Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Accounting and Finance

821 views

Published on

Mahatma Gandhi University provides presentation for " Accounting & Finance" .For more Information about "Accounting & Finance". Visit Online: http://www.mgu.edu.in/

  • Be the first to comment

Accounting and Finance

  1. 1. COURSE CODE:: MP102 COURSE:: ACCOUNTING AND FINANCE FOR MANAGERS Unit -1:: BASIC CONCEPTS OF ACCOUNTING
  2. 2. OBJECTIVES  Define the concept of accounting  Discuss various functions of accounting  Explain the difference between bookkeeping and accounting  Describe accounting as a source of information  Identify different users of accounting information  Elaborate on the role of accounting  Describe the three branches of accounting  Define the basic accounting terms
  3. 3. INTRODUCTION Accounting is an old concept which came into existence with the beginning of money, business, economics and banking. Generally, accounting is referred to as a “language of business” and its concepts, conventions, policies and standards have undergone changes several times. The concept of accounting is very essential for the managers as it is applied in the day-to-day working of an organization. Managers of each department must be well versed with the basic accounting concepts to understand various costs, revenue, and profit. Accounting concepts help to understand various financial transactions, methods of recording them, and evaluating them to get the desired results. These concepts not only provide information to managers of an organization, but also to other stakeholders of the organization. Accounting, hence, is the basic requirement for growth and smooth working of an organization.
  4. 4. CONCEPT OF ACCOUNTING  According to the American Accounting Association (AAA): “Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.”  As per the Committee on Terminology of the American Institute of Certified Public Accountants (AICPA): “Accounting is the art of recording, classifying and summarizing in a significant manner, and in terms of money, transactions and events which are, in parts at least, of a financial character, and interpreting the results thereof.”
  5. 5. ADVANTAGES OF ACCOUNTING  Maintaining the Business Records.  Preparing the financial statement.  Comparing results.  Helping in Decision Making.  Providing information to interested groups.  Providing legal evidences and helping in preventing any misconduct or threats from rival organizations.
  6. 6. LIMITATIONS OF ACCOUNTING  Focuses only on financial transactions or events while ignoring the non-monetary items.  Leads to wrong conclusions if the assumptions of accounting data are inaccurate.  Obtains biased information from the accountant if he/she willing makes inappropriate estimations.  Shows fixed asset at a particular cost, which would depreciate over time.  Provides accounting information on a yearly basis only while the information can also be required for a shorter duration
  7. 7. ROLE OF ACCOUNTING  Role of Language: Involves maintaining and processing the financial information required by a business entity for its management and reporting purposes.  Role of Information System: Involves collection and communication of financial information about an enterprise to the interested parties.  Role of Historical Records: Involves the recording of information in the form of a profit and loss account, and balance sheet at the end of the financial year.
  8. 8. USERS OF ACCOUNTING INFORMATION Users of Accounting Information Internal Users Owners Manageme nt External Users Banks and Financial Institutions Investors and Potential Investors Creditors Government and its Authorities Society
  9. 9. BRANCHES OF ACCOUNTING Branches of Accounting Financial Accounting Cost Accounting Management Accounting
  10. 10. FINANCIAL ACCOUNTING  According to Kohler’s Dictionary for Accountants, “Financial accounting is the accounting for revenues, expenses, assets and liabilities that is commonly carried on in the general office of a business.”  The result of the financial accounting process is communicated to the decision makers through the financial statements.  As per Accounting Standard 3 issued by the Institute of Chartered Accountants of India, there are mainly three financial statements: • Income statements (trading account and profit and loss account) • Balance sheet (assets and liabilities) • Cash Flow Statement
  11. 11. COST ACCOUNTING  According to ICMA, London: “Cost Accounting is the application of cost accounting principles, methods and techniques to the science, art and practice of cost control and ascertainment of profitability. It includes the information derived therefrom for the purpose of managerial decision making”.  The steps involved in the cost accounting process are as follows: • Cost determination: Calculation of cost incurred on a particular product or activity. • Cost recording: Recording of the determined cost in the cost journal and posting to the ledger. • Cost analysis: Evaluation of cost information to assist the planning and controlling of the business activities • Cost reporting: Reporting of cost data for internal and external reporting purposes
  12. 12. MANAGEMENT ACCOUNTING  Management accounting is the process of designing the accounting system for the management.  Management is primarily concerned with the supply of information that is useful for- decision-making, planning, and controlling of the business operations and, thus, maximizing profit.  The Chartered Institute of Management Accountants (CIMA), London, defines Management Accounting as follows: “The process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non- management groups such as shareholders, creditors, regulatory agencies and tax authorities.”
  13. 13. BASIC ACCOUNTING TERMS  Assets: Refers to the property or legal rights owned by an individual or organization. • Fixed Assets: Refers to the assets that are purchased for the purpose of business operations and not for resale. • Current Assets: Refers to the assets that are kept for short term with the purpose of converting them into cash or for resale like- debtors, cash, bank balance and bills receivables. • Tangible Assets: Refers to the assets that are provided in the physical form. For example, land, building, plant, and machinery. • Intangible Assets: Refers to the assets that do not have any physical form, for example- goodwill, trademarks, patents, and copyrights.  Expenses: Refers to the cost incurred by an organization while producing products and services for earning revenue.  Income: Refers to the profit earned over a given duration. In other words, income is the difference between revenue and expenses
  14. 14. BASIC ACCOUNTING TERMS (CONTD.)  Expenditure: Is an amount of money paid by an organization in exchange of the benefit received. • Capital Expenditure: Refers to the amount spent on purchasing assets, the benefit of which lasts for more than a year. • Revenue Expenditure: Refers to the amount spent on the purchase of goods and services that are consumed within a short period, say within a year.  Revenue: Refers to the amount earned by an organization from its normal business operations. It is mainly generated by selling the products or providing services to customers.  Debtor: Refers to an individual or an entity who owes money to an individual or organization generally, on account of credit sales.  Creditor: Refers to an individual or an entity to whom an organization owes money. Creditors provide goods and services to the organization on credit for which they would be paid later by the organization.
  15. 15. SUMMARY  Accounting is the process of identifying, recording, classifying, summarizing, and analyzing the financial transactions of an organization in a systematic manner.  Accounting process involves: Recording, Classifying, Summarizing, Analyzing and interpreting, and Communication.  Its objective is to- maintain business records, calculate profit and loss, depict financial position etc.  The three major branches of accounting are: Financial accounting, Cost Accounting and Management Accounting. © Dreamtech Press

×