Income Accounting-Inseparable to Cost accounting.A paradigm study.
Cost Accounting is Related to Study of Cost parameters to arrive at optimisation of revenue .There is dimension to the efficiency .
Income accounting is related to study of external factors that will fetch maximum revenues out of available opportunities.There is dimension again to earnings efficacy.
§ Income Accounting is a process of analysing and arriving at a choice of Maximising revenues from Opportunities.
§ While Cost Accounting Addresses Cost Minimisation issues.Management accounting Reposes Faith on effective reporting of management concerns on Opportunities and impact of management decisions.Financial management concerns with Risk-Return to optimise revenue.Financial Accounting Concerns matching of Revenues with Expenses.Income accounting is a system of Assessing “What if” and “Why Not” of opportunities of earnings.
Revenue Realisation is Impacted by market sentiments.
Differential pricing due to segmentation.
Opportunities of Globalisation.
Overall strength of the market that is addressed-Recovery aspect.
Market sentiments-Maxim “Right product,Right Time,Right Place”-Cost triggered Product mix issues.
Segmentation of market-Production related Sales decision as well as market expansion aim.
Emerging Global opportunities-Revenue of currency differentials.
Strength of revenue realisation in the market.
Did Cost Accounting Miss it?
Yes-Its focus had all along been Cost engineering in the process it neglected Income analysis.
Profit centre identification and segmentation of revenue to match with cost collection is one aspect and talking of Maximising through income-mix is another.
No-Cost accounting consisting of methods of accounting and its technique are sufficient to be extended to income-concept analysis.
Current Practices:
Off Balance-sheet approach:A decision to earn is often left to top management(The Board).Financial analysis comprising of IRR/NPV for capital investment decision.”Stabilised revenue” or “mean recovery” approach on the premise of Perfect competition-Seller sets the price and thus impacts Income ,approach is adopted.
Revenues do not reflect volatility of earning and opportunity availed to earn them.It is just a mere consolidation of receipts from area-wise/customer-wise/product-wise/Preference to sell –wise.
Do Income need break-down analysis and reflection in Integrated Cost-management system.Answer is yes!
Recognise Revenues as improvables.
Match revenues with cost.
Create Profit centres.
Use activity Based Cost-revenue matching.
Study Revenues from maximising perspective in coordination with sales department.
Revenues –Matrix.
Matching revenue with Cost-Cost accounting is identification classification and allocation of cost to product and processes as to arrive at true picture of Profit when matched with activity.The process is not complete without identification of cost centres,Profit centres and Activity centres where inflow and out flow can be matched.While Cost is broken-down to product and processes .Income should also be broken down into Opportunities and activity centres that are linked to profit centres should now be linked to new concept of Opportunity(for maximisation of revenue)centres cost should be prorated to find and concentrate on the best available opportunity –Eliminating bottlenecks to opportunity of earning higher revenues.
Matching of Opportunity centre with Cost.
§ An Opportunity centre is one from where the revenue is actually realised.
§ It could be with reference to a product a single product/similar product/Market/Customer/Place.
§ A single product is an Opportunity when it fetches revenues differently when focussed.
§ A similar product is one when it earns incremental revenue to the one normally produced.
§ A market in relation to product is one that generates incremental revenue when focussed.
§ A customer or group similarly enjoys incremental revenue status.
§ So is a place in relation to Product and resultant revenue
Constraints to Opportunity
§ Time of delivery and advantage to competitors.
§ Barriers of space-Political/inaccessible.
§ Perishable product itself.
§ Taxation.
§ Cost of transportation and logistics.
§ Cost of customer and market retention.
§ Threat of loosing next best and stable opportunities.
§ Loss of buffer in the long run(MRP and its related benefits).
Methods of Income accounting
§ Like methods of Costing-Job costing/process costing/contract-costing/lifecycle costing methods of Income depiction involves “single product many opportunities analysis”’Similar product best opportunity analysis”’Differential pricing for markets and customer analysis”.The accountal of these will be segmented with cost spread on the basis of actual sales realisation in case of each opportunities instead of “mean spread”earlier adopted and “activity spread method” currently used.
Techniques of Income accounting
§ The techniques of costing like marginal costing/Budgeting/Standard costing can be employed for revenue generation as well where standards of revenue can be fixed for a product based on expectation of yield and related cost incurred and realisation can be compared to ascertain whether the product continuance is justified.
§ Similarly Marginal revenue is the minimum required for sustenance of the product or that revenue required to continue with the opportunity in segmented condition
Conclusion
§ Income Accounting enables realistic assessment of Product sustainability.
§ It dispels the Notion that revenues are of a fixed pattern and probes into a possible improvement in maximising revenues.
§ It accepts the fact that revenues follow a complex structure as cost do.
§ It tries to classify revenues into opportunities and matches with related cost.
§ It is global in application for product and services where competition is matured
Cost Accounting is Related to Study of Cost parameters to arrive at optimisation of revenue .There is dimension to the efficiency .
Income accounting is related to study of external factors that will fetch maximum revenues out of available opportunities.There is dimension again to earnings efficacy.
§ Income Accounting is a process of analysing and arriving at a choice of Maximising revenues from Opportunities.
§ While Cost Accounting Addresses Cost Minimisation issues.Management accounting Reposes Faith on effective reporting of management concerns on Opportunities and impact of management decisions.Financial management concerns with Risk-Return to optimise revenue.Financial Accounting Concerns matching of Revenues with Expenses.Income accounting is a system of Assessing “What if” and “Why Not” of opportunities of earnings.
Revenue Realisation is Impacted by market sentiments.
Differential pricing due to segmentation.
Opportunities of Globalisation.
Overall strength of the market that is addressed-Recovery aspect.
Market sentiments-Maxim “Right product,Right Time,Right Place”-Cost triggered Product mix issues.
Segmentation of market-Production related Sales decision as well as market expansion aim.
Emerging Global opportunities-Revenue of currency differentials.
Strength of revenue realisation in the market.
Did Cost Accounting Miss it?
Yes-Its focus had all along been Cost engineering in the process it neglected Income analysis.
Profit centre identification and segmentation of revenue to match with cost collection is one aspect and talking of Maximising through income-mix is another.
No-Cost accounting consisting of methods of accounting and its technique are sufficient to be extended to income-concept analysis.
Current Practices:
Off Balance-sheet approach:A decision to earn is often left to top management(The Board).Financial analysis comprising of IRR/NPV for capital investment decision.”Stabilised revenue” or “mean recovery” approach on the premise of Perfect competition-Seller sets the price and thus impacts Income ,approach is adopted.
Revenues do not reflect volatility of earning and opportunity availed to earn them.It is just a mere consolidation of receipts from area-wise/customer-wise/product-wise/Preference to sell –wise.
Do Income need break-down analysis and reflection in Integrated Cost-management system.Answer is yes!
Recognise Revenues as improvables.
Match revenues with cost.
Create Profit centres.
Use activity Based Cost-revenue matching.
Study Revenues from maximising perspective in coordination with sales department.
Revenues –Matrix.
Matching revenue with Cost-Cost accounting is identification classification and allocation of cost to product and processes as to arrive at true picture of Profit when matched with activity.The process is not complete without identification of cost centres,Profit centres and Activity centres where inflow and out flow can be matched.While Cost is broken-down to product and processes .Income should also be broken down into Opportunities and activity centres that are linked to profit centres should now be linked to new concept of Opportunity(for maximisation of revenue)centres cost should be prorated to find and concentrate on the best available opportunity –Eliminating bottlenecks to opportunity of earning higher revenues.
Matching of Opportunity centre with Cost.
§ An Opportunity centre is one from where the revenue is actually realised.
§ It could be with reference to a product a single product/similar product/Market/Customer/Place.
§ A single product is an Opportunity when it fetches revenues differently when focussed.
§ A similar product is one when it earns incremental revenue to the one normally produced.
§ A market in relation to product is one that generates incremental revenue when focussed.
§ A customer or group similarly enjoys incremental revenue status.
§ So is a place in relation to Product and resultant revenue
Constraints to Opportunity
§ Time of delivery and advantage to competitors.
§ Barriers of space-Political/inaccessible.
§ Perishable product itself.
§ Taxation.
§ Cost of transportation and logistics.
§ Cost of customer and market retention.
§ Threat of loosing next best and stable opportunities.
§ Loss of buffer in the long run(MRP and its related benefits).
Methods of Income accounting
§ Like methods of Costing-Job costing/process costing/contract-costing/lifecycle costing methods of Income depiction involves “single product many opportunities analysis”’Similar product best opportunity analysis”’Differential pricing for markets and customer analysis”.The accountal of these will be segmented with cost spread on the basis of actual sales realisation in case of each opportunities instead of “mean spread”earlier adopted and “activity spread method” currently used.
Techniques of Income accounting
§ The techniques of costing like marginal costing/Budgeting/Standard costing can be employed for revenue generation as well where standards of revenue can be fixed for a product based on expectation of yield and related cost incurred and realisation can be compared to ascertain whether the product continuance is justified.
§ Similarly Marginal revenue is the minimum required for sustenance of the product or that revenue required to continue with the opportunity in segmented condition
Conclusion
§ Income Accounting enables realistic assessment of Product sustainability.
§ It dispels the Notion that revenues are of a fixed pattern and probes into a possible improvement in maximising revenues.
§ It accepts the fact that revenues follow a complex structure as cost do.
§ It tries to classify revenues into opportunities and matches with related cost.
§ It is global in application for product and services where competition is matured
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