This document provides an overview of accounting concepts for managers. It defines accounting as recording, classifying, and summarizing financial transactions and events. Accounting serves to guide and control business activities, analyze results, and provide information for decision making. It distinguishes between bookkeeping and accounting, and describes the branches of accounting. The accounting cycle and basic principles like the accounting equation and double-entry system are also summarized.

1. ACCOUNTING FOR
MANAGERS
Dr.R.Vasanthagopal
University of Kerala

2. Accounting-Introduction
Accounting is the 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
(American Institute of Certified Public Accountants
(AICPA))

3. Purpose of Accounting
 To provide the means of guiding and controlling the
business activities
 To analyze and interpret the results enabling the
management to find out the past, present and future
 To provide guidelines for making wise decisions to achieve
the corporate objectives

4. Book Keeping Vs. Accounting
 Book keeping is the art and science of recording business
transactions in a systematic manner
 The scope of book keeping is confined to recording of
business transactions only.
 Accounting on the other hand processes, analyses and
interprets the data for the purpose of meeting the
requirements of different users.
 Thus, book keeping represents only a part of total
accounting system
 However, book keeping serves as the base for accounting.

5. Branches of Accounting
 Financial Accounting
 Cost Accounting
 Management Accounting
 Each branch emerged owing to the developments in
the corporate world
 Cost accounting and management accounting cannot
exist without a suitable system of financial accounting

6. Accounting-An Information
System
 Accounting as the language of business
 Accounting is designed primarily to serve the different
stakeholders in their decision making process
Business
transactions
Analysis and
Interpretation
Reports,
statements etc.
Input Processing Output

7. Users of Accounting Information
 Internal parties
 Top management
 Middle managers
 Lower level managers
 External parties
 Share holders
 Debenture holders
 Other financiers
 Govt. and tax authorities
 General public

8. Uses of Accounting Information
 Managerial decisions
 Managerial planning
 Managerial control
 Evaluation of performance
 Assistance to external parties

9. Generally Accepted Accounting
Principles (GAAP)
 GAAPs guide an govern the accountants in their
functions of preparing the Accounting reports.
 GAAPs comprise of
 Assumptions
 Concepts
 Principles
 Conventions and
 Rules

10. Generally Accepted Accounting
Principles (GAAP): Structure
GAAP
Assumptions
Concepts
Principles
Conventions
Rules
Cost principle
Business entity
Going concern
Money measurement
Accounting period concept
Objectivity
Dual aspect concept
Accrual principle
Matching principle
Realization principle
Conservatism
Consistency
Materiality
Disclosure

11. Systems of Accounting
 Cash System
 Accrual System
 Hybrid (Mixed) System

12. Steps in Accounting
(Accounting Cycle)
 Recording
 Classifying
 Verification
 Summarizing
 Analysis and Interpretation
Journal
Ledger
Final Accounts
Ratio Analysis
Trail Balance

13. Business Transactions
 Any event, activity, dealing or happening whose effects can
be measured in terms of money.
 Transactions may be of:
 Cash transactions
 Credit transactions
 Barter/exchange transactions
 Book or paper transactions (E.g. depreciation charged on
factory building)

14. Accounting Equation
 Assets= liabilities+ proprietors capital
 Proprietors capital= Assets-liabilities
 Profit= Proprietors capital at the end- Proprietors capital at
the beginning

15. Principles of Double-entry
System of Accounting
 Every transaction has two effects (dual effects)
 Increase in the assets and a corresponding increase in
the liabilities. E.g. Investments made by the proprietor
 Decrease in the assets and a corresponding decrease in
the liabilities. E.g. Payment of suppliers bill
 Decrease in some assets and a corresponding increase
in some other assets. E.g. Cash purchase of some
assets.
 Decrease in some liabilities and a corresponding
increase in some other liabilities. E.g. Conversion of one
kind of loan.

16. Principles of Double-entry
System of Accounting-Cont’d
 For every transaction there are two aspects-receiving
aspects and giving aspects.
 E.g. Firm A buys raw material worth Rs. 10000 from firm B
 Firm A: Effect 1: Receives goods worth Rs. 10000 from B
2: Gives Rs.10000 to B
 Firm B: Effect 1: Receives Rs. 10000 from A
2: Gives goods worth Rs.10000 to A

17. Kinds of Accounts
Kinds of
Accounts
Personal
Accounts
Impersonal
Accounts
Real
accounts
Nominal
accounts
Natural personal accounts
Artificial personal accounts
Representative personal accounts
Tangible
accounts
Intangible
accounts
Expense
accounts
Income
accounts

18. Summary Rules for Debit and
Credit
Sl.No Kind of account Debit Credit
01 Personal accounts The receiver The giver
02 Real accounts What comes
in
What goes
out
03 Nominal accounts Expenses
and losses
Incomes
and gains

19. Rules of Debit and Credit
Sl.No Category of accounts Rules of debit and credit
01 Assets Debit increase in an asset
Credit decrease in an asset
02 Liabilities Debit decrease in a liability
Credit increase in a liability
03 Capital Debit decrease in capital
Credit increase in capital
04 Income and gains Debit decrease in an income
Credit increase in an income
05 Expenses and losses Debit increase in an expense
Credit decrease in an expense

20. Journal
 Journal derived French word Jour means a
day
 Journal means a day book or daily record
wherein the transactions of business concern
are recorded on daily basis in the order of
their occurrence.
 It is also called a book of Original or Prime
Entry as the transactions are first recorded in
the journal

21. Ledger
 Ledger is derived from the Dutch word
Lagger means Lie (kept).
 It refers to a book wherein different accounts
of all persons, assets, expenses,
incomes,etc.are kept and maintained.
 It is also called Book of Secondary or Final
Entry.

22. Trail Balance
 It is statement and it is prepared at the end of
a specified period
 It is prepared with the help of the balances in
ledger accounts
 Only those ledger accounts which show
some balance appear in the tail balance