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_cost Estimate Report

Cost accounting is a managerial practice that evaluates fixed and variable costs to enhance understanding of expenses and profitability during production. The document outlines the process of preparing an income statement, including selecting a reporting period, generating a trial balance, calculating total sales revenue, determining the cost of goods sold, and including operating expenses. Additionally, it highlights the importance of cost accounting in construction for financial health insights and data-driven decision-making.

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1 views

_cost Estimate Report

Cost accounting is a managerial practice that evaluates fixed and variable costs to enhance understanding of expenses and profitability during production. The document outlines the process of preparing an income statement, including selecting a reporting period, generating a trial balance, calculating total sales revenue, determining the cost of goods sold, and including operating expenses. Additionally, it highlights the importance of cost accounting in construction for financial health insights and data-driven decision-making.

Uploaded by

joyceoliva760
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Introduction to Cost Accounting

WHAT IS COST ACCOUNTING?

● Cost accounting is a managerial accounting practice focused on evaluating both fixed


and variable costs.
● Its goal is to help a company understand the expenses involved at different stages of
production and how these costs affect profitability.
● Focus: Cost structure analysis, expense allocation, and decision-making for future
profits.

PREPARING INCOME STATEMENT

INCOME STATEMENT

An Income Statement shows a company's revenues, expenses, and profitability over a period
of time. It is also referred to as an earnings statement or a profit-and-loss (P&L) statement.

How to write an Income Statement?

1. Pick a Reporting Period

● Choose a period for which to generate financial reports (monthly, quarterly, or annually).
● Publicly traded companies report quarterly and annually, while smaller businesses may
use less stringent reporting.

2. Generate a Trial Balance Report

● A trial balance report lists the end balances of each account in the general ledger for a
specific reporting period.
● It provides the necessary figures for creating an income statement.

3. Calculate Your Balance

● Total sales revenue for the reporting period includes all payments for services rendered.
● Even if payments aren't yet received, include the full revenue in your statement.

4. Determine Cost of Goods Sold (COGS)

● COGS includes direct labor, materials, and overhead costs.


● The COGS is recorded beneath the revenue line in the income statement.

5. Calculate the Gross Margin

● Gross margin is derived by subtracting the COGS from the total revenue.
● It represents the total earnings from goods and services before operating costs are
considered.

6. Include Operating Expenses

● List all unavoidable operating costs, like selling and administrative expenses.
● Make sure to review each expense to ensure accuracy.

Importance of Cost Accounting in Construction

● Cost accounting provides insights into a company's financial health and the profitability
of projects.
● It enables businesses to make data-driven decisions, plan future expenditures, and
optimize cost efficiency.

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