Financial & Managerial Accounting 16th Sep13
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Transcript of Financial & Managerial Accounting 16th Sep13
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The Accounting Equation This shows the relationship between economic
Resources of a business & claims against thoseresources.
Economic Resources = Claims
Claims arise from: Creditors called Liability & from
owners called Equity. So,Assets = Equity + Liabilty
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Assets
These are resources controlled by an entity as a result of Past activities
& its expects to derive future benefits These are owned by a co.& realises it by getting cash or other assets
Types of Assets:
1. Liquid: Cash,.
2. Current Assets: Bank deposits,Investments,Receivables/Sundry
debtors- in
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Liabilities
A Liabilty is apresent obligation of a co.
Arising from past events
The settllement of whichwill result in outflow ofResources
Liabilties are what a co.owes to someone and settlesthe same by giving a)cash b)other assets.
Ex.:Bank Loans,Salarlies payable,Income Tax payableetc.
They are result of a) Contract b) StatutoryRequirement
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Equity The diff.between Assets and Liabilities is Equity
This is the amount held by the owners /shareholders in theenterprise
This Equity portion (also called Owners/shareholdersEquity) increase if
1. Owners invest more money
2. Co.Makes profit This portion goes down
1. If Co.makes losses
2. Amt.is withdrawn (dividend etc.) by owners
Componants of Equity:
1. Share capital
2. Share premium
3. Retained Profits or Reserves
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Contd.
Share Capital : This is the amount contributed by
Shareholders/owners of the Co. Share Premium A/c: This is the amt.over & above the share
capital given by SHs.Shown separately as Share PremiumA/c.
Retained Earnings (Reserves ): This represnts the NetProfits made by an Entity not distributed to shareholdersbut kept in business
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Other Terms
Revenue/ Income : This represnts the amount charged to
customers for a) Goods sold &or b) services rendered Expenses: These are generally the money spent by an
entity for earning revenue
Net profits: Represents Excess of Income /Revenue overExpenses.
Net Loss: If Expenses are more than Income it represntsLoss
Dividends: Distribution of money to shareholders basedon their holding is called Dividend payout.
So if a co.makes more profits it increases Equity &if itmakes more losses or distibutes more dividend ,it reducesEquity.
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Examples of the above1. On 1stApril A starts a Firm India Software & puts in
Rs.1 lac cashBalance sheet of India SW as on 1st April
Liabilities Rs. Assets Rs.
Equity 100000 Cash/Bank 1000002. India software takes Rs.100000 loan from bankon 30th April 2013
Equity 100000
Creditors:Loan From Bank 100000 Cash/Bank 200000
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Contd.3. It buys a car on 5th May 2013 for Rs.75000
Equity 100000 Equipment (Car) 75000
Creditors:
Loan From Bank 100000 Cash/Bank 125000
(200000-75000)
Liabilities 200000 Assets 2000004. It buys Rs.10000 worth stationery for credit on 10th May2013- for which it has to pay that money on 15th May.
Equity 100000 Equipment (Car)75000
Creditors:
Loan From Bank 100000 Cash/Bank 125000
payable to Sta.vendor10000 Stationery 10000 Liabilities 210000 Assets 210000
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Contd.5. It pays the Rs.10000 for stati. on the due dt.15th
Equity 100000 Equipment (Car)75000Creditors:Loan From Bank 100000 Cash/Bank
(125000-10000) 115000payable to Sta.vendor 0 Stationery 10000
(10000-10000)Liabilities 200000 Assets 2000006. It sold Software and received Rs.25000 cash on 20th
Equity 125000 Equipment (Car) 75000(100000+25000)Creditors:
Loan From Bank 100000 Cash/Bank(115000 + 25000) 140000
Stationery 10000
Liabilities 225000 Assets 225000
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Contd.
7. On 1st June it pays Rs.20000 salary and Rs.10000rent.This will reduce cash & Equity
Equity 95000 Equipment (Car) 75000
(125000-20000-10000)
Creditors:
Loan From Bank 100000 Cash/Bank
(140000 -20000-10000) 110000
Stationery 10000
Liabilities 195000 Assets 195000
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Contd.
8. On 30th
June it sold Rs.30000 worth software but itwas on credit & money expected on 15th July
Equity 125000 Equipment (Car) 75000
(95000+ 30000)
Creditors:Bank Lo 100000 Cash/Bank 110000Stationery 10000
Receivable:Software 30000
Liabilities 225000 Assets 225000
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Contd.9. On 15th July it received for software sold earlier
Equity 125000 Equipment (Car) 75000(95000+ 30000)
Creditors:Bank Lo 100000 Cash/Bank 140000(110000+30000)
Stationery 10000Receivable:Software 0(30000-30000)
Liabilities 225000 Assets 22500010. On 31st July ,the promoters withdraws Rs.10000 from his equity
Equity 115000 Equipment (Car) 75000(125000-10000)
Creditors:Bank Lo 100000 Cash/Bank 130000(140000 -10000)
Stationery 10000Receivable:Software 0
(30000-30000)Liabilities 215000 Assets 215000
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Financial Statements Fin.Sta.s provide information about an Entitys
Revenues,Expenses,Assets ,Liabilities,capital etc. Complete set of Fin.Statements: a)P&L A/c b)Bal.Sheet
c)Cash Flow sta. d) Notes to a/cs e) explanatory sta.s
The main 3 Fin.stas. Are
1. The P&L A/c reports the Financial performance ofan entityduring a period
2. The Balance sheet represents the FinancialPosition of an entityat a point in time
3. Cash flow sta.summarises cash inflows &outflowsresulting from Operations,investing & financingactivities during the period
( Do the above on Board )
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Profit & Loss Account
This sta.summarises the activities of an entity in aperiod by disclosing the revenues earned & expensesincurred.
The expenses are given on the left side called the Debit
side Income is given on the right side called credit side
If Income (revenue) is higher ,it results in profit.Ifexpenses are higher ,it results in loss.
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Balance sheet
This has two sides like P&L sta.-namely Liabilties onthe left and Assets on the Right
Liabilities depict Credit and Assets depict Debit
This BS summarises the Assets ,Liabilties & capital
(Equity) of an entity at a point in time
It summarises the resources & claims to thoseresources by promoters(owners)& creditors(lendors)on a certain date
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Cash Flow
P&L sta.gives the effects of current operation on its
fin.position, Bal.sheet shows Fin.Position on a givendt.but neither of it gives details of investments inassets during that period & how were they financed.
The Cash Flow sta.summarises Major sources of cash
receipts & cash payments in a period
It also reports about the entitys investing & Financingactivities
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