Micro Accounting

From CEOpedia | Management online

Micro Accounting is deals with the creation of financial reports that are important information for managers, owners, regulators and other stakeholders[1]. Micro accounting covers enterprises and is the opposite to macro accounting. According to Syed Sajid:, Accounting is often called the language of business through which normally a business house communicates with the outside world"[2].

Accounting Principles

Accounting is based on standards that are called accounting principles. These principles fall into two categories[3]:

  • Accounting Concept these are the basic principles on the basis of which the financial statement is prepared.
  1. Business Entity Concept/ Separate Entity Concept
  2. Going Concern Concept
  3. Accounting Concern Period
  4. Money Measurement Concept
  5. Cost Concept
  6. Dual Aspect Concept
  7. Matching Concept or Periodic Matching of Cost or Revenue Concept
  8. Realization Concept
  • Accounting Conventions this term means generally accepted traditions or customs that guide the accountant when preparing the financial statement.
  1. Consistency
  2. Conservatism
  3. Materiality
  4. Disclosure

Macro and Micro Accounting theory

In the second half of the 20th century in Japan, there was a fear of integrating macro accounting with micro accounting. Kurosawa believed that for accounting to be part of economics sciences a combination of macro and micro accounting must occur. To connect both areas of Bray and Richard Stone they proposed a special system of accounts[4].

Combining macro and micro via a standardized chart of accounts was considered, however, a conceptual problem is emerging. Business and domestic accounting is sometimes similar in terminology but different in concept. Both systems worked on a different concept. In micro accounting, the transaction is recorded twice because it affects various balance sheet items, and in macro accounting, that is in domestic accounting, double-entry affects economic entities[5].

Another difference is the use of historical cost models, this is very common in business accounting and has never been used in national accounting. In macro accounting, it is more important to obtain positive value and achieve a result, and in micro accounting, it is more important to sell and profit[6].

According to Stephen P. Walker:, On a global level, value added represents the value created by an economic system. At the level of an individual entity, such as a company, it shows the value created by that company exclusive of its consumption of items created by other economic entities"[7].

Examples of Micro Accounting

  • Accounting for inventory: Inventory is a very important asset for any business, so it must be tracked and accounted for properly. Micro Accounting involves tracking the cost of goods purchased, the cost of goods sold, and the value of inventory on hand.
  • Accounting for fixed assets: Fixed assets, such as buildings, machinery, and equipment, must be tracked in the accounting system. Micro Accounting involves tracking the acquisition cost, depreciation, and book value of the fixed assets.
  • Accounting for customer accounts receivable: Businesses must track the accounts receivable balances of their customers and the status of those accounts. Micro Accounting involves tracking the customer name, invoice amount due, and the amount of payments received.
  • Accounting for accounts payable: Businesses must also track their accounts payable to vendors and suppliers. Micro Accounting involves tracking the vendor name, the amount of the invoice, and the payments made.
  • Accounting for payroll: Micro Accounting involves tracking the wages paid to employees, taxes withheld, and the payments made to various payroll tax agencies.
  • Accounting for taxes: Micro Accounting involves tracking the income taxes due and the payments made to the appropriate tax agencies.

Advantages of Micro Accounting

Micro Accounting is an important tool for managers, owners, regulators and other stakeholders to gain insight into a company’s financial performance. Here are some of the advantages of Micro Accounting:

  • It is a cost effective way to monitor and track the financial performance of a business, as it can be done without the need for a full-time accountant.
  • Micro Accounting can provide a detailed analysis of a company’s financial performance, including key indicators such as profits, cash flow, and expenses.
  • It can be used to compare the performance of a company over time, and to identify areas where the business may be underperforming.
  • Micro Accounting can also be used to monitor the performance of individual departments or products within a business.
  • The use of Micro Accounting allows businesses to make informed decisions by providing detailed reports that can be used to make strategic decisions.
  • It can also help to reduce the risk of fraud and errors, as it is easier to spot discrepancies in a company’s financial statements.

Limitations of Micro Accounting

Micro Accounting is a complex and intricate process of creating financial reports. It is used to create reports that are important to managers, owners, regulators and other stakeholders. However, there are several limitations of Micro Accounting that should be noted. These include:

  • The complexity of the process can lead to errors in the financial reports that may be difficult to catch.
  • Micro Accounting is time consuming and can be costly, making it difficult to manage on a small scale.
  • Micro Accounting is often focused on short-term results, which may not provide a comprehensive view of the company’s performance.
  • Micro Accounting does not provide a clear picture of the company’s overall financial health.
  • Micro Accounting does not always account for non-financial factors, such as customer satisfaction, employee morale, and corporate social responsibility.

Other approaches related to Micro Accounting

Micro Accounting is the practice of creating financial reports that are important information for managers, owners, regulators and other stakeholders. Other approaches related to Micro Accounting include:

  • Managerial Accounting - This approach focuses on the internal decision makers within a business entity and provides financial information to help them make better informed decisions. Managerial accounting includes budgeting, cost management and performance evaluation.
  • Financial Accounting - This approach focuses on the external decision makers such as shareholders, creditors, lenders, and other stakeholders. Financial accounting provides financial statements to help them make informed decisions about the financial condition of a business entity.
  • Tax Accounting - This approach focuses on the taxation of a business entity. It includes the preparation of accurate tax returns, the calculation of tax liabilities, and the management of tax compliance.
  • Regulatory Accounting - This approach focuses on the regulation of a business entity by government entities, such as banks and other financial institutions. Regulatory accounting involves the submission of financial reports to government agencies, as well as compliance with government regulations.

In summary, Micro Accounting is the practice of creating financial reports that are important information for managers, owners, regulators, and other stakeholders. Other approaches related to Micro Accounting include Managerial Accounting, Financial Accounting, Tax Accounting, and Regulatory Accounting.


Micro Accounting — recommended articles
Accounting Principles — Accrual method — Money measurement concept — Revenue expenditure — Cost principle — Accounting documents — Periodicity concept — Nominal account — Accrual basis accounting

References

Footnotes

  1. ↑ Sajid S.(2010)
  2. ↑ Sajid S.(2010)
  3. ↑ Sajid S.(2010)
  4. ↑ Mattessich R.(2007)
  5. ↑ Walker S.P.(2009)
  6. ↑ Walker S.P(2009)
  7. ↑ Walker S.P(2009)

Author: Oliwia Kamińska

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