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Lies, Damned Lies, and Cost Accounting

Book Description

Business leaders rely on accounting data such as profit and calculated costs as a guide to whether they are making money. Should they? Accounting was designed to report financial performance not model cash flow. Accruals can disconnect cash flow from the timing and extent to which it occurs. Statements of cash flow do not provide insight into what was bought and how efficiently it was used. Costs and profits are not absolute, they change based on the model you use to calculate them. To manage cash, you must manage what you buy and how effectively you use it. The largest expenditure for most companies is capacity; space, labor, materials, equipment, and technology. Unless you model and manage capacity effectively, you will not achieve the cash flow results you seek. This book introduces capacity management, describes cash flow dynamics, and offers ideas about how to manage both. After reading it, you be able to see, understand, and manage cash flow as never before.

Table of Contents

  1. Cover
  2. Half Title Page
  3. Title Page
  4. Copyright Page
  5. Dedication
  6. Contents
  7. Acknowledgments
  8. Introduction
  9. Chapter 1 Blue Pill or Red Pill?
    1. So What?
  10. Chapter 2 The Foundation
    1. Generating Cash
    2. Reporting Earnings
  11. Chapter 3 Profit has Little to do with Making Money
    1. Revenue Recognition
    2. The Practice of Costing
    3. Cost Definitions
    4. Efficiency
    5. Inventory
    6. Depreciation
  12. Chapter 4 Revenue Recognition
  13. Chapter 5 The Practice of Costing
  14. Chapter 6 Cost Definitions
    1. Calculated Costs
    2. The Numbers Aren’t Financial
  15. Chapter 7 Understanding Efficiency
  16. Chapter 8 Inventory
  17. Chapter 9 Depreciation
  18. Chapter 10 Revisiting the Objective—Cash and Decision-Making
    1. Forced Relationships
    2. Losing Track of Relationships
    3. Meaningless Numbers
    4. No Single Cost
    5. Arbitrary Relationships
    6. No Ties to Cash Flow
  19. Chapter 11 Transactions and Capacity
    1. Capacity
    2. One-off Scenarios
    3. Obligations
  20. Chapter 12 Input Capacity
    1. Cash Transactions
    2. Cost Determined by What is Purchased
    3. The Cost is Independent of Use
  21. Chapter 13 Output Capacity
    1. Consuming Input
    2. There is No Cash Transaction
  22. Chapter 14 Understanding the Basics of Capacity Dynamics
    1. Efficiency
    2. Effectiveness
    3. Productivity
  23. Chapter 15 Understanding the Cost Dynamics of Capacity
    1. Purposeful Allocation Techniques
    2. Less Purposeful
    3. Conclusion
  24. Chapter 16 Do You Need Accounting?
    1. Hindsight
    2. Data in Foresight
  25. Chapter 17 Getting Managerial Information from Capacity
    1. Modeling
    2. Models Operations More Effectively
    3. Serves as an Intersection between Operations and Accounting
  26. Chapter 18 Explicit Cost Dynamics Revisited
    1. Complicated
    2. Did not Push the Idea
    3. Immature Understanding
  27. Chapter 19 What is Explicit Cost Dynamics?
    1. Contribution Margins and Fixed versus Variable Costs
    2. Focusing on Cash Using Capacity
  28. Chapter 20 Worth
    1. Understanding Worth
    2. Explicit Cost Dynamics
    3. Worth
    4. Efficiency
    5. Chapter 21 The Red Pill
    6. Dynamics of Profit
    7. Cost Reduction
    8. Improved Investment
  29. Appendix A
  30. Appendix B
  31. Index