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Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman
Edition 6ISBN: 9780071283700Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman
Edition 6ISBN: 9780071283700 Exercise 1
The owner of a small software company felt his accounting system was useless. He stated, "Accounting systems only generate historical costs. Historical costs are useless in my business because everything changes so rapidly."
Required :
a. Are historical costs useless in rapidly changing environments
b. Should accounting systems be limited to historical costs
Required :
a. Are historical costs useless in rapidly changing environments
b. Should accounting systems be limited to historical costs
Explanation
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Historical cost refers to the cash correspondent payment in reality made to get an asset. It refers to a total cost use to place the asset into intended use. Some examples of asset which are calculated at historical cost are plant and machinery, intangible asset.
(1)The primary object of financial reporting is to provide productive information for building economic decisions. The information's which are given to the user of financial statement are based on general purpose financial statement. All investors are interested in knowing the financial soundness of the company. Their primary concern is to know how efficiently the capital is used. The belief is that the user needs reasonable knowledge of financial accounting to stature out the information given in the financial statement.
Historical cast are widely used in the preparation of the financial reports. They do not provide any construction information in decision making. Business environment is very dynamic and it keeps on changing. With changing environment historical costs losses its relevance.
(2)The main purpose of the accounting system to facilitates planning and control. Historical cost cannot be use for planning purpose. Historical costs are used for control purpose. It is used as a performance evaluator. It endow with useful information regarding the diverse actions of the manager. It is a helpful tool to evaluate the manager's performance.
(1)The primary object of financial reporting is to provide productive information for building economic decisions. The information's which are given to the user of financial statement are based on general purpose financial statement. All investors are interested in knowing the financial soundness of the company. Their primary concern is to know how efficiently the capital is used. The belief is that the user needs reasonable knowledge of financial accounting to stature out the information given in the financial statement.
Historical cast are widely used in the preparation of the financial reports. They do not provide any construction information in decision making. Business environment is very dynamic and it keeps on changing. With changing environment historical costs losses its relevance.
(2)The main purpose of the accounting system to facilitates planning and control. Historical cost cannot be use for planning purpose. Historical costs are used for control purpose. It is used as a performance evaluator. It endow with useful information regarding the diverse actions of the manager. It is a helpful tool to evaluate the manager's performance.
Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman
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