By Lawrence D. Lewis
The facility of Accounting: What the Numbers suggest and the way to take advantage of Them offers a hugely readable textual content for non-financial managers. It explores accounting’s makes use of and barriers within the administration strategy. The textual content is meant for clients of accounting details rather than preparers. It specializes in helping the reader in realizing what accounting numbers suggest, what they don't suggest, while and the way they are often used for selection making and making plans and once they cannot.
The e-book discusses the significance of accounting details within the financial system and the truth that accounting numbers are frequently the results of estimates and arbitrary allocations. it's also a cautionary notice in regards to the obscure use of terminology usually present in accounting and monetary literature.
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Additional info for The power of accounting: what the numbers mean and how to use them
These assets are reported at their original cost less any depreciation taken to date, that is, accumulated depreciation. Their reported values do not necessarily reflect current market values. If a firm purchased a building ten years ago for $200,000, depending on where it was located it might today have a value of $300,000 or $400,000 or more. On the balance sheet, however, it would reflect a value of less than $200,000 – its original cost minus accumulated depreciation. Some critics see the practice of reporting asset values at their original cost less accumulated depreciation as an over-reliance on the so-called principle of objectivity.
Operating Leverage Operating leverage is closely related to the concepts we have been discussing. Operating leverage is the extent to which a firm’s operations involve fixed costs. The greater the fixed costs vis-à-vis variable costs, the more highly leveraged a firm is. Being highly leveraged means that a relatively small change in sales results in a large change in operating income. During a good year, a high degree of leverage works to increase income relative to what it would otherwise be. During a bad year, it works to decrease income (or increase losses).
In every product we produce and every service we provide there are overhead costs, but how much depreciation, utilities, taxes or insurance is in that chair we manufactured? We simply cannot tell for certain. Therefore, we have to find a way to allocate a certain amount of these indirect costs to our various products. One of the most important functions of accounting is to provide management with reliable and useful cost information. One of the most important types of costs management must consider when making decisions is opportunity costs.
The power of accounting: what the numbers mean and how to use them by Lawrence D. Lewis