Essay: GAAP, JIT, and TOC
Essay: GAAP, JIT, and TOC
In today’ world, industries thrive to be as productive as possible, to maximize their profits while being transparent. To maintain transparency, various standards have been set in different countries which are companies use to compile their financial documents. GAAP is one of the standards used by companies for this purpose. On the other Management tools like Just in Time (JIT) and Theory of Constraints (TOC) help the managerial accounting in taking the decision to minimize the cost incurred within the various processes of an organization (Hilton, 1997).
Implication of GAAP on International Companies
The GAAP introduces various implications for companies operating in the international arena. Different countries have different accounting standard which introduced a significant amount of rework of balance sheets and comparison issues for accountant and auditors. It requires them to prepare and analyze financial reports in accordance with their country’s group of standard as well as in accordance with accounting principles of other countries where the organization operates. The differences include different methodologies used for disclosure of balance sheet and well as tax differences introduced due to the usage of different income calculation methods (Pieniazek, 2007).
The Importance of Just-in-Time
The Just-in-Time (JIT) control system dictates that no material is purchase and no products are manufactured until they are needed. A raw material or parts are purchased only when they are needed in any phase of the production process. Similarly, component parts and assemblies are not manufactured until they are required for the next state. The JIT system is important for accountant managers because it helps them achieve a uniform production rate, minimize the storage and waiting time. It facilitates the purchase of materials and manufacture of products in small lots by employing the pull method. JIT purchasing signifies the importance of having few vendors, which results in less time spent on vendor relations, avoidance of costly inventories with JIT deliveries and establishing the understanding of quality and payment standards. It is also important in the managerial decision in cost based accounting as minimizing production delays results in the elimination of many non-value-costs.JIT favoring of small production lots results in quick and inexpensive setups of production runs reducing the set-up costs and just in time arrival of raw materials and parts reduces the waiting cost related to a particular activity (Hilton, 1997).