Cost and Management Accounting
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Cost and Management Accounting

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Questions and Answers

What is the primary objective of cost accounting?

  • To estimate future costs to be incurred
  • To assess the profitability of an enterprise
  • To exercise control over costs to achieve efficiency (correct)
  • To present accounting information to management
  • What does management accounting provide to management?

  • Necessary information for discharging its functions (correct)
  • Estimation of future costs
  • Assistance in policy creation
  • Control over costs
  • Which accounting concept implies that a business unit is separate and distinct from its owners?

  • Money Measurement Concept
  • Going Concern Concept
  • Dual Aspect Concept
  • Business Entity Concept (correct)
  • What is the purpose of the accounting equation?

    <p>To express the business entity concept</p> Signup and view all the answers

    Which of the following is NOT a function of management accounting?

    <p>Estimating future profits</p> Signup and view all the answers

    What is the main difference between cost accounting and management accounting?

    <p>Cost accounting focuses on costs, while management accounting focuses on management</p> Signup and view all the answers

    Which accounting concept is related to the idea that a business unit will continue to operate for a long period of time?

    <p>Going Concern Concept</p> Signup and view all the answers

    What is the term used to describe the basic assumptions or conditions upon which the accounting super-structure is based?

    <p>Accounting concepts</p> Signup and view all the answers

    What is the primary purpose of the Money Measurement Concept in accounting?

    <p>To record transactions in terms of money</p> Signup and view all the answers

    Which concept assumes that a business will continue to exist for a longer period of time?

    <p>Going Concern Concept</p> Signup and view all the answers

    What is the purpose of preparing an Income Statement at the end of an accounting period?

    <p>To determine the profit or loss made during the accounting period</p> Signup and view all the answers

    What is the underlying assumption of the Dual Aspect Concept?

    <p>Every debit has a corresponding and equal amount of credit</p> Signup and view all the answers

    According to the Cost Concept, at what value is an asset recorded in the accounting record?

    <p>At its historical cost</p> Signup and view all the answers

    What is the purpose of the Accounting Period Concept?

    <p>To measure income and study financial position over a shorter period</p> Signup and view all the answers

    What is the essence of the Matching Concept?

    <p>Matching revenues with expenses of the same period</p> Signup and view all the answers

    According to the Going Concern Concept, how are prepaid expenses treated?

    <p>As assets, although they may be practically unsaleable</p> Signup and view all the answers

    What is the accounting equation according to the Dual Aspect Concept?

    <p>Assets = Capital + Liabilities</p> Signup and view all the answers

    What is the purpose of accounting conventions?

    <p>To provide guidelines for preparing financial statements</p> Signup and view all the answers

    What is the main function of a journal?

    <p>To record transactions in chronological order</p> Signup and view all the answers

    Which concept is closely related to the valuation of assets at historical cost or replacement cost?

    <p>Going Concern Concept</p> Signup and view all the answers

    What is journaling in the context of accounting?

    <p>The act of recording each transaction in the journal</p> Signup and view all the answers

    Why are adjustments necessary in financial statements?

    <p>To match costs with revenues of the same period</p> Signup and view all the answers

    What is the primary benefit of the Accounting Period Concept?

    <p>Helps in taking corrective steps at the right time</p> Signup and view all the answers

    What is the normal duration of an accounting period?

    <p>A year</p> Signup and view all the answers

    Study Notes

    Cost Accounting

    • Cost accounting aims to determine the cost of units produced and sold, or services rendered, to assess profitability and efficiency.
    • It involves estimating future costs to be incurred and exercises control over them.

    Management Accounting

    • Management accounting provides necessary information to the management for discharging its functions.
    • It presents accounting information to assist management in creating policy and day-to-day operations.

    Accounting Concepts

    • The following are common accounting concepts adopted by many business concerns:
      • Business Entity Concept
      • Money Measurement Concept
      • Going Concern Concept
      • Dual Aspect Concept
      • Accounting Period Concept
      • Cost Concept
      • Matching Concept
      • Realisation Concept
      • Accrual Concept
      • Objective Evidence Concept

    Business Entity Concept

    • The business unit is separate and distinct from the persons who provide capital to it.
    • This concept can be expressed through the accounting equation: Assets = Liabilities + Capital.

    Money Measurement Concept

    • All events and transactions are recorded in terms of money.
    • Money is considered a common denominator to record various facts, events, and transactions.

    Going Concern Concept

    • The business unit is assumed to exist for a longer period, i.e., a going concern, not a liquidated one.
    • This concept supports valuing assets at historical cost or replacement cost and treating prepaid expenses as assets.

    Dual Aspect Concept

    • Every transaction has a two-fold aspect: giving certain benefits and receiving certain benefits.
    • The accounting equation (Assets = Capital + Liabilities or Capital = Assets – Liabilities) clarifies this concept.

    Accounting Period Concept

    • The life of the business is segmented into different periods to ascertain the result of each period.
    • Each segmented period is called an "accounting period," usually a year.
    • At the end of an accounting period, an Income Statement is prepared to ascertain profit or loss, and a Balance Sheet is prepared to depict the financial position of the business.

    Cost Concept

    • Transactions are recorded in the books of account with the respective amounts involved.
    • The cost of an asset is considered the base for all future accounting.

    Matching Concept

    • All costs associated with a particular period should be compared with revenues associated with the same period to obtain net income.
    • This concept necessitates provisions for recording outstanding expenses, prepaid expenses, outstanding incomes, and incomes received in advance during the course of preparing financial statements.

    Accounting Conventions

    • Accounting conventions are customs and traditions that act as guidelines for preparing books of accounts.

    Journal and Ledger

    • A journal is a book of original entry where transactions are first recorded in chronological order.
    • A journal is a simple book of accounts in which all business transactions are originally recorded and then posted to ledger accounts at any convenient time.

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    Description

    This quiz covers the basics of cost accounting, including ascertaining unit costs and exercising control over them, as well as management accounting, which provides information to management for decision-making.

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