Syllabus

PE 6009 ENGINEERING ECONOMY

Module 1
Accounting of Business Transactions
Accounting principles, journal and ledger entries, balance sheet, profit and loss
statement, ratio analysis

Module 2
Cost and Cost Analysis
Cost structure, methods of allocating overhead costs, standard cost, concept of
opportunity cost, sunk cost, fixed cost and variable cost

Module 3
Break Even Analysis
Drawing of brake even charts, effect of different variable on breakeven point, cost
comparison of two or three alternatives
 Syllabus (PE 6009 ENGINEERING ECONOMY)
Module 4
Time Value of Money
Single sum and series of cash flow, uniform and gradient series, multiple compounding
periods in a year, continuous compounding, bonds
Module 5
Comparison of Alternative Proposals
Bases of comparison- present worth amount, annual equivalent amount, future worth
amount, rate return, defining mutually exclusive alternatives, decision criteria for selection
of investment proposals, comparison of alternatives, with unequal service life, sensitivity
analysis
Module 6
Replacement Analysis
Reasons for replacement, evaluation of replacement involving excessive maintenance
cost, decline in efficiency inadequacy and obsolescence
Module 7
Depreciation and Decision Making Under Uncertainty
Methods of depreciation and their comparison, decision making on the basis of expected
value decision tree in the evaluation of alternatives
 Module-1
Accounting of Business
Transactions
Book: An Introduction to accountancy
by S N Maheshwari
 Accounting Principles
Accounting:
1) It is a language of the business.
2) This language act as the means of communication in business
operations.
3) It communicated the results of business operations to various
parties involved in the business.
4) Along with business operations, accounting is also used by other
individuals.

Meaning of Accounting Principles:

1) Language used to communicate the business operations should be
intelligible and commonly understood by all.
2) To make the language of accounting understandable certain
scientifically laid standards are used. This standards are called as
Accounting Principles.
3) Therefore, Accounting principles is defined as those rules of action
adopted by the accountants universally while recoding accounting
transactions of business operation.
 Accounting Principles
Categories of Accounting Principle:
• Accounting Concepts.
• Accounting Conventions.

Accounting concepts:
It includes the basic assumptions or conditions upon which the science
of accounting is based.

It refers to the basic assumptions and rules which work as the basis of
recording of business transactions and preparing accounts.

Accounting Conventions:

It include those customs or traditions which guide the accountant while

preparing the accounting statements.
Accounting Principles
 Accounting Principles
Various Accounting Concepts are:

1. Separate entity concepts:

• For accounting purposes, the business enterprise and its owners are
two separate independent entities. Thus, the business and personal
transactions of its owner are separate.
• Thus, the accounting records are made in the books of accounts from
the point of view of the business unit and not the person owning the
business. This concept is the very basis of accounting.

• For Example, Mr. Sahoo started business investing Rs100000. He

purchased goods for Rs 40000, Furniture for Rs 20000 and plant and
machinery of Rs30000. Rs10000 remains in hand. These are the assets of
the business and not of the owner. According to the business entity concept
Rs100000 will be treated by business as capital i.e. a liability of business
towards the owner of the business. Now suppose, he takes away Rs5000
cash or goods worth Rs5000 for his domestic purposes. This withdrawal of
cash/goods by the owner from the business is his private expense and not
an expense of the business. Thus, the separate entity concept states that
business and the owner are two separate/distinct persons.
 Accounting Principles
2. Money Measurement concepts:
• This concept assumes that all business transactions must be in terms
of money, that is in the currency of a country.
• Thus, as per the money measurement concept, transactions which
can be expressed in terms of money are recorded in the books of
accounts.

• For example, at the end of the year 2006, an organisation may have a
factory on a piece of land measuring 10 acres, office building containing 50
rooms, 50 personal computers, 50 office chairs and tables, 100 kg of raw
materials etc. These are expressed in different units. But for accounting
purposes they are to be recorded in money terms i.e. in rupees. In this case,
the cost of factory land may be say Rs.12 crore, office building of Rs.10 crore,
computers Rs.10 lakhs, office chairs and tables Rs.2 lakhs, raw material
Rs.30 lakhs. Thus, the total assets of the organisation are valued at Rs.22
crore and Rs.42 lakhs. Therefore, the transactions which can be expressed
in terms of money is recorded in the accounts books.
 Accounting Principles
3. Going concern concepts:
• This concept states that a business firm will continue to carry on its
activities for an indefinite period of time. Simply stated, it means that
every business entity has continuity of life. Thus, it will not be
dissolved in the near future.

• For example, a company purchases a plant and machinery of Rs.100000 and

its life span is 10 years. According to this concept every year some amount
will be shown as expenses and the balance amount as an asset. Thus, if an
amount is spent on an item which will be used in business for many years, it
will not be proper to charge the amount from the revenues of the year in
which the item is acquired. Only a part of the value is shown as expense in
the year of purchase and the remaining balance is shown as an assets.
 Accounting Principles
4. Accounting Period Concept:
• All the transactions are recorded in the books of accounts on the
assumption that profits on these transactions are to be ascertained
for a specified period. This is known as accounting period concept.
• Thus, this concept requires that a balance sheet and profit and loss
account should be prepared at regular intervals. This is necessary for
different purposes like, calculation of profit, ascertaining financial
position, tax computation etc. But usually one year is taken as one
accounting period which may be a calendar year or a financial year.
• As per accounting period concept, all the transactions are recorded in
the books of accounts for a specified period of time. Hence, goods
purchased and sold during the period, rent, salaries etc. paid for the
period are accounted for and against that period only
 Accounting Principles
5. Cost Concept:
• Cost concept states that all assets are recorded in the books of
accounts at their purchase price, which includes cost of acquisition,
transportation and installation and not at its market price.
• It means that fixed assets like building, plant and machinery, furniture,
etc are recorded in the books of accounts at a price paid for them.

• For example, a machine was purchased by XYZ Limited for Rs.500000, for
manufacturing shoes. An amount of Rs.1,000 were spent on transporting
the machine to the factory site. In addition, Rs.2000 were spent on its
installation. The total amount at which the machine will be recorded in the
books of accounts would be the sum of all these items i.e. Rs.503000.
Suppose the market price of the same is now Rs 90000 it will not be shown
at this value.
 Accounting Principles
6. Realisation Concept:
• This concept states that revenue from any business transaction
should be included in the accounting records only when it is realised.
• The term realisation means creation of legal right to receive money.
• Selling goods is realisation, receiving order is not.

• For example, N.P. Jeweller received an order to supply gold ornaments

worth Rs.500000. They supplied ornaments worth Rs.200000 up to the year
ending 31st December 2005 and rest of the ornaments were supplied in
January 2006. The revenue for the year 2005 for N.P. Jeweller is Rs.200000.
Mere getting an order is not considered as revenue until the goods have
been delivered.
 Accounting Principles
7. Matching Concept:
• Matching concept means appropriate association of related revenue
and expenses.
• In other words, income made by the business during a period can be
measured only when the revenue earned by the business during a
period is matched with the expenditure incurred for earning that
revenue.
 Accounting Principles
8. Dual Aspect Concept:
• Dual aspect is the foundation or basic principle of accounting.
• It provides the very basis of recording business transactions in the
books of accounts.
• This concept assumes that every transaction has a dual effect, i.e. it
affects two accounts in their respective opposite sides. Therefore, the
transaction should be recorded at two places. It means, both the
aspects of the transaction must be recorded in the books of accounts.
• For example, goods purchased for cash has two aspects which are (i)
Giving of cash (ii) Receiving of goods. These two aspects are to be
recorded.
• Thus, the duality concept is commonly expressed in terms of
fundamental accounting equation :
Equities = Assets
Liabilities + Capital=Assets
 Accounting Principles
Various Accounting Conventions are:

1. Conservatism:
• This convention is based on the principle that “Anticipate no profit, but
provide for all possible losses”.
• It is based on the policy of playing safe in regard to showing profit.
• The main objective of this convention is to show minimum profit.
Profit should not be overstated.
• Thus, this convention clearly states that profit should not be recorded
until it is realised. But if the business anticipates any loss in the near
future, provision should be made in the books of accounts for the
same.
 Accounting Principles
2. Consistency:
• The convention of consistency means that same accounting
principles should be used for preparing financial statements year after
year.

• A meaningful conclusion can be drawn from financial statements of

the same enterprise when there is comparison between them over a
period of time. But this can be possible only when accounting policies
and practices followed by the enterprise are uniform and consistent
over a period of time.
 Accounting Principles
3. Full Disclosure:
• Full disclosure means that there should be full, fair and adequate
disclosure of accounting information.
• Adequate means sufficient set of information to be disclosed.
• Fair indicates an equitable treatment of users.
• Full refers to complete and detailed presentation of information.
• Thus, the convention of full disclosure suggests that every financial
statement should fully disclose all relevant information.

• For example, The business provides financial information to all interested

parties like investors, lenders, creditors, shareholders etc. The shareholder
would like to know profitability of the firm while the creditor would like to
know the solvency of the business. In the same way, other parties would be
interested in the financial information according to their requirements. This
is possible if financial statement discloses all relevant information in full,
fair and adequate manner.
 Accounting Principles
4. Materiality:
• The convention of materiality states that, to make financial
statements meaningful, only material fact i.e. important and relevant
information should be supplied to the users of accounting information.
• What is a material fact. The materiality of a fact depends on its nature
and the amount involved. Material fact means the information of
which will influence the decision of its user.

• For example, a businessman is dealing in electronic goods. He purchases T.

V., Refrigerator, Washing Machine, Computer etc. for his business. In buying
these items he uses larger part of his capital. These items are significant
items; thus should be recorded in books of accounts in detail. At the same
time to maintain day to day office work he purchases pen, pencil, match box,
scented stick, etc. For this he will use very small amount of his capital. But
to maintain the details of every pen, pencil, match box or other small items
is not considered of much significance. These items are insignificant items
and hence they should be recorded separately.

• Thus, the items that are significantly important in recording the details
are termed as material facts or significant items.
 Accounting Principles
Systems of Book-Keeping:
• What is a Book-Keeping. It is the art of recording business transaction
in a regular and systematic manner using language of accounting.

Methods of Book-Keeping:
• Single Entry System
• Double Entry System
 Accounting Principles
Single Entry System:
• This system is most commonly used in small business where the
entity does not have many transactions, is a very informal type of
system.
• It is the a system of book-keeping in which as a rule only records of
cash and personnel accounts are maintained.
 Accounting Principles
Double Entry System:
• This is the system of recording the two-fold aspect of the transactions.

• This system has similar concept as explained in ‘Dual Aspect Concept’.

• In the double-entry system, every financial transaction results in both

a debit in one account and an equal, offsetting credit in another
account.

• Thus, the double entry system of accounting means that for every
business transaction, amounts must be recorded in a minimum of two
accounts.

• The Double Entry System is commonly expressed in terms of

fundamental accounting equation of dual aspect concept:

Liabilities + Capital=Assets
Accounting Principles
 Journal and Ledger Entries

Interpreting the Recording of

Results Transactions

Book
of
Account

Summarising
Classifying the
the
Transactions
Transactions
 Journal and Ledger Entries
• It is Book which is used to record the transactions in order by date is
called as Journal.

• It is Book which is used to sort, store and summarize a company's

transactions is called as Ledger.
For Examples,
• Asset accounts such as Cash, Accounts Receivable,
Inventory, Investments, Land, and Equipment
• Liability accounts including Notes Payable, Accounts
Payable, Accrued Expenses Payable, and Customer
Deposits
• Stockholders' equity accounts such as Common Stock,
Retained Earnings, Treasury Stock, and Accumulated Other
Comprehensive Income
 Journal and Ledger Entries
• Preparation of trail balances, profit and loss statement and balance
sheet of the business is called as summarising the transactions.

• Computing various a accounts of business transactions to understand

the profitability of the business is called as interpreting the results.
 Journal Entries
• The journal records all daily transactions of a business into the order
in which they occur.
• It is therefore defined as a book containing a chronological record of
transactions under the double entry system.
• A proforma of journal is given below:
Date Particulars Nature L.F. Debit Credit
of Rs. Rs.
Account
1. Date: The date on which theDr.transactions was entered is recorded
here. Cr.
2. Particulars: The two aspects of transactions are recorded in this
column i.e., the details regarding accounts which have to be debited
and credited. In this column the names of the two connected
accounts are written in two consecutive lines - in the first line the
name of account debited and in the second line the name of account
credited. While the name of account debited always placed close the
left hand margin line, the name of account credited is commenced a
short distance away from the margin line. The word "Dr" is used at the
end of the name of account debited.
 Journal Entries
3. Nature of Account: Based on the transactions details the type of
account is classified.

4. Ledger Folio (L.F.): An LF can be defined as the page number of an

entry in your organization's ledger. For Ex. A company may conduct
hundreds or even thousands of business transactions over an
accounting period. Therefore, it's crucial to keep everything organized so
you can retrieve information whenever you need it and avoid errors.
That's where the ledger folio number comes in. Both the journal and
ledger folio can be numeric or alphanumeric.

5. Debit: In this column, the amount to be debited is entered.

6. Credit: In this column, the amount to be credited is shown.

 Rules of Debit and Credit
• The transactions in the journals are recorded on the basis of the rules
of debit and credit.
• The transactions are classified in three categories:
 Transactions relating to Persons
 Transactions relating to Properties and Assets
 Transactions relating to Income and expenses
• To smoothly function the book of account it necessary to keep an
account of :
 Person involved in the business.
 Property and assets owned by the business
 Income and expenses incurred on each items

• Accounts which comes under first categories comes under “Personal

Accounts”.
• Accounts which comes under second categories comes under “Real
Accounts”.
• Accounts which comes under third categories comes under “Nominal
Accounts”.
 Journal Entries

Accounts

Personal Real Nominal

Natura Represe Tangibl Intangibl

Artificial Expense Income
l ntative e e
s and s and
Losses Gain
 Journal Entries
• Personal Accounts: It is the accounts of person with whom the
business deals.
• These accounts can be classified as:
• Natural Personal accounts: This type of account belong to
persons who are creations of God. For Ex., Mohan’s account,
Sohan’s Account etc.
• Artificial Personal accounts: This type of account deals with entity
such as firm or organization that is developed by law and become
recognizable by legal entity. For ex., account of Private Limited
Company, account of co-operative society etc.
• Representative Personal accounts: This type of account are an
accounts which represents certain person or group of persons.
For Ex., Salary due to employees. An outstanding salaries account
will be opened and transactions done for due salaries will
recorded in this type of account.
• Rule is:
DEBIT THE RECEIVER
CREDIT THE GIVER
 Journal Entries
• Real Accounts: It is the accounts, in which transactions related to
property and assets are recorded.
• These accounts can be classified as:
• Tangible Real accounts: This type of accounts are related to things
which can be touched, felt, measured etc. For Ex., Cash account,
Building account, Furniture Account, Stock account etc.,

• Intangible Real accounts: This type of accounts are related to

things that cannot be touched but they are measured in the terms
of money. For Ex., Patents account, Trademark account, Good will
account etc.

Rule is:
DEBIT WHAT COMES IN
CREDIT WHAT GOES OUT
 Journal Entries
• Nominal Accounts: It is the accounts, in which transactions related to
expenses, losses, incomes and gain are recorded
• These accounts are opened in the book of account to simply explain
the nature of the transactions.
• For Ex., Salary paid to employees, rent paid to landlord, commission
paid to the salesman etc.
• As all this transactions are measured in cash so these transactions
are also recorded in Real account.

Rule is:

DEBIT ALL EXPENSES AND LOSSES

CREDIT ALL GAINS AND INCOMES
Journal Entries
 Journal Entries
Journalise the following transactions. Also state the nature of account involved
in the Journal entry:

1. Dec. 1, Ajit started business with cash Rs. 40000.

2. Dec. 3, He transferred business money into the Bank account of business
Rs. 20000.
3. Dec. 5, He purchased goods for cash Rs 15000.
4. Dec. 8, He sold goods for cash Rs. 6000
5. Dec 10, He purchased furniture and paid by cash Rs. 5000
6. Dec. 12, He sold goods to Arvind Rs. 4000.
7. Dec 14, He purchased goods from Amrit Rs. 10000
8. Dec. 15, He returned goods to Amrit Rs 5000
9. Dec. 16, He received from Arvind Rs 3960 in full settlement
10. Dec 18, He withdrew goods for personnel use Rs. 1000
11. Dec. 20, He withdraw cash from business for personal use Rs. 2000
12. Dec. 26, Cash paid to Amrit in full settlement Rs 4900
13. Dec. 31, Paid for stationary Rs 200, rent Rs 500 and salaries to staff Rs
2000
14. Dec 31, Goods distributed by way of free samples for advertisement Rs.
1000
 Ledger Entries
Ledger:
• Is a book which contains various accounts, it is also called as set of
accounts.
• It may be kept in any of the following two forms:
1. Bound Ledger, and
2. Loose Leaf Ledger

Posting:
• It means transferring the debit and credit items from the journal to the
respective accounts in the ledger.
• It should be noted that exact name of accounts used in the journal should
be carried to the ledger.
• Posting may be done at any time. However, it should be prepared before the
financial statements are prepared.

Rule Regarding Posting:

• Separate accounts should be opened in the ledger for posting transactions
relating to different accounts recorded in the journal.
• The concerned account which has been debited in the journal should also be
debited in the ledger. However a reference should be made of the other
 Ledger Entries
Rule Regarding Posting:
• The concerned account, which has been credited in the journal should also
be credited in the ledger, but reference should be given to account which
has been debited in the journal.

Use of the words “TO” and “BY”:

• It is important to use words TO and BY while making posting in the ledger.
• The word ‘TO’ is used with the account which appear on the debit side of a
Ledger account.
• The word ‘BY’ is used with the account which appear on the credit side of a
Ledger account.
Ledger Entries
 Trading and Profit & Loss Accounts
• The trading and profit & loss account is a final summary of such accounts
which affect the profit or loss position of the business.
• This account contains the particulars of incomes and expenses relating to a
financial period.
• The account is prepared in two parts:
1. Trading account, and
2. Profit & Loss account

Trading Account:
• In this account transactions related to trading are recorded i.e.
transactions related to purchase and sales of goods required for
business.
• It takes cost of purchasing the goods on one hand and cost of selling
the good on other hand.
• The profit disclosed by the trading account is called as “Gross profit/loss”
.
 Trading and Profit & Loss Accounts
Equation to calculate Gross profit of Trading Account:
Gross profit/loss = Sales – Cost of Goods Sold
Cost of goods sold = Opening Stock + Purchases + Direct Expenses -
Closing Stock
Therefore,
Gross profit/loss = (Sales + Closing Stock) – (Opening Stock + Purchases +
Direct Expenses
Sales: The term sales include both cash and credit sales. It means selling of
goods available in stock.
Purchases: The term purchases include both cash and credit purchases. It
means purchasing of goods to make a stock.
Stock: The term Stock refer to goods lying unsold on a particular date. There
are two type of the stock:
1. Opening stock
2. Closing stock
Direct Expenses: The term direct expenses includes those expenses which
have been incurred in bringing the good to the business premises such as
Wages, Customs and import duty, Freight, Carriage and Cartage, Royalty,
Packing material and Gas, electricity, water, fuel etc.
Trading and Profit & Loss Accounts
 Trading and Profit & Loss Accounts
Profit & Loss Account:
• The trading account simply tells about “Gross profit/loss” made by the
businessman on purchasing and selling of goods
• It does not take into account the other operating expenses incurred by
him during the course of running the business.
 Trading and Profit & Loss Accounts
Transactions related to:
1. Gross Profit
2. Salaries
3. Salaries less tax
4. Salaries after deducting provident fund
5. Interest
6. Commission
7. General expenses
8. Printing and stationary
9. Advertisements
10. Bad debts
11. Depreciation
12. discount
Trading and Profit & Loss Accounts
 Balance Sheet
• After preparing Trading and Profit & loss account, a businessman would like
to the position of the assets and liabilities of the business.
• So, he prepares the statement of his assets and liabilities as om particular
date which is called as ‘Balance Sheet’.
• It is not an account but only a statement containing the status of assets and
liabilities of a business on particular date.
• Therefore, “ A Balance Sheet is a list of balances of assets and liabilities.
Which depicts the position of assets and liabilities of a specific business at
a specific point of time”.
 Balance Sheet
Proforma of Balance Sheet:
BALANCE SHEET
as on…….
Liabilities Amount Assets Amount
Bank Overdraft Cash in cash account
Outstanding Expenses Cash in Bank account
(Expenses for which Prepaid expenses
services have been Bills receivable
received by the Debtors
business but for which Closing stock:
payments have not Raw Material
been made). Work-in-progress
Accounts Payable Finished goods
(Such as Bills payable, Furniture
creditors account) Building
Short term loans (Loan Land
which are to be paid
within one year from
date of balance sheet)
Long term loans
Capital
Balance Sheet
 Balance Sheet
• After preparing Trading and Profit & loss account, a businessman would like
to the position of the assets and liabilities of the business.
• So, he prepares the statement of his assets and liabilities as om particular
date which is called as ‘Balance Sheet’.
• It is not an account but only a statement containing the status of assets and
liabilities of a business on particular date.
• Therefore, “ A Balance Sheet is a list of balances of assets and liabilities.
Which depicts the position of assets and liabilities of a specific business at
a specific point of time”.
 Ratio Analysis
• Once the financial statements of an organization are prepared they then
need to be analysed.

• One such tool to analyse and asses the financial situation of a firm is Ratio
Analysis. It allows the stakeholder to make better sense of the accounts and
better understand the current fiscal scenario of an entity.

• Ratio analysis is used to evaluate various aspects of a company’s operating

and financial performance such as its efficiency, liquidity, profitability and
solvency.

• Ratio analysis can provide an early warning of a potential improvement or

deterioration in a company’s financial situation or performance.

• Therefore, A ratio analysis is a quantitative analysis of information

contained in a company’s financial statements.

• What is Ratio: It is relationship expressed in mathematical terms between

variables which are connected with each other in some manner. In finance,
ratios are a correlation between two numbers, or rather two accounts.
 Ratio Analysis
Objective of Ratio Analysis:

1] Measure of Profitability
2] Evaluation of Operational Efficiency
3] Ensure Suitable Liquidity
4] Overall Financial Strength
5] Comparison
 Ratio Analysis
Classification of Ratio Analysis:

[A] Traditional Classification: This classification has been on the basis of the
financial statement of the business
• It has three types of ratios, namely

 Profit and Loss Ratios: When both figures are derived from the
statement of Profit and Loss A/c we will call it a Profit and Loss Ratio.

 Balance Sheet Ratios: When both figures are derived from the
statement of Profit and Loss A/c we will call it a Profit and Loss Ratio.

 Composite Ratios: A composite ratio or combined ratio compares two

variables from two different accounts. One is taken from the Profit and
Loss A/c and the other from the Balance Sheet.
 Ratio Analysis
Classification of Ratio Analysis:

[B] Functional Classification: These help us group the ratios according to the
functions they perform in our understanding and analysis of financial
statements. This is a more accurate and useful classification of ratios, and
hence more commonly used as well.
• It has three types of ratios, namely

 Profitability Ratios: It is an indication of the efficiency with which the

operations of the business are carried on.

 These ratios analyse the profits earned by an entity.

 These ratios reflect on the entity’s ability to earn reasonable returns

with respect to the capital employed.

 They even check the soundness of the investment policies and

decisions.
Profitability Ratio = overall Profit / Capital Employed
 Ratio Analysis
 Turnover Ratios: A turnover ratio represents the amount of assets or
liabilities that a company uses in relation to its sales.

 The concept is useful for determining the efficiency with which a

business utilizes its assets.
Turnover Ratio = Overall Sales / Capital Employed

 Financial Ratios: It indicates the current financial ratio of the business.

 To function the business smoothly with liabilities, the company should

have necessary assets and meets all its obligations both long term as
well short term without strain.

Financial Ratio = Fixed/Current Assets

Fixed/Current Liabilities
 Ratio Analysis
Advantages of Ratio Analysis:

• Ratio analysis will help validate or disprove the financing, investment and
operating decisions of the firm.

• It simplifies complex accounting statements and financial data into simple

ratios of operating efficiency, financial efficiency, solvency, long-term
positions etc.

• Ratio analysis help identify problem areas and bring the attention of the
management to such areas. Some of the information is lost in the complex
pinpoint such problems .
accounting statements, and ratios will help

• Allows the company toconduct comparisons with other firms, industry

standards, intra-firm comparisons etc.
 Ratio Analysis
Limitations of Ratio Analysis:

• The firm can make some year-end changes to their financial statements, to
improve their ratios. Then the ratios end up being nothing but window
dressing.

• Ratios ignore the price level changes due to inflation. Many ratios are
calculated using historical costs, and they overlook the changes in price
level between the periods. This does not reflect the correct financial
situation.

• Accounting ratios completely ignore the qualitative aspects of the firm.

They only take into consideration the monetary aspects (quantitative).

• Accounting ratios completely ignore the qualitative aspects of the firm.

They only take into consideration the monetary aspects (quantitative).