ACCOUNTING FOR

MANAGEMENT
(MBA-103)
Mukesh Arora
Faculty MBA
CBS, Landran (Mohali)

Accounting Terminology
Entity: It is an economic unit that is engaged in
performing economic activity/activities like ITC,
Reliance Industries, Hindustan Unilever Ltd.,
Samsung, Infosys, Wipro, TCS, IFB etc.
Transaction: It is an exchange of goods and
services whereby each participant receives or
sacrifices value. Purchase of raw-materials either
on cash or on credit is an example of the
transaction. It is an event involving transfer of
money or moneys worth.

Accounting Terminology
Voucher: It is a document which serves as an
evidence of a transaction. Cash memo is the voucher
for cash purchases and purchase invoice is the
voucher for credit purchases. Vouchers act as source
documents on the basis of which transactions are
recorded in the books of accounts.
Entry: It is the record made in the books of accounts
in respect of a transaction or event. An entry is
passed on the basis of vouchers.
Assets: Assets refer to tangible objects or intangible
rights of an enterprise which carry probable future
benefits. In simple words an asset means what
an enterprise owns.

Accounting Terminology

Assets may broadly be classified in to:

Current assets
Fixed assets
Current assets are those assets which can be
converted into cash within an accounting period of one
year.
1. Cash in hand
2. Cash at bank
3. Marketable securities
4. Short term investments
5. Sundry debtors
6. Bills receivable
7. Stock including work in progress
8. Pre-paid expenses.

Accounting Terminology
Fixed assets: Fixed assets refer to those assets which are
held for the purposes of providing or producing goods and
services and those that are not held for resale in the
normal course of business. Fixed assets may either be
tangible or intangible.
Tangible fixed assets are those which can be touched and
seen like Land and Building, Plant and Machinery and
Furniture and fixtures etc.
Intangible fixed assets are those which cannot be touched
or seen like goodwill, patent rights and trade marks etc.
Liabilities: Liabilities refer to financial obligations of an
enterprise generally other than owners funds. In simple
words liabilities mean what an enterprise owes.
Liabilities may broadly be either current liabilities or long
term liabilities.

Accounting Terminology
Current liabilities are those liabilities which fall due
for payment in a relatively short period of time
(normally a period of not more than 12 months) from
the last Balance Sheet.
1. Bills payable
2. Sundry creditors
3. Outstanding expenses
4. Bank overdraft*
Long term liabilities refer to those liabilities which
are payable generally not within a period of 12 months
from the last Balance Sheet.
1. Bank loan
2. Debentures etc.

Accounting Terminology
Capital: It generally refers to the amount invested in an
enterprise by its owners. It is the excess of assets over external
liabilities.
Drawings: It is the amount of cash or goods or any other asset
withdrawn by the proprietor for his personal use.
Inventory/Stock: It refers to tangible property held for sale in
the ordinary course of business or for consumption in the
production of goods or services for sale. It includes stock of rawmaterials, work in progress , finished goods, maintenance
supplies and consumables.
Expenditure: Incurring a liability, disbursement of cash or
transfer of property for the purpose of obtaining assets, goods or
services.
In simple words it means when the benefit of amount spent
extends beyond a period of one year.

Chapter No. 1
Introduction To Accounting
What is Account?
Account is the summary of relevant
business transactions at one place
relating to a person, asset, expense or
revenue named in the heading. An
account is a brief history of financial
transactions of a particular person or
item. An account has two sides one is
Debit (left) side and Credit (right) side.

What is Accounting?
Accounting is an art of identifying,
recording, classifying, summarizing,
analyzing, interpreting the financial data
and communicating the results.
Accounting can rightly be termed as the
language of the business, through it, the
results of business operations are
communicated to various parties interested
in the business viz, the proprietors,
creditors, investors, governments, etc.

Characteristics of Accounting
Language of business
This is a service activity. Its function is

to provide quantitative information, of

financial performance which are intended
to be useful in making economic decision.

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Book-keeping
Book-keeping is the art of recording
in the books of accounts the
monetary aspects of commercial and
financial transactions.

Difference between Accounting

& Book-keeping
Accounting

Scope: it is not only recording &

maintenance of books of accounts but
also includes analysis, interpreting and
communicating the information.
Stage: Secondary Stage
Objective: to obtain the net results
Nature: analytical and executive in
nature
Responsibility: an accountant is also
responsible for the work done by bookkeeper.
Knowledge: the accountant is
required to have higher level of
knowledge than that book-keeper.
Supervision: An accountant supervises
and checks the work of book-keeper
Staff: senior staff performs the
accounting work.

Book-keeping

Recording and maintenance of books

of accounts.

Primary Stage
To maintain the systematic records
Routine and clerical
Book keeper is responsible for
recording business transactions.
Book-keeper is not required to have
higher level of knowledge than that of
an accountant.
The book keeper does not supervise
and check the work of an accountant.
Work is done by the junior staff of the
organization.

Objectives of Accounting

Keep systematic records

Protect business properties
Ascertain operational profit and loss
Ascertain financial position of the
business
Facilitate rational decision-making

Functions of Accounting

Identifying
Recording
Classifying
Summarizing
Analyzing
Interpreting
Communicating

Branches of Accounting
Financial accounting
it is mainly concerned with recoding, classifying,
summarizing, the all financial transactions. It provide the
information of profit and loss of a business and as well it
also helps to get the information of financial position
composition of asset and liabilities, to all internal users
and external users.
Management accounting
It provides the necessary information to the
management for their functions like planning,
organizing, controlling, directing etc. after obtaining the
financial results through Financial accounting. So this
branch serves to internal users only.
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Branches of Accounting
Cost AccountingIt is the branch of accounting which
deals with the cost aspect of the
product .It provides various tools and
techniques like standard costing ,
marginal costing and budgetary
control to plan and control the cost of
the product

Accounting as an Information
System

Owners
Investors
Shareholders
Promoters
Suppliers
Customers
Employees

Role of an Accountant

Maintaining books of Accounts

Taxation Laws
Statutory Audit and Internal Audit
Advices Relating to financial problems
Choice of insurance policies
Investment opportunities
Merger and acquisitions
Reasons decreasing profits and increasing losses
Detection of fraud
Control of expenditure
Working capital requirements
Corporate Planning
Selection of Personnel, placement and Training

Concepts & Conventions of

Accounting
Accounting Concepts:

Business Entity Concept

Money measurement concept
Accounting Period concept
Cost Concept
Dual Aspect Concept
Revenue Recognition (Realisation) Concept
Matching concepts
Stable Monetary Unit Concept
Going Concern Concept

Accounting Concepts &

Conventions

Accounting Conventions:
Full Disclosure
Conservatism
Materiality
Objectivity

Accounting Standards