Accounting helps managers reduce costs

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Essay Title: Accounting helps managers reduce costs

Due Date: 16th May 2014

Haven’t you heard about the word ACCOUNTING? How about MONEY? When it comes to accounting, people will think of money easily. As accounting is the language of business (Lane 2013), it is of importance to understand that how managers make better decisions by using this language. Therefore, this essay is divided into two parts. The first part simply introduces what accounting is and the connection between management accounting and money. The second one gives some examples of how people make valuable decisions with the help of “ the language ”. At last, It is believed that costs can be cut by accounting as what people did in these examples.

On one hand, what is accounting? Accounting or accountancy is the measurement, processing and communication of financial information about economic entities (Needles&Powers 2013). Accounting, which has been called the “language of business”, measures the results of an organization’s economic activities and conveys this information to a variety of users including investors, creditors, management and regulators (Foster School of Business 2013). Besides, Accounting has several subfields or subject areas, including financial accounting, management accounting, taxation and accounting information systems (Weber&Stevenson 1981). Among them, management accounting or managerial accounting focuses on the measurement, analysis and reporting of information that can help managers in making decisions to fulfill the goals of an organization. In management accounting, internal measures and reports are based on cost-benefit analysis, and are not required to follow generally accepted accounting principles (Horngren & Datar & Foster 2006). Managerial accounting produces future-oriented reports. For example, the budget for 2014 is prepared in 2013. In addition, Horngren, Datar and Foster claimed the time span of the reports in which both financial and nonfinancial information information may be involved varies widely and these reports may, for example, focus on specific products and departments.

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On the other hand, how does accounting help managers make valuable decisions. Some examples are as follows.

Firstly, labor costs can be reduced if managers use robots to replace part of workforce in their factories.

Foxconn, Taiwanese manufacturer of Apple’s iPhone and iPad that came under global scrutiny in 2010 for a string of worker suicides, will rely more on robots for manufacturing in the coming years to reduce labor costs. Actually, there are 1.2 million workers in Foxconn. And Foxconn has been plagued by labor issues, including complaints of long hours, poor conditions and low pay. What’s more, the company made headlines when some workers jumped from the building due to issues of overwork and low pay in 2010. There were 18 suicide attempts and 14 deaths. Foxconn responded with higher wages in some of the company’s manufacturing areas, while also working to implement better management procedures in its factories. Furthermore, Foxconn also installed anti-suicide nets around factories to discourage workers from jumping (International Business Times 2011).

Obviously, facing these problems, Foxconn’s low-labor-cost advantage has been whittled away uninterruptedly. Therefore, the company’s challenge is meeting higher wage demands and better conditions for workers, while keeping playing aggressive hardball on price--something competitors will have a harder time doing for Apple, and other companies it manufactures products for. Usually, a great deal of literatures on the competitive advantages of China manufacturing enterprises often point to the low cost of labor. However, the rise of labor costs puts the development of native enterprises into rethinking in recent years. Thus, Campbell (2011) found that Foxconn launched a US$224-million project to build one million robots in the next three years for replacing 500000 workers, which is expected to generate about US$4 billion in revenue over the next few years. There is no doubt that this empire of robots will ease rising labor costs and disadvantages.

Secondly, excluding the kingdom of robotics, it is also possible to cut down costs for managers with the broad application of computer in accounting. Apparently, the rapid development of the computer network technology hastens greatly the development of accounting computerization. After entering into the 21st century, accountants are required to perfect knowledge structure and ability. But it does not mean that managers need more accountants.

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CODA Financials Inc. has released new software, CODA 2control Expenses. It is designed to standardize and automate expense claim processes, saving time and money on processing, administration and audit, the company said in an announcement. This new stand-alone product allows any employee to prepare and submit expenses in accordance with the company policy. Electronic claim forms are tailored with the organization’s relevant rates and rules built in, speeding up completion and reducing errors. Moreover, an expense management survey conducted by Aberdeen Group among 377 companies in March 2007 found that those using manual expense systems were spending twice as much on processing each claim as those that had automated the process, at US$30.50 per claim. A company processing 5000 expense reports a month can save approximately US$16.30 per report on processing costs, resulting in an annual saving of US$976000. Therefore, the integration of accounting information system and management system with information has become a necessary trend of network economy (Financial Executive 2008).

TEIUÅžAN (2009) thinks the computer makes the life of the accountant easier. And TEIUÅžAN says the following: we believe that a modern accounting is the only one that fulfills its tasks by using modern instruments, information equipments, among which the central position is held by the electronic calculator. It is evident that costs will be lower with scientific and technological progress and the rapid development of computerized accounting.

Thirdly, the paperless office is an important part of the reform for computerized accounting courses, which is able to lower costs and raise environmental benefits. More and more companies are involved in e-commerce activities, which means most of their business data and accounting data become electronic and paperless. Fisman and Sullivan (2013) doubt it will involve paperless-ness or a day in which we all work remotely from the corner Starbucks. Thus, it is a vital issue of the accounting office to use modern software development technology to realize paperless office.

Kerry hotel Pudong Shanghai has introduced a paperless check-in and check-out system that will not only streamline procedures but reduce waste paper. Although this green scheme is the first of its kind in Shanghai, it is not the first for the hotel group: the recently refurbished Kerry Hotel Beijing has also adopted the paperless system (Business Traveller 2012).

Clearly, hotels are simplifying their paper-based accounting systems and are replacing their paper-based systems with information networks based on the principles of electronic for lowering costs, reducing errors and streamlining procedures. As it is known that increasing quality as well as improving productivity is not easy at the same time. However, Hilton, Marriott and many other hotel chains are just doing that through paperless accounting softwares, such as the IQ system.

The EDI( Electronic Data Interchange) Group survey of more than 1,500 users of EDI found that companies could save between $1.60 and $5.20 per document (e.g. purchase order, invoice, etc.) by switching to electric procurement; error rates can decline more than 50 percent as well. The most common first step in re-engineering procurement is to implement an electronic catalog and ordering system, such as the IQ system implemented by Marriott International. But success requires a "vision from someone who has been in the field, and knows how hard it is to get information on a product," according to Alan McCarty, director of lodging procurement for Marriott.

McCarty, a procurement officer certified by the National Association of Purchasing Management, developed the IQ system to communicate product specifications and provide electronic purchasing to more than 500 vendors on a private network. In just two years, the IQ system has automated the purchase of 95 percent of decorative items for the Courtyard by Marriott properties, and is now being expanded to cover Residence Inns and other Marriott brands. As a result of his efforts, McCarty's system was nominated for the Quality Cup award, sponsored by USA Today and the Rochester Institute of Technology (Tobey 1996).

Actually, most of hotels feel that they are closer to the details of their own hotels by paperless office. For instance, Marketing research, which the hotels took one week of time or more to complete , can now be accomplished in several minutes. Although, it is clear that many people harbor practical concerns and doubts about the promise of paperless office, whether we like it or not, paperless system are slow reaching mass acceptance. Briefly, office without any paper methods advantage over traditional office methods.

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In conclusion, this essay simply explains the language of money and describes some useful measures of accounting including robotics, computerized accounting and paperless office that managers can take to reach better decisions. As an old saying goes, time is money. Evidently, Accounting is of great help to save expense and manage time in order to make more profits.

References

American Institute of Certified Public Accountants & Committee on Accounting Procedur

1940,“ Reports of Committee on Terminology ”, viewed 11 May, 2014,

< http://clio.lib.olemiss.edu/cdm/ref/collection/deloitte/id/9342 >.

Business Traveller 2012, “ HOTEL UPDATES ”, Business Traveller, March, Asia-Pacific

Edition, p. 18.

Campbell, Colin 2011, Maclean's, 21 November, Vol. 124 Issue 45, p. 41.

Emerald 2013,“ Asian Review of Accounting Information ”, viewed 11 May, 2014.

<http://www.emeraldgrouppublishing.com/products/journals/journals.htm?id=ara >.

Financial Executive 2008, Financial Executive Jan/Feb, Vol. 24 Issue 1, p. 61.

Fisman Ray & Sullivan Tim 2013, The Org: The Underlying Logic of the Office, 8 January,

Twelve, New York.

Foster School of Business 2013,“ Department of Accounting ”, Foster School of Business

2013.

Horngren Charles T & Datar Srikant M & Foster George 2006, Cost Accounting: A

Managerial Emphasis (12th ed.), Pearson Prentice Hall, New Jersey.

International Business Times 2011,“ Apple Partner Foxconn Adding One Million Robots;

Rising Labor Costs Likely Prompt Move ”, International Business Times, 1 August.

Needles, Belverd E & Powers, Marian 2013,“ Principles of Financial Accounting ”,

Financial Accounting Series (12 ed.), Cengage Learning, Boston.

Peggy Bishop Lane 2013, Why Accounting Is the Language of Business, 23 September ,

viewed 14 May, 2014,

<http://kwhs.wharton.upenn.edu/2013/09/peggy-bishop-lane-on-why-

accounting-is-the-language-of-business/>.

TEIUÅžAN, SORIN-CIPRIAN 2009,“ Annals of the University of PetroÅŸani ”, Economics,

Vol.9 Issue 2, pp. 313-318.

Tobey, David H 1996,“ Automatic I.D ”, News, March, Vol. 12 Issue 3, p. 36.

Weber, Richard P & W. C. Stevenson 1981,“ Evaluations of Accounting Journal and

Department Quality”, The Accounting Review, Vol.56 Issue 3, pp. 596–612.

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Created: 9 October 2012

Modifed: 20 May 2013Version: 2

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