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Introduction to Accounting

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Introduction to Accounting

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seemaraniphd
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© © All Rights Reserved
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Introduction to

Accounting
Accounting ?
 Process of counting money (Mesopotamia)
 Access to financial information (Roman Empire)
 Abacus developed by Chinese in 3000 BC, used for
counting, calculating and number writing
 European countries started business in several
countries and it has made accounting complex.
 Fra Luca, a mathematician, has introduced the
double accounting system in 1494.
 The merchants started writing in money with
description of transactions.
 It is known as Journal in todays era.
Development of Accounting
 With the introduction of Joint Stock Company, the
relevancy of accounting has been introduced.
 Internal Accounting (Cost and Management
Accounting)
 External Accounting (Financial & Corporate
Accounting)

 Disclosures Regulations

 Accounting of business is based upon Proprietary


Theory/Business Entity/Enterprises Theory
(Stakeholders).
Regulations for Accounting
 GAAPs covers
 Basic Accounting Principles
 Industry specific accounting practices
 Mandatory/Recommendatory GAAPs

 GAAPs based accounting


 No standard procedure for Accounting
 Separate GAAP for each nature of business
 Issues for stakeholders
GAAPs Accounting Principles
 Accounting Assumptions
 Business Entity
 Accrual
 Going Concern
 Principles/Concepts
 Periodicity Concept
 Historical Cost
 Matching
 Monetary Unit
 Materiality Concept
 Prudence/Conservatism
 Consistency
 Disclosure
Regulated GAAPs (Accounting Standards)
 Accounting Standard is a common set of principles and
standard procedures that defines the basis of Financial
Accounting Policies and Procedures and Practices.
 Provides the standardized way of reporting of financial
transactions.
 Avoid diverse accounting policies and procedures.
 Helpful in deciding the transparency and Comparability of
Financial Reporting
 Organization for Setting up AS
 International Accounting Standards Committee (1973) / IASB
(1981)
 Institute of Chartered Accountants of India - ASB (1977)
 IFRS Foundation (2010)
 AS in force
 International Accounting Standards (IAS) –
 Accounting Standards (AS) - 27
IFRS
 Why IFRS
 FII/FPI
 ADR/GDR
 International Stock Exchange Listing
 International Mergers & Acquisitions
 Foreign Subsidiaries
 Converged IFRS in India (Ind – AS)
 Ind-AS (27)
 IFRS (17)
IFRS - Applicability
 Voluntary – I (2015-16) - All companies except NBFC,
Banking and Insurance Sector

Mandatory
 Phase - I (2016-17) – Listed/Unlisted (NW => 500
Crores) Companies other than above category
 Phase - II (2017-18) – Listed/Unlisted (NW => 250
Crores) Companies other than above category
 Phase - III (2018-19) – NBFC (NW => 500 Crores)
 Phase - IV (2019-20) – NBFC (NW => 250 Crores)
 Phase - V (2020-21) – Insurance Sector of any NW
Basic Terminology
 Capital (AC, IC, SC, PC)
 Liability (IL, EL)
 Assets (FA, IA, TA, PA, CA)
 Goods
 Revenue (Operating/Non-Operating)
 Income
 Expenditures (Revenue, Capital, Deferred)
 Debtors
 Creditors
 Depreciation (Amortization/Depletion)
 Financial Cost
Accounting Equation

 Business Entity Assumptions


 Assets = Claims
 Assets = Liability + Capital
 Capital = Assets – Liability
Management Accounting

Management Accounting is an integral part of


management concerned with identifying, presenting and
interpreting information used for

(ii) planning (iv) optimizing


(i) formulating (iii) decision
and controlling the use of
strategy making
activities resources

(v) disclosure
to shareholders (vii)
(vi) disclosure
and others safeguarding
to employees
external to the assets
entity
Nature of Management
Accounting
Useful in decision • The essential aim of management accounting is to assist
making management in decision making and control.

Financial and cost • Basic accounting information useful for management


accounting accounting is derived from financial and cost accounting
information records.

• Information provided by management accounting is exclusively


Internal use for use by management for internal use.

• Management accounting is a purely voluntary technique and


Purely optional there is no statutory obligation. Its adoption by any firm
depends upon its utility and desirability.
• As management accounting is concerned with decision making,
Concerned with it is related with future because decisions are taken for future
future course of action and not the past.

Flexibility in • In management accounting there are no prescribed formats for


presentation of presentation of information to management.
information
Scope of Management
Accounting
Financial accounting

• Financial accounting provides basic historical data which helps management to forecast
and plan its financial activities for the future period.

Cost accounting

• Many of the techniques of cost control, like standard costing and budgetary control, and
the techniques of profit planning and decision making, like marginal costing, CVP analysis
and differential cost analysis, are used by the management accounting.

Budgeting and forecasting

• Forecasting helps in the preparation of budgets and budgeting helps management


accountant in exercising budgetary control.

Tax planning

• In order to take advantage of various provisions of tax laws, the management accountant
has to depend upon tax accounting and planning to minimize the tax liabilities and save
more funds for the business.

Reporting to management

• For effective and timely decisions, there should be a system of prompt and intelligent
reporting to management.
Scope of Management
Accounting
Cost control procedures

• Any system of management accounting is incomplete without effective cost


control procedures, like inventory control, labour control, overhead control and
budgetary control.
Statistical tools

• Various tools of analysing and presenting statistical data, like graphs, tables and
charts, are used in preparing reports for use by the management.

Internal control and internal audit

• Management accountant heavily depends on internal financial controls like internal


audit and internal check to plug loopholes in the financial system of the concern.

Financial analysis and interpretation

• Management accountant employs various techniques to analyse and interpret


financial data to make it understandable and useable to the management.

Office services

• Management accountant is expected to maintain and control office routines and


procedures, like filing, copying, communicating, electronic data processing and
other allied services.
Financial and Management
Accounting
Basis Financial Accounting Management
Accounting
Users External User Internal User

Accounting Method It is based on Double Its is not based on Double


Entry System Entry System
Statutory It is obligatory Not obligatory
Requirement requirement as per laws
Analysis of It shows the business Individual analysis of
Cost/Profit profit/loss products, plants is
possible
Time orientation Based on historical data It is based on past as well
i.e. past data as future data
Reporting Prepared on YoY, QoQ It is prepared on need
based
Accounting AS is applicable on Not bound to follow the
Standards preparation of FA AS

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