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1.1 Introduction to Accounting

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1.1 Introduction to Accounting

Uploaded by

Safalta Singh
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© © All Rights Reserved
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Accounting for Managers

MBA 1st Semester


By
Dr. Mohammad Anees
Department of Management,
Faculty of Management Studies (FMS),
University of Lucknow, Lucknow

1
Syllabus: CC 103 Accounting for Managers
Unit I
Introduction to Accounting -Basic Concepts, Purpose, Importance, Scope and Limitations of Accounting Users of
Accounting, Information, Generally Accepted Accounting Principles (GAAP) and Accounting Standards (AS),
International Financial Reporting Standards (IFRS) –need and significance. Ethical Dimensions in Reporting of
Accounting Information
Unit II
Financial Statements Preparation and Analysis- Preparation of Income Statements and Balance Sheet, Contents of
Corporate Annual Reports, Financial Statement Analysis – Ratio Analysis, Trend Analysis
Unit III
Preparation of Cash Flow Statement, Direct Method-Cash Flow from Operating, Investing and Financing Activities;
Indirect Method of Preparing Cash Flow Statement- Reconciliation of Net Income to Net Cash Provided by
Operations,
Unit IV
Costing Techniques- Introduction to Costs and Costs Behavior, Absorption and marginal costing, Applications of
marginal costing techniques in managerial decision making
Unit V
Accounting for Planning and Control- Budgets and Budgetary Control, Various Types of Operating Budgets, and
Financial Budgets, Flexible Budgeting, Rolling Budget and Zero-Based Budgeting Variance Analysis, Management
Control System and Responsibility Accounting.
References:-
Management Accounting –Charles Horngren
Management Accounting- Khan and Jain, Tata Mc. Graw Hills
Management Accounting- Ananthanrayanan, P.S. Oxford Publication
Financial Accounting - Larsen
2
Introduction to Accounting: Basic Concepts
“Accounting is an Art of Recording,
Classifying and summarizing in a
significant manner and in terms of
money, transactions and events which
are, in part at least, of financial character,
and interpreting the results thereof.”
By: “American Institute of Certified
Public Accountants (AICPA)”
3
Nature, Role and Functions of Accounting
1. Accounting as an Art and Science
2. Recording of Business Transactions
3. Classifies Transactions
4. Summarizes Transactions
5. In a Significant Manner
6. Transactions and Events
7. Financial Character focused
8. Knowing and Interpreting the Results

4
Nature, Role and Functions of Accounting (contd..)

Accounting as an Art and Science


o Accounting gives freedom of choice of
policies, methods, techniques and
disclosure of results
o Accounting is based specific rules,
principles and policies which can not be
ignored.
o Accounting works on the basis of certain
objectives
5
Nature, Role and Functions of Accounting (contd..)

Recording of Business Transactions


Initial Recording Takes place on the basis of
basic book known as:

JOURNAL
All the types of transactions are recorded into it

6
Nature, Role and Functions of Accounting (contd..)
Classifies Transactions
• Initial Recording Takes place on the basis of
basic book known as:

LEDGER
Different Accounts involved in the transactions are assorted into it.

7
Nature, Role and Functions of Accounting (contd..)

In a Significant Manner
It means that the accounting is done in a
systematic manner giving significance to the
dynamics of a modern business. These
dynamics are:
1. Changing business Scenario
2. Need of Planning, control and Evaluation
3. Profit making
4. Future direction of Business

8
Nature, Role and Functions of Accounting (contd..)
Summarizes Transactions
All the accounting entries are lastly
summarized with the help of an account
known as:
TRIAL BALANCE
This account is a summary of all the
transactions. These transactions are
further processed to know the business
results in terms of profit or loss and the
latest financial position of business.
9
Nature, Role and Functions of Accounting (contd..)

Transactions and Events


Transactions means an activity involving
flow of cash and some other goods or service
during business. For example: Incurrence of
Sale, purchase, expenses, income. These
transactions may be in cash or in credit.
Events refer here the perspective of
transactions in order to bring clarity in
business transactions
10
Nature, Role and Functions of Accounting (contd..)
Financial Character focused
Accounting is prepared basically on the basis of
monetary or financial aspect. Each transaction has a
monetary value. If it does not have any monetary value
then it is just an event.
Example of Transaction:
Purchase of furniture for Rs 60,000
Event involved:
For the purpose of expansion of business or for
commencing new business.
For Financial Accounting Transactions are basic
requirement and therefore, financial character is
focused.
11
Nature, Role and Functions of Accounting (contd..)
Knowing and Interpreting the Results
Knowing of Results:
Results of Business are known with the preparation of:
1. Profit and loss account
2. Balance sheet
Profit and loss account shows profit or loss for some specific
time period with the help of different expenses, incomes and
revenues.
Balance Sheet is an account showing different assets and
liabilities on some specific point of time.
With the preparations of these two accounts i.e. profit and loss
account and balance sheet the role of financial accounting ends.
12
Nature, Role and Functions of Accounting (contd..)
Interpreting the Results
As you know that role of financial accounting is only till the
final accounts (P/L a/c and BS) are prepared. This is the basic
requirement of each business small or big.
Analysis and interpretation of results shown by final accounts
are done for the purpose of enhancing the performance and
profitability of business. This is done under management
accounting.
Example of Analysis and interpreting the results:
1. Knowing ration through ratio analysis
2. Preparing cash flow and funds flow statements
3. Preparing management reports
4. Budgeting
5. Profit planning and break even analysis
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Financial Vs. Management Accounting
Basis of Difference Financial Accounting Management Accounting
1. Objective Knowing business performance Enhancing business performance
2. How to fulfill By preparing final accounts i.e. By making analysis and
objectives P/L A/C and Balance Sheet interpretation of results
3. Which comes first Financial Accounting is the basic Management accounting comes after
requirement of any business and financial accounting is done.
it comes first
4. Accounts and Journal, ledger, trial balance, P/L Ratio analysis, cash flow, funds flow,
Statements involved a/c and Balance Sheet budgets, managerial reports.

5. Urgency of Basic Additional


requirement
6. Pattern Prescribed as per rules and Not prescribed, financial and non
financial by nature financial by nature
7. Limit of Culminates with the preparation No limit of preparation of accounts.
preparation of final accounts Any accounting other than financial
accounting is management
accounting.

14
After this session you are required to know the following:
1. The concept of accounting
2. Difference between financial and management accounting
3. Journal, ledger, trial balance, Profit loss account and balance
sheet
4. Transaction vs. events
5. Summarizing the business results
6. Analysis of accounts
7. Limits and scope of financial and management accounting
8. Urgency of financial accounting
9. Role of accounting
10. Managerial and accountants perspective of accounting

15

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