Internal Accounting

The definition of Cost Accounting as established in the Management Accounting Terminology booklet, is saying:

"It is a technique or method for determining the cost of a process ... the Cost is determined by direct measurement, systematic assignment and rational allocation."

The technique that these professionals are referring to, and the measurement, the assignment and allocation, must have a very special accounting structure.

The necessary internal procedures and transactions belong to a whole new system arrangement. A new internal Chart of Accounts.

We will NOT be able to establish a good picture of these procedures if we only use the Financial Accounting flowchart, because the External Accounting was never meant to be Cost Accounting.

What system would we have to build in order to comply with these needs and requirements?

A new Chart of Accounts - specifically structured for the Internal Accounting, with accounts for Departments, Functional Activities, Re-Allocation and detailed structure for Absorption Costing.

Within Cost Accounting, or as it may be called " Internal Accounting",

we have to use different approaches to questions of evaluations of production

costs compared to the general views express in GAAP.

The rules and regulations within the Internal Accounting must provide specific information for internal use within a company.

THE NEW CHART OF ACCOUNTS will give Management information that they have NEVER received from the Financial Accounting's chart of accounts - and detailed facts that will be highly important to manage their company.

In NO way we should continue within the next millennium with same accounting structure as our good University Professors have shown to their students for the last 50 years.

It is absolutely unacceptable that our Cost Accounting books and the large CPA companies still try to include within the Financial Accounting's Chart of Accounts procedures that belong exclusively within the Internal Accounting.

It is unreasonable that we, Professionals of accounting science, still use the term Overhead - and in real life charts, use only ONE such Overhead account for ALL production departments of our company.

Today we do not have any acceptable structure of the Chart of Accounts that could be used for the important Responsibility Accounting System.

This Responsibility Accounting System must be referring to all departments of our company and not only for the production departments.

We also have to reject as unacceptable the account called Work in Process Inventory.

This term was created only because our Professors had to have some account within the Assets of our company that would fit within the group of Inventory accounts. But this account is showing the production cost of some product - and NOT the value of only the work in process that was left over in the production department to end of the last day of the month.