unit of account

Examples of unit of account in the following topics:

• Functions of Money

  • The main functions of money are as a medium of exchange, a unit of account, and a store of value.
  • A unit of account is a standard numerical unit of measurement of the market value of goods, services, and other transactions.
  • Also known as a "measure" or "standard" of relative worth and deferred payment, a unit of account is a necessary prerequisite for the formulation of commercial agreements.
  • To function as a unit of account, whatever is being used as money must meet these characteristics:
  • Money, such as the U.S. dollar, functions as a medium of exchange, a unit of account, and a store of value.

• Managerial Accounting

  • Professional accountants look at the accounting records and reports of a business from two perspectives.
  • For example, when establishing an inventory cost for one or more units of product (each jersey or hat produced at Sportswear Company), U.S.
  • In contrast to financial accountancy information, management accounting information is usually confidential and used by management, instead of publicly reported; forward-looking, instead of historical; and pragmatically computed using extensive management information systems and internal controls, instead of complying with accounting standards.
  • This is because of the different emphasis: management accounting information is used within an organization, typically for decision making.
  • Managerial accounting is concerned with the provisions and use of accounting information to managers within organizations.

• Commercial Banks

  • A commercial or business bank is a type of financial institution and intermediary that provides transactional, savings, and money market accounts and that accepts time deposits.
  • Sales, distribution, or brokerage, with or without advice, of insurance, unit trusts, and similar financial products
  • Money market: like checking accounts, deposit accounts earn interest; however, they usually pay a higher rate of interest and require a higher minimum balance, often $2,500 or more.
  • Also, the number of checks written against the account per month is limited.
  • Finally, banks do not always use the same terminology in referring to these accounts; often, they choose distinctive names for them in hopes of attracting customers.

• Working capital analyses

  • Quoting from the website Entrepreneur.com, "the operating cycle analyzes the accounts receivable, inventory and accounts payable cycles in terms of days.
  • In other words, accounts receivable are analyzed by the average number of days it takes to collect an account.
  • This is why knowing your breakeven point in terms of unit sales is so important.
  • This calculation will let you know how many units of a product you will need to sell to break even.
  • Above the breakeven point, every additional unit sold increases profit by the amount of the unit contribution margin, which is defined as the amount each unit contributes to covering fixed costs and increasing profits.

• Inadequate or incorrect internal accounting and dependence on third parties

  • All firms, whether young or mature, need cost accounting systems which can report costs and—as far as they are specifically attributable—revenues per cost unit, cost center, and department.
  • It is important that start-ups establish systems for unit cost accounting, cost center accounting, and breakeven analysis (cf.
  • Doing without any kind of cost accounting leads not only to the fact that sources of loss remain undiscovered, but also that profit potentials stay hidden as well.
  • Start-ups must therefore avoid this risk by establishing cost and profit accounting, and a breakeven analysis as quickly as possible.
  • Homogeneity of interests must also be taken into account when building an external network in order to minimize transaction costs which stunt growth.

• Global finance: initial considerations

  • The price of one country's currency in units of another country's currency is known as a foreign currency exchange rate.
  • One way, known as a direct quote, is to state the number of domestic units of currency per one unit of foreign currency.
  • If an exchange rate is an indirect quote, the exchange rate is stated as the number of foreign units per one unit of domestic currency (Beenhakker, 2001).
  • The International Accounting Standards Committee (IASC) Foundation, formed in March 2001, is the parent body of the International Accounting Standards Board (IASB).
  • To bring about convergence of national accounting standards and international accounting standards to high quality solutions (Hussey, 2005).

• Consumers of Accounting Information

  • Most of a company's stakeholders consume its accounting information in one form or another.
  • Early accounts served mainly to assist the memory of the businessperson, and the audience for the account was the proprietor or record keeper alone.
  • The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide the requisite information.
  • This development resulted in a split of accounting systems for internal (i.e., management accounting) and external (i.e., financial accounting) purposes and, subsequently, also in accounting and disclosure regulations and a growing need for independent attestation of external accounts by auditors.
  • The body of rules that governs financial accounting in a given jurisdiction is the Generally Accepted Accounting Principles, or GAAP.

• Usage of Accounting Information

  • The American Accounting Association defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information."
  • The development of joint stock companies created wider audiences for accounts, as investors without firsthand knowledge of their operations relied on accounts to provide additional information.
  • This development resulted in the division of accounting systems for internal (i.e. management accounting) and external (i.e. financial accounting) purposes.
  • The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP.
  • Explain the history of accounting and how accounting information is useful

• Double-Entry Bookkeeping

  • The rules for formulating accounting entries are known as "Golden Rules of Accounting".
  • The accounting entries are recorded in the "Books of Accounts".
  • Transactions are entered in the books of accounts by applying the following golden rules of accounting:
  • The rules of debit and credit depend on the nature of an account.
  • For the purpose of the accounting equation approach, all the accounts are classified into one of the following five types:

• Introduction

  • learn to set up a chart of accounts for your organization
  • In this chapter, we will discuss the principles of accounting as well as some of the options you have for designing and installing an accounting system for your business.
  • Although it is possible to keep essential accounting records manually, or perhaps on a series of spreadsheets, you will find that it is much easier and more reliable to simply use accounting software from the beginning.
  • You may need the advice of an accounting professional to work with you in setting up your accounting records and helping you select and implement a suitable accounting package.
  • In any event, starting your business with a well-designed accounting system tailored to the needs of your business will be worth the effort.