Accounting for Managers Session 1

8/4/2019 Accounting for Managers Session 1

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Financial Accounting



Definition by 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 part atleast of a financial

character and interpreting the results thereof.



Importance of Accounting

• To remember all business transactions

• To make inter period and inter firm comparison

• To aid mgt. in decision making

• To comply with legal requirements

• To ascertain net results and value of business.



Difference

Book Keeping

It is the science and art of

correctly recording in

the books of accountsall those transactions

that result in the

transfer of money or

money’s worth.

Accounting

It is the actual process of

preparing and

presenting the financialinformation for the

users of accounting

information.

AAA

Book

Keeping

Accounting



Systems of Book Keeping

Single Entry System-

It records only cash and personal account

transactions. The systems lacks reliability as it records

incomplete information and is suitable only for very smallbusiness . This system is not recognized by tax dept. and

courts.

Double Entry System-

Under this both the aspects of every transaction isrecorded i.e. one debit and the other credit . Ex.If one

person receives something , other person has given.



Systems of Accounting

Cash Basis-

Method of recording transactions only

when it involves receipt or payment of cash . No

recording of accruals.

Accrual ( Mercantile ) Basis-

Method of recording transactions by

which revenues, costs, assets and liabilities arereflected in the accounts in the period in which they

accrue.



Functions of Accounting

Recording-

systematic recording of transactions in chronological

order from source documents like sales bill, salary

slip , exp. Bill etc(also called vouchers) in JournalBook.

Classifying-

Classify the recorded information into related groups toput information in compact and usable form in

ledger book.



Summarizing-

Accounts containing classified information in the ledger

book are balanced and listed in the statement called

Trial Balance . It gives summary of the ledger .Analysis & Interpretation-

Drawing meaningful conclusions from the information

to draw financial statements and take meaningfuldecisions on its basis.



Communicating-

The financial information generated is communicated to varioususer groups

• Owners

•Managers

• Creditors and Financial Institutions

• Customers

• Employees

• Investors and potential investors

• Government

• Researchers

• Public



Limitations

• Records only financial transaction

• Price level changes are ignored

• Historical in nature

• Subjective choice of accounting policies

• Certain acc. estimates depend on personalJudgement of the accountant ex. Provisions,

method of dep.,valuation of inventory etc.• Window dressing

• Contradictory principles



Financial Accounting

• It aims at ascertaining the

profit or loss generated by the

org. at the end of the period

• Info. Used by external parties

• Period of reporting is yearly,

half yearly

• Mandatory

• Published for circulation

among external parties

Management Accounting

• It aims at assisting in

managerial decision making.

. Info. Used by internal parties

Short intervals as per reqt.

Not mandatory

Not published



Accounting mechanics

Journal

Ledger

Trial

balance

Accounting for Managers Session 1

Documents

Transcript of Accounting for Managers Session 1