When we first learn accounting, one of the cornerstones is the recording of only those transactions that have actually taken place. Here we are in the Standard Cost Accounting chapter and it seems that we’re “pushing the envelope” in this area.
It needs to be remembered that Standard Costing is for management analysis and that it can only be used for financial statement purposes if the results approximate what can be expected from using actual costs. In other words, if the standards that are used are so far astray that the results are misleading in financial statements, those statements would have to be adjusted so that they are more in conformity with conventional GAAP methods of costing. In fact, if the standards are too far out of line, the variance analyses that this chapter emphasizes would be less relevant.
Think of standards as you think of a road map. How do you know you’ve made a wrong turn unless you know the correct route? We all use standards every day that we informally compare with actual results. Can you name some? They needn’t be accounting related or even business related.
Sources:
Principles of Cost Accounting,
Edward J. Vanderbeck; Maria R. Mitchell