Another reason a not-for-profit organization to generate profit is organization has chance to involve in more clarity activity. When not-for-profit organization has generated more profit, it can involve in more clarity activity which also bring benefits to society.
Moreover, an organization needs profit to hire the employees to operate the organizations. Some people cannot work as volunteer because they need money to survive. This is because less of people want to join the non-profit organization, so the founder of organization need to hire employees to operate the organization and employees are paid with salary. The salary is come from the profit generated by organization.
Additional, profit is needed for organization to recover the organization expenses. So, capital is needed for organization expenses. Due to this issue not-for-profit organization need to generate profit as capital to pay all the expenses of organization. Sometimes expenses are much for a non-profit organization. Therefore, organization need more capital to recover expenses and cannot depend on donations from public.
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Lastly, reason for not-for-profit organization to generate profit is to enable them to continue develop the organization. In order to build more building for the organization, greater capital is needed. So, organization can allocate capital through generate more profit because the fund donated by public or private sector are limited such as UTAR.
The Conceptual Framework for Accounting also can called Conceptual Framework of Financial Reporting. The conceptual framework can be defined as "a coherent system of interrelated objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statement" said AT Foulks Lynch. (ACCA, 2010)
The conceptual framework is to be useful and important. Conceptual framework guides the Financial Accounting Standard Broad (FASB) in establishing standards. Conceptual was needed due to the difference in treatment of transaction among accountants in practice would result in different financial statements. Hence, the standard would be more consistent and logical with one another. The development of conceptual framework is important to regular all the financial statements to avoid inconsistencies between standards. It also will enhance the credibility of accounting information.
Second, the importance of conceptual framework is it can enhance the users confident and understanding of financial reporting. This is because of the consistence of the requirements reporting. Thus, the accountants will be more confidence in making financial statements. Besides that, they can be easily to do financial statements where they understand the requirements of reporting.
Third, the importance of conceptual framework is it provides a basis of reason, direction and a basis of appeal in the resolution of disputes. Conceptual framework can act as constitution for the standard setting process. Its purpose is to guide in resolving disputes when the standards by narrowing the question to whether specific or not specific standards conform the conceptual framework.
Next, the importance of the conceptual framework is the fewer the specific of standards. Conceptual framework can reduce the need for specific of accounting standards. For example, there are many methods to evaluate existed such as historical cost measurement, replacement cost measurement, net realizable value, value in use and fair value in use. If there is no change of the assets and liabilities value, they may be shown at their historical cost. Therefore, conceptual framework can easy and accurate to differentiate by using the fewer specific standards.
Finally, the importance of the conceptual framework is the development of accounting standards will be more economical. The setting of the requirements will be more economical because the issues should not be re-debated from the different viewpoints. This is because the development of concepts by Malaysian Accounting Standards Board (MASB) will guide the MASB to make their decision.
In conclusion, the conceptual framework is very important. This is because conceptual framework can bring a lot of benefits. It is also very useful to us.
Bookkeeping is recording the financial transition in our life. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. Single entry is the primary bookkeeping record before the father of bookkeeping is Frater Luca Pacioli introduced double entry bookkeeping. Simple entry bookkeeping is a simple, practical and informal way to record the financial information, but double entry bookkeeping is standard method of record keeping normally used by most businesses, bookkeepers and accountants (MissCPA,n.d). Moreover, single entry bookkeeping is less of detailed recording system compare to double entry bookkeeping.
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The first records of bookkeeping have been found from the areas of ancient Egypt, and Mesopotamia and from South-Asia. The father of bookkeeping is Frater Luca Pacioli. He developed the double entry bookkeeping in 1494 using debits and credits to manage a company's financial information. He is regarded as the "father of modern accounting" according to the history of double entry bookkeeping. He was born in 1445 in Tuscany, Italy (Rhonda Campbell,n.d.) . Pacioli became a friar and traveled all over Italy, teaching mathematics and accounting during 37 years old.
Frater Luca Pacioli was wrote a book called "Summa". The book is cover the algebra and arithmetic, bookkeeping, money and exchange and so on. It is a simple and easy to read and understood, and suitable to a beginner to use double entry bookkeeping system. As he catered to the merchant in his book, he stressed the important of proper recording. This system included memorandum book, journal book and ledger book. While memorandum is no longer use today, at the height of the Renaissance merchant relied heavily on it.
Technology was underdevelopment when Pacioli's time, they are using manual accounting. The accountants were using several paper ledgers and journals to record financial information. Therefore, the accountants must be very careful and precise in recording all the information. It is very time consuming. It wastes the time to check the details and sometime need to redo when wrong record the financial information into the ledger or journals. However, the development of technology nowadays day enables the accountants to complete the financial report more easily. Computerized accounting uses software programs designed from traditional manual accounting systems (Osmond Vite, n.d.). The computing accounting is use of computers, spreadsheets and programs designed to record and report financial information electronically (Osmond Vite, n.d.) . The changes from manual accounting to computerized accounting are more easily to record and easier detection of errors and fraud. Human are error-prone. The errors did by human can misrepresent a company financial position. Double entry provides check and balances, so it can reduce the errors. Nowadays the technology are more and more advance, many accounting software programs automatically provide double-entry bookkeeping when a transaction is entered such as database. This reduces the transaction wrong between debit and credit account. Each transaction is recorded twice in two separate columns. Therefore the omission of important data will never happen.
Besides, the computerized accounting allow the accountant potentially spend less time looking for errors and more time analyzing information for decision purposes. This is because the accountants are using hand writing to record the all financial information before the development of technology. They must waste the time to rewrite all of the information, if they do any mistake when they recording data. For example, accountants entering information into the incorrect column or simple mistakes such as transposing numbers. Computerized accounting systems allow accountants to process more information than before by creating easier review processes.
Nevertheless, it is inconvenient when the technology is underdevelopment. The accountants must use many books to record the financial information such as ledger books and journal books. After a long period, the books will become more and more. Thus, accountants will found difficult to find the old financial information. However, the accountants of this modern day, much of the accounting actions are done by the computers. The whole accounting has gone from hand written ledgers into software and databases. By using computer, the accountants can easily find the information from backups. The accountants can save the financial information inside a disk, pen drive or else an external hard disk. It is very convenient compare to manual accounting (hand writing). The accountants need not waste the time to research the information in the store room. They can easily do their research from their backups.
In addition, the backups are more flexible then hand writing. For example, when we provide the clearly financial information within few years to investors or bankers, we will not need to bring a lot of financial books to let them see the health of an organization. It is heavy and not flexibility. But by the development of technology, the accountants can bring a small item to show the clear and precise financial information to the investors or bankers. For example, pen drive and CD disk which are small and flexible to bring anywhere.
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As a conclusion, the world of us now's day are quite different from the Pacioli lived. However, as the times change, manual accounting and computerized accounting are still work in now's day. There are playing important role in a business. As a small business, manual accountings are more suitable because it is cheaper than computerized accounting. The transaction in a small business is not complicated like the large business. Therefore, the development of technology now's day are easier a large business to record the financial transaction to monitor the financial success or failure of business. The evolution of the bookkeeping are bring many benefits to the business and important to an organization.
One of the advantages is regulating accounting information through accounting standards increased comparability. Also, it provides more additional guidelines and rules to ensure the consistency of financial transactions with same data and format from various organizations, especially different industries. For example, if all companies using different format and different set of data to prepare their financial report, this will increases the difficulty for investors to compare the reports from different companies.
Moreover, regulated accounting information reduces opportunities for earnings management through judgments to ensure fair value accounting. Managers and auditors might have different judgment to discover the impaired assets and the value of assets. Therefore, under standards IAS 36 - Impairment of Assets and IAS 38 - Intangible Assets, assets are ensure do not over their recoverable amount and the define the ways determine the recoverable amount. Also, the conditions of the life of assets are based on reasonable and supportable assumptions to ensure that it is under fair value.
In addition, regulated accounting information will improve clarity and verifiability of financial reports. Financial report of companies are required to provide information based on the list of requirements from accounting standards to ensure that companies have provide their general information to public. The information in financial reports is very useful for investors to make decisions about their investment. For example, the explanatory notes are required include in financial report to provide information and explanations for investors to proper understand the development and changes in amounts of material.
Besides advantages, regulating accounting information through accounting standards also has some limitations.
One of the limitations is regulating accounting information will reduces flexibility of creating own set of issues. With a strict set of accounting rules, the financial reports of different companies have to prepare their own statement by using same comparable approaches. Due to no flexibility, the financial reports on a company has to included a lots of unnecessary information, it increases the complexity of financial reports and investors have trouble to search for the information that their needed.
In addition, regulating accounting information will increase complexity. There are exhaustive list of requirements of the standard and this will make companies information not easily to understand, also some information not particularly useful. There are many standards are unnecessarily complex, too much detailed guidance will not easy to understand and become complicated. Also, the complexity of accounting standard will make the financial reports became longer. The requirements of annual reports increase make less effective for investors to find the information they need and reduces the ability of investors to compare the report of different companies.
Historical cost is the price of an asset recorded in the balance sheet based on the original cost when it is purchased by a company. It includes the cost of ownership and any cost that attribute to bringing to asset to the location.
Historical cost is more reliable because it is less likely to be affected by manipulation. Historical cost is based on the actual value of the transaction occurred. It is the cost of obtaining the assets. It can be supported and proved by evidences such as invoices and receipts. Thus, the risk of manipulation of figures by the managers can be minimized.
Besides, historical cost accounting is an easier way to be valued compared to other methods such as current value accounting. The historical cost is easy to be determined since the original cost of an asset is already fixed because it is supported by the evidences and could not be changed or modified anymore. Accountants do not have to estimate the value of the asset. It is also easier for the auditor to check their account.
Historical cost accounting enables managers to predict the future operational cost. Managers need information about their past decisions in order to forecast the future operational cost. Historical cost accounting is related to the past decisions directly. Therefore, it can help managers to predict the future operational cost based on the past data and decision.
The disadvantage of historical cost is that historical cost does not consider the changes in the price level. Historical cost focuses on the cost allocations but not the value of an asset. Historical cost accounting does not consider the changes in the value of money due to the changes in price level such as during inflation. Inflation will increase the price of an asset and cause the asset to be more expensive in the future.
Historical cost accounting will cause incorrect depreciation charges. Accountants will have to calculate the depreciation cost for the assets every year. However, the depreciable value may be higher or lower than it is suggested. The depreciable value can be changed due to many factors such as maintenance, wear and tear, and other external factors. Changes in these factors will cause incorrect depreciation charges on the assets.
For current value accounting, assets and liabilities have to be measured at their market or current value.
Current value accounting enables the comparability of local and international accounting information. Current value accounting requires accounting data to be represented in its current value. It enables company to provide financial statements which are more accurate. Therefore, the data is comparable because it is not affected by timing differences such as the changes in price level.
The advantage for current value accounting is it is relevant for decision-making purposes. Assets recorded at their current value are more accurate compared to historical cost. The financial statements are also more realistic. Companies are required to provide information regarding the changes that are made on their financial statements when they are using this method. Therefore, it is easier for the company to examine the financial statements and make wiser decision for future business operations.
Current value accounting also benefits the investors. It provides more useful and relevant information to investors because it is recorded based on the actual value of assets and liabilities. In this way, investors can have a clearer picture of the company's performance. This enables them to make wiser decisions whether to invest in the company or not.
Current value accounting is said to be very subjective. Current value accounting requires assets to be recorded at the current value but not the actual value of the asset. The current value of the assets is determined by the managers. However, the exact current value is difficult to be determined because the individual point of view might be different with others. As such, the current value accounting would be subjective.
Current value accounting also reduces the company's book value. The company will have to make adjustment to the assets when the assets experience a significant drop in the value. The company can simply make accounting adjustment that will change the company's book value. However, if the value rises back, the company will not make any adjustment on it. This will reduce the company's book value.
In my opinion, historical cost accounting is more suitable to be used compared to current value accounting. This is because value of asset recorded based on current value accounting is not accurate because the value determined by the managers might be different. Whereas historical cost accounting do not require managers to determine the value of asset because the value is based on the cost of obtaining the asset. Therefore, it is more accurate compared to current value accounting.