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Accounting for Managerial Decision Making

Extracts from this document...

Introduction

Recognition Position Paper University of Phoenix Accounting for Managerial Decision Making ACC 539 August 21, 2004 Memorandum To: Chief Executive Officer, Ace Manufacturing From: Team A -Team M1, Big Picture Consulting Subject: RECOGNITION POSITION PAPER Date: August 21, 2004 This memorandum is reflective of Team A's, Big Picture Consulting, recommendations to Ace manufacturing for the recognition of revenues and expenses. Revenue and expense recognition is the process of identifying and recognizing the sources of revenues or expenses and is crucial to reporting corporate performance. We have entered into a new era in corporate responsibility and are now holding top-level executives accountable for their organizations fiduciary responsibilities as changes in reporting requirements and methods evolve. The Financial Accounting Standards Board (FASB) with pressure from the Securities and Exchange Commission (SEC) is moving forward to standardize the revenue and expense recognition requirements and methods in place to regain private and public trust of corporations after many large-scale public corporation scandals. The recognition process includes: * Definition - Is the item an asset, liability, equity, revenue, expense, gain or loss? * Measurability - Does it possess the characteristics that permit reliable measurement? * Relevance - Will it make a difference to the decision maker? * Reliability - Is it a faithful representation? These questions and thoughts, in the recognition processes should be followed when determining revenue and expense recognition. ...read more.

Middle

80). Expense Recognition Methods Expense recognition is best recognized, and the majority of expense recognition is accomplished, using the matching principle method. Expenses are recognized in relation to the revenues. The expenses are incurred to support the generation of the revenue. Several expenses are recognized in the current period calculations and are clear-cut. Cost of goods sold, deprecation and long term assets are examples of clear-cut expenses. Some are more complex, such as income tax expense and pension expense, and require a significant amount of recognition and measurement to be properly calculated. For expense recognition it is recommended that Ace Manufacturing use Cost of Good of Goods and Straight Line Depreciation methods. Cost of Goods Sold Method Cost of goods sold is usually the largest expense a company will have. The cost flow methods of FIFO, LIFO and average cost involved have a significant role in this calculation. "Cost of goods sold is sometimes phrased as COST OF SALES. The cost of goods sold is the costs actually incurred in producing the product or service. It is the direct costs of production. It does not include the indirect costs, which may be things like administration and marketing costs. These cannot be directly attributed to producing the product and so are not included. The cost of goods sold for a production company will include things like raw materials, energy and labor used to produce the product. ...read more.

Conclusion

The expensing of stock options could be a better reflection of the company's overall economic reality. Commitment to the best practices in the financial reporting world will take the company far into the future. The expensing of stock options will put the various forms of present day employee options on an equal playing field. It is recommended that Ace Manufacturing expense stock options. Managers are against expensing because it may curtail the large stock options they have received in the past, and make their job more difficult. They are using any scenario they can to stop expensing. There are a hundred companies that have seen the light, and realize that expensing is going to happen and have already started expensing stock options. This gives a more up front picture of the company and will only change the way things are documented. (Signed copy on file) Team A - Team M1 Big Picture Consultants Conclusion This memorandum has provided Team A's, Big Picture Consulting, recommendations to Ace Manufacturing, for the recognition of revenues and expenses. The recognition of revenue and expense is crucial to reporting corporate performance as changes in reporting requirements and methods evolve. In order to met the challenges Ace Manufacture is moving forward to standardize the revenue and expense recognition requirements and methods in place to regain private and public trust across corporate America. With this knowledge and recommendations if followed Ace Manufacturing will be the premier organization of the future. ...read more.

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