Name of the student - DHEERAJ DAWAR

Enrollment no. -

02280301714

Course BBA, Semester II {Evening Shift}

Batch : 2014-2017
Subject Code 110
Subject COST ACCOUNTING
RESEARCH ASSIGNMENT

I offer my gratitude and sincere regards to RUKMINI DEVI INSTITUTE OF

ADVANCED STUDIES, GGSIP University, New Delhi for giving us very
important training in B.B.A.

I pay my sincere thanks and humble regards to Mrs. Pooja Kalra my instructor
who give me the best of her knowledge. I am thankful to her as she has been a
source of advice, motivation and inspiration. I am also thankful to her for her
suggestions and motivation throughout the project work.

I would like to express my humble request to our library staff for providing me

opportunity to utilize their resources for the project.

I am also thankful to my family members and companions for constantly

motivating me to complete my project and providing me an environment which
enhanced my knowledge.

DHEERAJ DAWAR
02280301714

QUESTION

Money spent on installing a costing system is not an expense but an investment.

Give your views.

SOLUTION:

Money spent on installing a costing system is NOT AN EXPENSE but

it is an INVESTMENT

Businesses spend money before they ever open their doors. Startup expenses are those expenses
incurred before the business is running. Many people underestimate startup costs, and start their
business in a haphazard, unplanned way. This can work, but it is usually much harder. Customers
are wary of brand new businesses with makeshift logistics.
Use a startup worksheet to plan your initial financing. Youll need this information to set up
initial business balances, and to estimate startup expenses. Dont underestimate costs.

Startup expenses: These are expenses that happen before the beginning of the plan,
before the first month. For example, many new companies incur expenses for legal work,
logo design, brochures, site selection and improvements, and other expenses.

Startup assets: Typical startup assets are cash (in the form of the money in the bank
when the company starts), and in many cases starting inventory. Other starting assets are
both current and long-term, such as equipment, office furniture, machinery, etc.

Startup financing: This includes both capital investment and loans. The only investment
amounts or loan amounts that belong in the startup table are those that happen before the
beginning of the plan. Whatever happens during or after the first month should go instead
into the Cash Flow table, which will automatically adjust the Balance Sheet.

Timing is Everything
Some people are confused by the specific definition of startup expenses, startup assets, and
startup financing. They would prefer to have a broader, more generic definition that includes,
say, expenses incurred during the first year or the first few months of the plan. Unfortunately, this
would also lead to double counting of expenses and non-standard financial statements. All the
expenses incurred during the first year have to appear in the Profit and Loss statement of the first
year, and all expenses incurred before that have to appear as startup expenses.

Dont count expenses twice; they go in Startup or Profit and Loss, but not both. The only
difference is timing. Similarly, dont buy assets twice; they go into the Startup if you acquire
them before the starting date. Otherwise, put them in the Profit and Loss.
Expenses vs. Assets
Many people can be confused by the accounting distinction between expenses and assets. For
example, theyd like to record research and development as assets instead of expenses, because
those expenses create intellectual property. However, standard accounting and taxation law are
both strict on the distinction:

Expenses are deductible against income, so they reduce taxable income.

Assets are not deductible against income.

Through put Accounting (TA) is a principle-based and simplified management

accounting approach that provides managers with decision support information for enterprise
profitability improvement. TA is relatively new in management accounting. It is an approach that
identifies factors that limit an organization from reaching its goal, and then focuses on simple
measures that drive behavior in key areas towards reaching organizational goals. TA was
proposed by Eliyahu M. Goldratt as an alternative to traditional cost accounting. As such,
Throughput Accounting is neither cost accounting nor costing because it is cash focused and
does not allocate all costs (variable and fixed expenses, including overheads) to products and
services sold or provided by an enterprise. Management accounting is an organization's internal
set of techniques and methods used to maximize shareholder wealth. Throughput Accounting is
thus part of the management accountants' toolkit, ensuring efficiency where it matters as well as
the overall effectiveness of the organization. It is an internal reporting tool. Outside or external
parties to a business depend on accounting reports prepared by financial (public) accountants
who apply Generally Accepted Accounting Principles (GAAP) issued by the Financial
Accounting Standards Board (FASB) and enforced by the U.S. Securities and Exchange
Commission (SEC).

The most common objection is that of the expense of operation. It is true that some extra labor
may be required, but not to the extent that most foundry men believe. There is in nearly every
office that is not systematized, and where costs of production are not determined, sufficient
unnecessary work done to cut down the extra labor to a minimum. In many cases, where the
office force has been systematized, and where pay roll work and cost work have been unified, it
has not been necessary to employ any additional help at all.

Cost System an Investment, Not an Expense

A system will not run itself; neither will it in itself reduce costs nor increase efficiency. This is
strictly up to the foundry man himself. A system will give him information, and if this
information is properly used, he will unquestionably find that his system is not an item of
expense, but a very valuable investment.

If old and antiquated equipment is replaced by modern equipment before the old is worn out it is
replaced because it is expected that the amount expended will increase profits either from a
reduction in costs or from an increase in production. Money spent in this way is considered an
investment and not an expense. Office methods have been improved to quite as large an extent as
has foundry equipment, and an investment in improved office methods will produce a return just
as great as an investment in improved machinery.
UNIFORM COST FINDING METHODS AND THE
EFFECT ON COMPETITION

Fundamental Principles of Accounting

In the manufacture of castings, uniform cost-finding methods or fundamental principles of cost

accounting can be laid down and can be satisfactorily followed by all manufacturers. There are
no essential differences in the processes of manufacturing castings, whether grey iron, malleable
iron, steel, bronze, brass, or aluminum, that distort a uniform cost practice. Only occasionally
does one find local conditions that are peculiar to individual companies and it is rare to find
local conditions that materially affect the introduction of uniform cost-finding methods.
An examination of the cost accounting systems of different foundries, where no attempt has been
made to adopt uniform methods, shows that a variety of widely different methods are used to
ascertain the cost of producing castings. This is particularly true in the matter of determining the
cost of producing different patterns of castings, the cost of producing the work of a given
customer, or the cost of particular jobs. Cost classifications of all conceivable arrangements are
found while hardly any two companies treat the same elements of cost in a like manner.
Important and appreciably large elements of cost are found to have been overlooked entirely by
some companies. The result is extremely wide differences in costs which are not true differences
but differences, to a very large extent, due to variation in methods of ascertaining costs. It is a
condition that is adverse to sound trade relations and to the best interests and welfare of the
industry.
Healthy trade conditions throughout the foundry industry demand that each manufacturer know
his costs, that he knows his profitable and his unprofitable work, and that he obtain

FOUNDRY COST ACCOUNTING

A fairly uniform profit on each line of work he produces. Remember, in figuring costs, you want

to know the truth; you want to ascertain at what price you should sell your product, and the
danger line below which you should not sell. Intelligent competition in the foundry industry, as
in all other industries, depends upon a general knowledge of costs, upon intelligent estimates,
and upon each member of the industry arriving at his costs and his estimates in a uniform and
similar manner.
What a company spends to acquire assets is not deductible against income. For example, money
spent on inventory is not deductible as expense. Only when the inventory is sold, and therefore
becomes cost of goods sold or cost of sales, does it reduce income.
Generally companies want to maximize deductions against income as expenses, not assets,
because this minimizes the tax burden. With that in mind, seasoned business owners and
accountants will always want to account for money spent on development as expenses, not
assets. This is generally much better than accounting for this expenditure as buying assets, such
as patents or product rights. Assets look better on the books than expenses, but there is rarely any
clear and obvious correlation between money spent on research and development, and market
value of intellectual property. Companies that account for development as generating assets can
often end up with vastly overstated assets, and questionable financials statements.
Another common misconception involves expensed equipment. The U.S. Internal Revenue
Service allows a limited amount of office equipment purchases to be called expenses, not
purchase of assets. You should check with your accountant to find out the current limits of this
rule. As a result, expensed equipment is taking advantage of the allowance. After your company
has used up the allowance, then additional purchases have to go into assets, not expenses. This
treatment also indicates the general preference for expenses over assets, when you have a choice.

Why You Dont Want to Capitalize Expenses

Sometimes people want to treat expenses as assets. Ironically, thats usually a bad idea, for
several reasons:

Money spent buying assets isnt tax deductible. Money spent on expenses is deductible.

Capitalizing expenses creates the danger of overstating assets.

If you capitalized the expense, it appears on your books as an asset. Having useless assets
on the accounting books is not a good thing.

Types of Startup Financing

Investment is what you or someone else puts into the company. It ends up as Paid-in
Capital in the Balance Sheet. This is the classic concept of business investment, taking
ownership in a company, risking money in the hope of gaining money later.

Accounts payable are debts that will end up as Accounts Payable in the Balance Sheet.
Generally this means credit-card debt. This number becomes the starting balance of your
Balance Sheet.

Current borrowing is standard debt, borrowing from banks, Small Business

Administration, or other current borrowing.

Other current liabilities are additional liabilities that dont have interest charges. This is
where you put loans from founders, family members, or friends. We arent recommending
interest-free loans for financing, by the way, but when they happen, this is where they go.

Long-term liabilities are long-term debt or long-term loans.

Expect a Loss at Startup

The loss at startup is very commonat this point in the life of the company, youve already
incurred tax-deductible expenses, but you dont have sales yet. So you have a loss. Dont be
surprised; its normal.

Cash Balance on Starting Date

Cash requirements are an estimate of how much money your startup company needs to have in
its checking account when it starts. In general, your Cash Balance on Starting Date is the money
you raised as investments or loans minus the cash you spend on expenses and assets. As you
build your plan, watch your cash flow projections. If your cash balance drops below zero then
you need to increase your financing or reduce expenses. Many entrepreneurs decide they want to
raise more cash than they need so theyll have money left over for contingencies.
However, although that makes good sense when you can do it, it is hard to explain that to
investors. The outside investors dont want to give you more money than you need, for obvious
reasonsits their money!

CONCLUSION:

Money spent on installing a costing system is NOT AN EXPENSE but

it is an INVESTMENT because investment done once always someday
yields a profitable amount of return to the investor though it is only a
onetime investment (expense) but the favorable factors of the investment
provides last long returns to the investor so it can be concluded that
INVESTMENT is not an EXPENSE.