2. What is Accounting?
• Accounting is a process of identifying, classifying and recording the business
activities to provide the economic information to interested users.
• It is one of the fastest growing concept and most popular field of study.
• Accounting can be defines as career.
• Accounting is a language of business.
• It is important for both accountants and non accountants.
• It provides the information for planning , controlling and decision making.
3. Users of Accounting Information
1. Internal Users- Those users who are directly
involve in day to day operation of organization.
They require information for internal use.
2. External Users- Those who are not directly
associated with the organization but they also
require information for their own purpose.
6. Accounting is the process of measuring, interpreting, and
communicating financial information to support internal and
external business decision making.
8. Operating Activities
• The business activities which are involved in the day to
day activities is called operating activities.
• Activities which result the cash inflow or outflow in
connection with the purchase and sales of tradable items
of goods.
• Such transactions may appear at least once in a year in
the organization.
• For e.g. sales revenue, interest revenue, dividend
received, purchase, operating expenses, interest
expenses, Tax expenses etc.
9. Investing Activities
• Those activities which are related to the purchase and
sale of business assets, investments and intangible
assets is called investing activities.
• Such transactions are not necessary to be appeared at
least once in a year in the business.
• For e.g. purchase and sales of plant, property and
equipment, purchase and sales of intangible assets
and investment.
10. Financing Activities
• Those activities which are related with the raising funds
required for the business and repayment of fund is called
financing activities.
• It is also non operating activities.
• It affects the changes in long-term liabilities and stockholders
equity section in balance sheet.
• For e.g. issue of shares, loan taken and repayment of loan,
issue and redemption of debt securities , dividend paid etc.
11. Accounting process - set of activities involved in
converting information about transactions
into financial statements.
12. Relationship of Financial, Management, and Cost
Accounting
FINANCIAL
ACCOUNTING
MANAGEMENT
ACCOUNTING
COST
ACCOUNTING
Product
Costs
14. What is Financial Accounting?
• Financial accounting is the preparation and communication of
financial information to its users.
• Financial accounting is based on Generally Accepted Accounting
Principles[GAAP].
• It records only monetary transactions.
• It is fully guided by GAAP.
• The data and information which financial accounting provides is
historical natured.
• Under financial accounting, the reports are generally prepared for a
certain specified period.
15. To be continue….
• It does not have any provision of cost control and cost planning. It
merely focuses on the recording of cost in financial reporting.
• It is a statutory obligation for a firm.
• Under financial accounting, the valuation of inventory is made on the
basis of cost or market value whichever is less.
• The users of financial accounting are mainly external users such as
government, debtors , creditors, investors etc.
• It generally intends to report the result of business operation and
financial condition for a period.
• The nature of financial accounting is routine and clerical.
17. 17
Managerial
Accounting
Financial accounting
Nature Records material,
labour and overhead
costs in product or
job
Reports produced
are for internal
management and
contol
Records company
transaction events
External financial
statements are
produced
Accounting
system
Not based on the
double entry system
Follows the double
entry system
18. 18
Managerial
Accounting
Financial Accounting
Accounting
principles
No need to use
accounting principles
Adopt any
accounting techniques
that generates useful
accounting
information
Use Generally
Accepted Accounting
Principles for recording
transactions
Users of
information
Used by different
levels of management
or departments
responsible for
respective activities
Used by external
parties: shareholders,
creditors, government,
etc
20. 20
Managerial
Accounting
Financial Accounting
Time focus Future orientation:
forecasts, estimates
and historic data for
management
actions
Past orientation: use
of historic data for
reporting and
evaluation
Perspective Detailed analysis of
parts of the entity,
products, regions,
etc
Financial summary of
the whole orgainisation
22. 22
Managerial
Accounting
Cost Accounting
Objective To provide
information for
planning and
decision making by
the management
To ascertain and
control cost
Basic of
recording
Concerned with
transactions related
to the future
Based on both present
and future transactions
for cost ascertainment
23. 23
Managerial
Accounting
Cost Accounting
Coverage Covers a wider
area: financial
accounts, cost
accounts, taxation,
etc.
Covers matters
relating to
ascertainment and
control of cost of
product or service
Utility Only the needs of
internal
management
The needs of both
internal and external
interested groups
26. 26
Financial
Accounting
Cost Accounting
Objective The main objective
of financial
accounting is to
prepare the financial
statement and
communicate to the
users.
To ascertain and
control cost
Basic of
recording
Concerned with
transactions related
to historical.
Based on both present
and future transactions
for cost ascertainment
27. 27
Financial
Accounting
Cost Accounting
Coverage It works with
financial statements
and and reporting it
.
Covers matters
relating to
ascertainment and
control of cost of
product or service
Statutory
obligation
It is a statutory for
a firm to maintain
financial accounting.
It is not a statutory
for a firm to maintain
cost accounting.
28. 28
Financial
Accounting
Cost Accounting
Inventory
valuation
Inventory Valuation
is made on the basis
of cost price or
market price
whichever is less.
Inventory Valuation is
made on the basis of
cost price.
Cost control It does not have any
provision of cost
control.
It aims on controlling
costs such as material,
labor, overhead.
Users It mainly focuses on
external users.
It mainly focuses on
internal users.
29. Generally Accepted Accounting
Principles. [GAAP]
• Financial Accounting has evolved accounting principles,
concepts and conventions which are generally accepted
and universally practiced.
• Financial accounting relies on certain standards or
guides which remains same all over the world are called
GAAP.
• These principles are established by International
Financial Accounting Standard Board [IFASB].
32. What is Business?
A continuous economic activity carried out to earn profit
through:
Production and sales of goods and services to customers
Generating and rendering services
Legal and continuous process
33. Forms of Business organization.
1.Sole trading firm.
2.Partnerships.
3.Corporations/Joint
stock companies.
34. 1. Sole proprietorships.
Advantages Disadvantages
-Easy to establish. -Limited capital.
-effective management. -Unlimited liability.
-incentive to work. -Lack of effective management.
-no profit sharing. -Narrow scope.
-quick decision. -No loss sharing.
-tax advantage. -Lack of perpetual existence.
-high secrecy.
35. 2. Partnerships.
• Advantages
-Easy to establish.
-Tax advantage.
-Effective management.
-Easy for promotion.
-Risk sharing.
-New idea and skills.
-Easy to collect capital.
• Disadvantages.
-Unlimited liability.
- Lack of perpetual existe
-Conflict.
-Delay in decision making
-Lack of sufficient capital
-Profit sharing.
-Difficulty in secrecy.
36. 3. Corporations/Joint stock company.
• Advantages.
-sufficient capital.
-Limited liability.
-Ownership transfer.
-Democratic management.
-Effective management.
-Perpetual existence.
-Popular in market.
• Disadvantages.
-Difficulty in formation.
-Delay in decision.
-Lack of secrecy.
-Profit sharing.
-Excessive legal provision