scale information systems that impact an organization's AIS.
These systems permeate all aspects of the organization and require technologies such
as client/server and relational databases. Other system types that currently impact
AISs are supply chain management (SCM) and customer relationship management
(CRM).

Traditional AISs recorded financial information and produced financial statements on

a periodic basis according to GAAP pronouncements. Modern ERP systems provide a
broader view of organizational information, enabling the use of advanced accounting
techniques, such as activity-based costing (ABC) and improved managerial reporting
using a variety of analytical techniques.
 REFERENCE

www.answers.com

www.wikipedia.com

Business Encyclopedia