The impact of accounting policy results in management decisions
Financial management company based on the use of various methods and techniques justify financial decisions.
An important methodological basis of financial management is its accounting policy, ie a set of principles, methods and procedures used in the preparation of financial statements. Accounting policies significantly affect the financial results of the company, and the less activity zarehlamentovana its accounting services in the choice of accounting methods, the more opportunities for financial managers to maneuver when developing financial solutions.
Of fundamental importance in justifying financial decisions are methods for the valuation of assets, write-off of material resources at the cost of manufactured products, distribution overhead of fixed costs on production, depreciation and others.
Thus, according to the of cost for setting asset register is usually used method of actual cost (initial acquisition cost). Later during the revaluation of assets other methods can be used:
• the current method or final value. Provides revaluation of assets on the basis of the actual level and degree of wear;
• clean method (market) value realization. Based on the assessment of the actual proceeds from the sale of assets in the moment;
• replacement cost method. Based on the assessment of the costs of purchase (or construction) of similar assets at current market prices;
• residual value method. It is used to evaluate the potential proceeds from the sale of assets of the bankrupt company.
Where the assets received by the company as part of a share contribution, they can be assessed by market value or discounted method for determining the potential income from the assets.
If you purchase assets on credit allowed by their assessment of the market value or the method of determining the present value of future payments and repayment of debt related to the purchase of assets.
Long-term financial investment companies can be assessed by two methods:
- Equity method if a particular company is now asotsiyovym to the issuer;
- By the lower of (purchase cost or market value).
Significant impact on financial reporting methods have a write-off the cost of the materials used in manufactured products. This can be used three main ways:
- The method of weighted average price - cancellation at an average cost of materials;
- Method "FIFO" - write-off of inventory at cost of the first party purchased raw materials;
- Method "LIFO" - down of inventories at cost of purchased last party materials.
When using the method "LIFO" inflated production costs, understated material remains in the balance sheet and income lowered accordingly. Conversely, when the method of "FIFO" by reducing the cost and residual material overstatement of profits inflated.
In the practice of global financial management, usually delimited scope of these methods. Thus, the method "LIFO" is used in managerial accounting for internal financial analysis, planning and forecasting. This method helps to determine the real cost of production and enables manufacturers to better adapt to inflation. The method of "FIFO" is used in the financial accounting for external financial reporting, including when determining the amount of taxable income.
It should be noted that in market economies method "LIFO" despite the tax advantages in terms of inflation, has not received wide distribution in the external financial statements because its application leads to a decrease in net profit per share, ie the reduction of market value securities company and reduction of investment attractiveness.
The impact of these inventory accounting methods to the cost of manufactured products now on the specific example discussed in Chapter 5.
During the study financial decisions should take into account the current order of the company, the total overhead or fixed costs. The main methods of distribution overhead fixed costs for the products include the following:
• full allocation of overhead fixed costs for all products in proportion to direct wages, cost of direct costs, the amount of sales proceeds or otherwise;
• Overhead allocation of fixed costs only on cost-effective products;
• the inclusion of the cost of production only variable costs and reimbursement of overhead costs by permanent income.
Current order of distribution of total costs determines pricing policy of the company and it is a commercial secret.