Introduction to Financial, Cost and Management Accounting- Generally accepted accounting principles, Conventions and Concepts-Balance sheet and related concepts- Profit and Loss account and related concepts - Introduction to inflation accounting- Introduction to human resources accounting.

1. ACCOUNTING
FOR
MANAGEMENT
Module-I
Semester: I
Course Code: BA5103
Dr.N.Ramesh Kumar

2. UNIT I
FINANCIALACCOUNTING
Introduction to Financial, Cost and Management
Accounting- Generally accepted accounting
principles, Conventions and Concepts-Balance sheet
and related concepts- Profit and Loss account and
related concepts - Introduction to inflation
accounting- Introduction to human resources
accounting.

3. Accounting...
A/C is the language of business.
Communicates the results of
operation and financial position of a
business to various stakeholders

4. Definitions of Accounting
Accounting is an 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 a financial character and
interpreting the results thereof”.
- American Institute of Certified Public
Accountants(AICPA)

5. Objectives of Accounting
• To maintain a systematic record of business
transactions
• To ascertain profit and loss
• To determine the financial position
• To provide information to various users
• To assist the management

6. • Deal with financial transactions
• Recording:- “Journal”.
• Classifying:- “Ledger”.
• Summarising :- “Trail Balance”
• Interpretation:- “Financial Condition”
• Communicating:- “Profit / Loss”
Functions of Accounting

7. Fundamentals of Accounting
• Assets
• Liabilities
• Owner’s Equity

8. Recording
Classifying
Summarizing
Journal
Ledger
Trial Balance
Preparation of Financial Statements
Process of Accounting

9. Users of Accounting Information
EXTRNAL USERS
Financial Accounting
Investors
Creditors
Regulators
Customers
Competitors
Owners
Managers
Employees
INTERNAL USERS
Financial Accounting

10. Branches of Accounting
Financial accounting
Cost accounting
Management accounting

12. Financial accounting
Financial accounting is the area of accounting that
focuses on providing external users with useful
information.
Financial accounting is the process of preparing
financial statements that companies’ use to show
their financial performance and position to
people outside the company, Including investors,
creditors, suppliers, and customers.

13. Scope of Financial Accounting
1. Recording of information
2. Classification of data .
3. Making summaries
4. Dealing with financial transactions .
5. Interpreting financial information .
6. Communicating results
7. Making information more reliable .

16. What Is Cost Accounting?
Cost accounting examines the cost structure of a
business.
It does so by collecting information about the costs
incurred by a company's activities, assigning
selected costs to products and services and other
cost objects, and evaluating the efficiency of cost
usage.

17. Objectives
• Ascertainment of cost
• Control of cost
• Guide to business policy
• Determination of selling price

18. Types of Costs
• Fixed costs are costs that don't vary depending on
the level of production
• Variable costs are costs that don't vary depending
on the level of production
• Operating costs are costs associated with the day-
to-day operations of a business.
• Direct costs are costs specifically related to
producing a product
• Indirect costs are costs that cannot be directly
linked to a product.

20. What is Management Accounting
Management Accounting is the presentation of
accounting information in order to formulate
the policies to be adopted by the management
and assist its day-to-day activities.

21. Definitions of Management
Accounting
“The application of professional knowledge and
skill in the preparation of accounting information in
such a way as to assist management in the
formulation of policies and in the planning and
control of the operation of the undertakings.”
The Institute of Cost and Management
Accountants, London

22. Objects of Management Accounting
• To Assist in Planning
• To Assist in Organising
• To Assist in Motivating
• To Coordinate
• To Control
• To Communicate
• To Interpret Financial Information

23. Role of Management Accounting
• Helping Forecast the Future
• Helping in Make-or-buy Decisions
• Forecasting Cash Flows
• Helping Understand Performance Variances
• Analyzing the Rate of Return

24. Functions of Management Accounting
• Modification of Data
• Analysis and Interpretation of Data
• Facilitating Management Control
• Use of Qualitative Information
• Satisfaction of Informational Needs of
Different Levels of Management

25. Scope of Management Accounting
• Financial Accounting
• Cost Accounting
• Revaluation Accounting
• Statistical Methods
• Operations Research
• Taxation
• Organization and Methods
• Office Services
• Law
• Internal Audit
• Internal Reporting

26. Generally Accepted Accounting
Principles

27. Accounting Concepts
• The separate entity concept: company is treated as
a separate economic entity.
• Money Measurement Concept: transactions that
can be expressed, in terms of money
• Dual Aspect Concept: Every transaction should be
debit, there is a corresponding credit.
• The Going concern concept: company will stay in
operation for in-predictable future.

28. • The principle of conservatism: are available
to record or report transactions.
• The cost principle: assets and liabilities are
recorded at their transaction cost.
• The matching principle: operational efforts
be matched to the operational
accomplishments.
Accounting Concepts

29. Accounting Conventions
1. Conservatism: This convention holds that
accountant must operate safely.
2. Consistency: Accounting Practices are
unchanged, year after year.
3. Material disclosure : 'Materiality' denotes to the
comparative significance of an item or event.
4. Full disclosure Convention: all material facts
must be disclosed in the financial statements.

30. Methods of Accounting
• Single Entry: It is incomplete system of recording
business transactions. The business organization
maintains only cash book and personal accounts
of debtors and creditors
• Double Entry: It this system every business
transaction is having a two fold effect of benefits
giving and benefit receiving aspects.

31. Types of Accounting

32. Golden Rules of Accounting

34. Books of Accounts
• Journal
• Ledger
• Cash Book
• Trial Balance

35. Journal
• The first stage of the accounting process is
journaled and journalizing.
• Journal is the primary book of keeping accounts.
• The book wherein the transactions are recorded in
a chronological order of dates after determining
the debit account and credit account of
transactions with explanation is called journal.

36. Functions of Journal
• Analytical Function: Each transaction is analysed
into the debit aspect and the credit aspect.
• Recording Function: Accountancy is a business
language which helps to record the transactions
based on the principles.
• Historical Function: It contains a chronological
record of the transactions for future references.

37. Features of Journal
• Book of primary entry
• Daily record book
• Chronological order
• Use of dual aspects of transactions
• Use of explanation
• Different columns
• An equal amount of money

38. Procedure for Journal
Date Particular Ledger
Folio
Amount
(Rs.)
Amount
(Rs.)
17.12.2020
…….. Dr if have,
add
xxxx
To …….
(Narration)
xxxx

39. What is a Ledger?
• General Ledger in simple language is grouping of
transactions of similar nature.
• All accounts combined together make
a ledger and form a permanent record of all
transactions.
• It is a book in which all ledger accounts and
related monetary transactions are maintained in a
summarized and classified form

40. Types of Ledger
• Sales Ledger
• Purchase Ledger
• General Ledger
• Nominal Ledger
• Private Ledger

41. Ledger Account Examples
Assets Stock
Cash
Land
Accounts receivable
Equipment
Stockholders Equity
Common Stocks
Retained Earnings
Liabilities Operative Revenues
Debt
Accounts Payable
Loans
Accrued expenses
Sales
Services Fees
Operating Expenses
Salaries and wages
Office Expenses
Depreciation Expense

42. Ledger Account Format
Date Particulars Journal
Folio
Amount
(Rs.)
Date Particulars Journal
Folio
Amount
(Rs.)
To Name of
the debit
account
xxxx By Name
Credit
account
xxxx
To Balance
c/d
xxx By
c/d
xxx
Dr Ledger Account Cr
To Balance b/d By Balance b/d

43. What is Trial Balance?
• Trial Balance is a technique for checking the
accuracy of the debit and credit amounts recorded
in the various ledger accounts.
• It is basically a statement that exhibits the total of
the debit and credit balances recorded in various
accounts of ledger

44. Definition
A trial balance may be defined as a statement of
debit and credit balances extracted from the ledger
with a view to testing the arithmetical accuracy of
the books.
--J.R. Batliboi,

45. Objectives
• Test of arithmetical
accuracy
• Basis for preparing final
accounts
• Location of errors
• Summarised
information of ledger
accounts

46. Steps in Preparation of Trial
Balance
• Calculate the Balances of Each of the Ledger
Accounts
• Record Debit or Credit Balances in Trial
Balance
• Calculate Total of The Debit Column
• Calculate Total of The Credit Column
• Check if Debit is Equal To Credit

47. Methods of Trial Balance
• Total Method
• Balance Method
• Total and Balance Method

48. Key to preparing a trial balance
• Assets
• Expenses
Debit
balance
• Liabilities
• Equity
• Revenue
Credit
balance

50. Problem
Enter the following transactions in journal and
post them into ledger:
2005,
Jan. 1 Mr. Javed started business with cash Rs.
100,000
2 He purchased furniture for Rs. 20,000
3 He purchased goods for Rs. 60,000
5 He sold goods for cash Rs. 80,000
6 He paid salaries Rs. 10,000

51. 2005 Cash A/C Dr 100,000
Jan 1 To Capital a/c
(Being capital brought in business)
100,000
2005 Furniture A/C Dr. 20,000
Jan 2 To Cash A/C
(Being furniture purchased for cash)
20,000
2005 Purchases A/C Dr. 60,000
Jan 3 To Cash A/C
(Being Goods purchased for cash)
60,000
2005 Cash A/C D 80,000
Jan 5 To Sales A/C
(Being Sold goods for cash)
80,000
2005 Salaries A/C Dr. 10,000
Jan 6 To Cash A/C
(Being Salaries paid
10,000
Date Particular L.F Amount Amount
Solution:

52. Ledger
Dr. Cash Account Cr.
Date Particular J.R Amount Date Particulars J.R Amount
2005
Jan.1
Capital A/C 100,000
2005
Jan.2
Furniture A/C 20,000
Jan.5 Sales A/C 80,000 Jan.3 Purchases A/C 60,000
Jan.6 Salaries A/C 10,000
Jan. 31Balance c/d 90,000
Total 180,000 Total 180,000
Feb. 1 Balance b/d 90,000

53. Ledger
Dr. Capital Account Cr.
Date Particular J.R Amount Date Particulars J.R Amount
Jan.31 Balance c/d 100,000 Jan.1 Cash A/C 100,000
100,000 100,000
Feb. 1 Balance b/d 100,000
Dr. Furniture Account Cr.
Date Particular J.R Amount Date Particulars J.R Amount
Jan.2 Cash A/C 20,000 2005, Jan.6 Balance c/d 20,000
20,000 20,000
Feb.1 Balance b/d 20,000

54. Ledger
Dr. Purchases Account Cr.
Date Particular J.R Amount Date Particulars J. Amount
2005, Jan.3 Cash A/C 60,000 2005, Jan.31 Balance c/d 60,000
60,000 60,000
Feb.1 Balance b/d
60,000
Dr. Sales Account Cr.
Date Particular J.R Amount Date Particulars J.R Amount
2005,Jan.31 Balance c/d 80,000 2005,Jan.5 Cash A/C 80,000
80,000 80,000
2005,Feb.01 Balance b/d 80,000

55. Dr. Salaries Account Cr
Date Particular J.R Amount Date Particulars J.R Amount
2005, Jan.6 Cash A/C 10,000 2005, Jan.31 Balance c/d 10,000
10,000 10,000
2005, Feb.01 Balance b/d 10,000

57. Introduction
Inflation accounting is the process used to factor
massive price increases into an organization’s
financial statements.
Inflation accounting refers to the adjustment of
the financial statements during inflationary
periods.
This special accounting technique is only used in
inflationary periods where the general level of
prices is usually high for three consecutive
quarters.

58. Definition
Inflation Accounting refers to Identify and
incorporating the changes in prices of assets and
liability of a company over a period of time.

59. • Involves recording of business transactions at
current value,
• To analyze the impact of changes in price or
business transactions on:
• Costs and Revenues,
• Assets and Liabilities.
Inflation Accounting

60. Salient Features
• Presents true condition
• Facilitates reasonable comparison
• Remove distortions
• Check on Mis-leading deeds
• Improve decision making
• Inbuilt automatic mechanism

61. Objectives and Importance of
Inflation Accounting
• Exhibits true position
• Avoids profit overstatement
• Calculate right depreciation
• Easy profit comparison
• Provides correct information

62. • Current Purchasing Power Method
• Current Cost Accounting
• Current Value
• Replacement Cost Accounting
Techniques of Inflation Accounting

63. • Current Purchasing Power Method
The financial statements are converted into figures at
current purchasing price. However the values of only the
non-monetary items are converted.
– Conversion factor = Price Index at time of conversion / Price
Index at the date of conversion
– CPP Value = Conversion Amount or Historical Value x
Conversion Factor
Techniques of IA

64. • Current Cost Accounting
Under this method assets are shown at current
costs and profits are determined on the basis of
costs at the date of sale rather than the actual
cost.
• Current Value
Under this method all assets and liabilities
are measured at current value at which they
could be sold or settled at the current date.
Techniques of IA

65. • Replacement Cost Accounting
Under this method all assets and liabilities are
recorded on a balance sheet according to the
cost of replacing them rather than their
historical costs.
Techniques of IA

67. • Human Resource Accounting is the process of
identifying and measuring data about Human
Resources and communicating this information to
the interested parties.-American Accounting Society Committee on
HRA
• It is an attempt to identify and report the
Investments made in Human Resources of an
organisation that are currently not accounted for in
the Conventional Accounting Practices
What is Human Resource Accounting

68. • Cost of Human Resources i.e. the expenditure
incurred for recruiting, staffing and training the
Quality of the Employees and
• Value of Human Resources i.e. the yield
which the above investment can yield in the
future.
Objectives of HRA?

69. Methods of HRA
Cost Based Models Value Based Models
Capitalization of
Historical Costs
Model
Replacement
Costs Model
Opportunity Cost
Model
PV of Future
Earnings Model
Reward Valuation
Model
Valuation on Group
Basis

70. 1. Capitalisation of Historical Cost: costs related to
Human Resources (i.e. Recruitment, Acquisition, Formal
Training, Informal Training and development)
2. Replacement Costs: the costs that would be incurred
to replace its existing human resources by an identical
one.
3. Opportunity Cost Model: the value of an employee
in its alternative best use, as a basis of estimating the
value of human resources
A. COST BASED MODELS

71. • Present Value of Future Earnings Model: the
present value of estimated future earnings discounted by
the rate of return on Investment
• Reward Valuation Model: Individual’s Value to an
organisation is determined by the services he is expected to
render
• Valuation on Group Basis: This model of Human
Resource Accounting attempted to calculate the present value
of all existing employees in such in each rank.
B. VALUE BASED MODELS