Analytical accounting is presented as “refined general accounting”. General accounting manages entries by nature (expenses, income, depreciation, etc.): its purpose is to determine the company's assets and its overall result thanks to the establishment of the balance sheet. While analytical accounting manages them by destination (activity 1, activity 2, etc.): it aims to dissect the overall result by product or by activity. Thus, the vast majority of management decisions are taken on the basis of cost accounting produced by management control.
Analytical accounting: implementation
Cost accounting is accounting adjusted to general accounting.
This means that with each entry a classic accounting account remains affected. The specificity is that we also assign an analytical code that corresponds to a focus that we want to make on a product or an activity of the company. Thanks to this code, we will be able to produce finer financial information.
We can determine a result and profitability by product or by activity.
Analytical accounting: the processing of expenses
The objective is to allocate its costs to each product.
In general, it is easy to assign sales to an analytical code since analytical accounting is intended to reflect the different categories of sales. On the other hand, it is more difficult to assign all the loads to it. Some are obvious to assign: these are the direct costs, implying directly attributable to a product.
Others are said to be indirect, such as rents for example, because they are common to all products or activities.
Thus, for an optimization of cost accounting, there will be adjustments to be made via internal re-invoicing to allocate to each sale its share of indirect charges.
Cost accounting: applications
We will talk here about two applications of cost accounting widely used in companies, namely: the full cost method and those based on variable costs. In analytical accounting, the full cost incorporates all of the company's expenses and is therefore an indicator of the selling price.
So, if we sell at a price equal to full cost then our result is zero.
The full cost is the minimum selling price to which a margin rate is added.
In cost accounting, the approach with variable costs is a little different and is used to determine the minimum number of products to sell: the break-even point. There are incompressible costs called fixed costs, such as rents (which are both indirect and fixed charges).
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