The document provides an overview of key accounting concepts for budding managers. It defines accounting and discusses its functions and branches. It also covers accounting terminology, the accounting cycle, classification of accounts, types of accounts, and accounting concepts such as business entity, money measurement, and matching. Finally, it discusses accounting conventions like consistency, materiality and conservatism, as well as funds flow statements.

1. ACCOUNTING FOR
BUDDING MANAGERS
Dr. P. MATHURASWAMY
B.Com, MBA, M.Phil, M.Com, PhD, UGC-NET

2. Accounting
n It is concerned with the use of which the
records are put, their analysis and
interpretation.
n It is the process of recording business
activities that make changes to
accounts.
n Sales of products, Revenue from
services earned, Buying products
and/or services and so on.

3. Attributes of Accounting
It is the art of recording business
transactions.
It is the art of classifying business
transactions.
The transactions or events of a business
must be recorded in monetary terms.
It is the art of summarizing financial
transactions.
The results should be communicated to
users.

4. Functions
n Systematic record of business
transactions.
n Protecting the property of business.
n Communicating results to users.
n Compliance with legal requirements.

5. Users of Accounting Information
• Owners
• Creditors (Suppliers)
• Investors
• Employees
• Government
• Public
• Research Scholars / Agencies
• Managers

6. Preparers
(Decision Facilitators)
Accountants
Managers
Users
(Decision Makers)
Creditors
Owners
Others
Auditors
(Credibility Enhancers)
Managers

7. Branches of Accounting
Financial Accounting (Record keeping)
Cost Accounting (Price fixation &
Operating efficiency)
Management Accounting (Analysis for
decision making)

8. Advantages of Accounting
n Replacement of Memory
n Evidence in court
n Tax purpose
n Comparative study
n Sale of business
n Assistance to the insolvent
n For various parties

9. Limitations
• Records only monetary transactions
• Effect of price level changes not
considered
• No realistic information
• Personal bias of accountant affects the
accounting statements
• Permits alternative treatments (LIFO,
FIFO)
• No real test for managerial performance
• Historical in nature

10. Accounting Terminology
• Business: An organization created with the objective of
making a profit from the sale of goods or services.
• Book keeping: The act of systematically recording the
financial transactions affecting a business.
• Book Value: The net amount (original value plus or minus
any adjustments such as depreciation) showed in the
accounts for an asset, liability, or owners' equity item.
• Calendar Year: An entity's reporting year, covering 12
months.
• Transactions: Exchange of goods or services between
businesses or individuals. Can also be other events having an
economic impact on a business.

11. Accounting Terminology
• Journal: A book or original entry in a double-entry
bookkeeping system. The journal lists all transactions and
indicates the accounts to which they are posted.
• Journal Entry: A recording of a transaction where debits
equal credits.
• Ledger: A summary statement of all the transactions relating
to a person, asset, expense or income which have taken
place during a given period of time and show their net effect.
• Trial Balance: A listing of all account balances that provides
a test of whether total debits equals total credits.
• Revenues: Increases in a company's resources from the sale
of goods or services.

12. Accounting Terminology
• Balance sheet: A balance sheet is an itemized
statement which lists the total assets and the total
liabilities of a given business to show its net worth at a
given moment in time (like a snapshot).
• Capital: Property or money used and owned by a
business and used to acquire future income or
benefits.
• Debtor: A debtor is a person who owes money. The
amount due from his is called debt.
• Creditor: A person to whom money is owing or
payable is called a creditor.
• Credit: An entry on the right side of a ledger account.

13. Accounting Terminology
• Goods: This includes all articles, commodities or
merchandise in which the business deals. Thus, cloth would
be goods for a dealer in cloth; furniture would be goods for a
dealer in furniture and so on.
• Assets: Economic resources owned or controlled by a person
or company.
• Net Assets: The difference between assets and liabilities.
• Liquidity: The availability of cash or ability to obtain it quickly.
Also used to determine debt repayment ability.
• Goodwill: An intangible asset that exists when a business is
valued at more than the fair market value of its net assets.
• Interest: The cost of the use of money.

14. Accounting Terminology
• Current Assets: Current assets are those assets of a
company that are expected to be converted to cash, sold, or
consumed during the normal operating cycle of the business
(usually one year). Examples are cash, accounts receivable,
short-term investments, US government bonds, inventories,
and prepaid expenses.
• Current Liabilities: Liabilities to be paid within one year of
the balance sheet date.
• Drawings: Any amount or goods withdrawn by the owner of
a business for personal use is called drawings.
• Bad Debt: An uncollectible Account Receivable.
• Loss: A loss is expenditure without any benefit to the
concern. On the other hand, expense is incurred to result in
some benefit. Thus, amount spent on lighting is an expense
but loss due to fire is loss.

15. Accounting Terminology
• Income: It is an inflow of assets which results in an increase
in the owner’s equity.
• Expenditure: Expenditure takes place when an asset or
service is acquired. Expenditure will include both payment of
a sum immediately and a promise to pay it at a future date.
• Expense: An expenditure whose benefit is finished or enjoyed
immediately such as salaries, rent, etc.
• Turnover: It means total trading income from cash sales and
credit sales.
• Net worth: It means assets minus outside liabilities. Profits of
a business increase net worth whereas losses reduce the net
worth of a business.
• GAAP - Refer to Generally Accepted Accounting Principles.

16. Classification of Accounts
Natural
Persons
Accounts
Personal
Accounts
Impersonal
Accounts
Artificial
Persons
Accounts
Representativ
e Persons
Accounts
Real
Accounts
Nominal
Accounts
Tangible Real
Accounts
Intangible
Real Accounts

17. Types of Accounts
• Natural Person’s Personal Account: An account recording
transactions with an individual human being is known as a
natural person’s Personal Account. (eg. Krishna account)
• Artificial Person’s Personal Account: An account recording
financial transactions with an artificial person created by law
or otherwise is called an artificial person’s personal account.
(eg. VSL College)
• Representative Person’s Personal Account: An account
indirectly representing a person or persons is known as a
representative account. (eg. Salaries account)
• Tangible Real Account: An asset which can be touched,
seen, and measured. (eg. Machinery Account)
• Intangible Real Account: An asset which can’t be touched
physically but can be measured in value. (eg. Goodwill)

18. Rules of Double Entry System
Accounts Rules
Personal
• Debit the receiver
• Credit the giver
Real
• Debit what comes in
• Credit what goes out
Nominal
• Debit all expenses and
losses
• Credit all incomes and gains

19. Accounting cycle
Recording monetary transactions in a systematic
manner
Journal entries
Ledger
Trial balance
Trading and Profit & Loss Account
Balance Sheet

20. Accounting
Concepts

21. The term ‘concept’ is used to
connote accounting postulates, that
is necessary assumptions and
conditions upon which accounting
is based.
These are the theories on how and
why certain categories of transactions
should be treated in a particular
manner.

22. Business Entity
Concept

23. • The business and its owner(s)
are two separate entities

24. Hence…
The Books Of Accounts
are prepared from the
point of view of the
business

25. Capital (Liability)
Drawings (Asset)

26. The Personal Transactions of the
Owner are not recorded.
For Example:
A Car purchased by the owner for
personal use is not Recorded in the
Books Of Account Of the Business.

27. Going Concern
Concept

28. It is assumed that the entity is a
going concern, i.e., it will continue to
operate for an indefinitely long
period in future and transactions are
recorded from this point of view.

29. Money
Measurement
Concept

30. In accounting, a record is made
only of those transactions or
events which can be measured
and expressed in terms of
money.

31. Non monetary transactions are
not recorded in accounting.
Attitude Experience
Innovativeness
Honesty
Team work
Passion
skill

32. Accounting
Period
Concept

33. For measuring the financial
results of a business
periodically, the working life of
an undertaking is split into
convenient short periods called
accounting period.

35. Cost Concept

36. An asset acquired by a concern
is recorded in the books of
accounts at historical cost (i.e.,
at the price actually paid for
acquiring the asset). The
market price of the asset is
ignored.

37. Historical
Cost Of
Market
Value Of

38. Dual - Aspect
Concept

39. For Every Debit,
there is a Credit
Every transaction should
have a two- sided effect to
the extent of same amount

40. • Cash Account Rs. 10,000
Debit
• Sales Account Rs. 10,000
Credit
For Example:
Cash Sales Rs. 10,000

41. • Purchases Account Rs.
20,000
Debit
• Ram’s Account Rs. 18,000
• Discount Recd. Account
2,000
Credit
For Example:
Purchased From Ram goods worth Rs. 20,000
and discount received Rs. 2,000.

42. This Concept has resulted in
THE
ACCOUNTING
EQUATION

44. Realisation
Concept

45. Profit is earned when goods
or services are provided
/transferred to customers.
Thus it is incorrect to record
profit when order is
received, or when the
customer pays for the
goods.

46. Matching
Concept

47. The matching principle ensures that
revenues and all their associated
expenses are recorded in the same
accounting period.
The matching principle is the basis on
which the accrual accounting method
of book- keeping is built.

48. For Example
Salary paid in 2012-13 relating to
2011-12
Such salary is treated as Expenditure
for 2011-12 under Outstanding
Salaries Account, not for the year
2012-13

49. Accounting
Conventions

50. Accounting Conventions are the
common practices which are
universally followed in
recording and presenting
accounting information of
business. It helps in comparing
accounting data of different
business or of same units for
different periods.

51. Materiality

52. Only those transactions,
important facts and items
are shown which are
useful and material for the
business. The firm need
not record immaterial
and insignificant items.

53. Full
Disclosure

54. Financial
Statements and
their notes should
present all
information that is
relevant and
material to the
user’s
understanding of
the statements.

56. Conservatism

57. Anticipate No Profits
but
Provide for all Losses
Accountant should
always be on side of
safety.

58. For Example
• Making Provision for Bad and Doubtful
Debts
• Showing Depreciation on Fixed Assets,
but not appreciation

59. Consistency

60. The accounting practices and
methods should remain
consistent from one accounting
period to another.
Whatever accounting practice is
followed by the business
enterprise, should be followed on
a consistent basis from year to
year.

61. For Example
2009-10
• Straight
Line
Method
2010-11
• Written
Down
Value
Method
2011-12
• Units of
Measure
Method
Year
Method of
Depreciation
followed

62. FUNDS FLOW SATEMENT
The changes which occurred in the current
accounts as a result flow of fund are reflected
in a statement known as ‘schedule of changes
in working capital’ .
The similar changes in non current accounts
are shown in ‘Fund Flow Statement’.
Therefore, following two statements under this
techniques .
1. Statement or Schedule of Changes in
Working Capital.
2. Statement of Sources and Uses of Funds or
Funds Flow Statement.

63. FORMAT:
SCHEDULE OF CHANGES IN WORKING CAPITAL
When the Current Asset Increases =
Increases in Working Capital
When the Current Asset Decreases =
Decreases in Working Capital
When the Current Liabilities Increases =
Decreases in Working Capital
When the Current Liabilities Decreases =
Increases in Working Capital
All Assets Opening Balance Debit
All Assets Closing balance Credit
All Liabilities Opening Balance Credit
All Liabilities Closing Balance Debit