Professional Documents
Culture Documents
Accounting
Managerial Decision
Making
Management means
Optimum utilisation of available scarce resources
For achieving given objectives of the organisation.
Single
Multiple
resources,
Considering
Their total availability,
Their total demand and
Cost of availing and using these
For the highest possible degree of achievement
Quantitative criteria
Non- Quantitative criteria
Quantitative criteria
In terms of:
-
cost
price & profit
income
investment, etc.
Non- Quantitative
criteria
In terms of satisfaction &
dissatisfaction of:
-
Sources of information
for decision making
I) Sources of Quantitative
Information
II) Sources of Non-Quantitative
Information
Sources of Quantitative
Information
a) Financial Accounts
b) Cost Accounts
c) Outside Sources
Sources of Non-Quantitative
Information
Information about
Economic,
Social,
Political,
Technological,
Geographical and
Demographic
conditions
FROM
Surveys,
Reports,
Researches, etc.
conducted by
government and
non-government
organisations.
Accounting
Accounting is as
old as money.
Accounting is defined as
the process of identifying,
measuring and
communicating economic
information to facilitate
informed judgements and
decisions by users of the
ACCOUNTANCY
1. Book-keeping is
1. Accounting begins
the basis of
accounting.
2. In book-keeping
statements showing
net results and
financial position
are not prepared.
3. It is mechanical
in nature and does
not require special
where book-keeping
ends.
2. Here net results and
financial positions are
recorded.
3. It requires special
skills and ability to
analyse and interpret.
Classification of
Accounting
1. Financial Accounting
2. Cost Accounting
3. Management Accounting
4. Human Resource Accounting
5. Social Responsibility Accounting
6. Environmental Accounting
Parties Interested in
Accounting
Information
1. Owners
2. Investors
3. Creditors
4. Lenders
Contd
5. Employees or workers
6. Managers
7. Government
8. Researchers
Financial
Accounting
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 at
least, of a financial character , and
interpreting the results thereof.
Features Of
Accounting
1. It records transactions of financial
character.
2. It records transactions in terms of
money.
3. Accounting is an art of recording and
classifying business transactions.
4. Summarizing
5. Analysis and interpretation of results.
Functions of
Accounting
1. Keeps a systematic & permanent record of all
liabilities.
Contd
5. Facilitates control on expenses.
6. Helps in making decisions.
7. Provides information for meeting legal
requirements like tax returns, etc.
ADVANTAGES OF
ACCOUNTING
Helps in the payment of tax
Helps in remembering.
LIMITATIONS OF
ACCOUNTING
Financial accounting is not
absolutely exact and accurate.
Qualitative Characteristics of
Accounting Information
understandability
usefulness
reliability.
Understandability
The accountant prepares financial
Usefulness /
Relevance
To be useful, accounting
feedback.
Helps predict future conditions.
Is timely.
Reliability
Must represent what it is meant to
represent.
Must be credible.
Must be verifiable by independent
parties using the same methods of
measuring.
Must be neutral
Accounting
Process
Recording
Classifying
Summarizing
Analysis
Interpretation
of financial transactions.
Accounting
Assumptions
Separate entity assumption - the business is an
entity that is separate and distinct from its owners,
so that the finances of the firm are not co-mingled
with the finances of the owners.
Going concern assumption - the business is
going to be operating for the foreseeable future.
Monetary unit / Money Measurement
assumption only those transactions that are
capable of being expressed in terms of money are
included in the accounting records.
Contd.
Accounting Principles
The basic assumptions of accounting result
in the following accounting principles:
Historical cost principle
Assets are reported and presented at their
original cost
No adjustment is made for changes in market
value.
Accountants are very conservative in this
sense.
Costs never are written up.
Comparability
A decision maker can recognize
Consistency
An accounting procedure, once adopted by
Materiality
Materiality refers to the relative importance
of an item or event.
An item is material if users would have
done something differently if they had not
known about the item.
Some accountants follow the 5% or more of
net income rule to judge materiality.
Conservatism
When accountants face major
Full Disclosure
Full disclosure requires that financial
Cost-Benefit
Benefits to be gained from providing
Accounting
Terminology
CAPITAL: Amount invested by the proprietor in the
firm.
Capital=Assets-Liabilities
LIABILITY: Amount which the firm owes to
outsiders.
Liabilities=Assets-Capital
ASSET: Anything that will enable the firm to get
cash or benefits in the future. Assets can be
classified as follows:
Fixed
assets
Current assets
money.
STOCK: The goods lying unsold on a particular
date.
Opening
stock
Closing stock
Classification of
Assets
1. Current assets.
2. Investments.
3. Property, plant, and equipment.
4. Intangible assets.
Current Assets
Cash and other assets that are
Investments
Investments are assets, usually long
or tangible assets.
Often abbreviated as PP&E.
Intangible Assets
Intangible assets are long-term assets
that have no physical substance but
have a value based on the rights or
privileges that belong to their owner
Other Assets
Other assets are sometimes used for
Classification of
Liabilities
1. Current liabilities.
2. Long-term liabilities
Current Liabilities
Current liabilities are obligations due
to be paid or performed within a year
or within the normal operating cycle of
the business, whichever is longer.
Long-Term
Liabilities
Long-term liabilities are the debts of a
business that fall due more than one year
in the future or beyond the normal
operating cycle, or that are paid out of
non-current assets.
Owners or
Stockholders
Equity
Classification is affected by the form
of business organization:
Sole
Proprietorship.
Partnership.
Corporation
Sole Proprietorship
Owners equity represented
by Owners Capital account.
Partnership
Equity section is entitled
Partners Equity, with one capital
account for each partner.
Corporation
On the Balance Sheet the section is
entitled Stockholders Equity and has two
parts:
1. Contributed Capital, consisting of the
par value and amounts paid-in in excess
of par.
2. Retained Earnings.
The Accounting
Equation
The resources controlled by a
business are referred to as its assets.
For a new business, those assets
originate from two possible sources:
Investors
Assets =
Resources
Example
Mike Peddler decides to open a bicycle repair shop. To get
Sep 18
Sep 25
Sep 28
business
Purchased $2500 in bike parts on account,
payable in 30 days.
Paid first month's shop rent of $1000.Sep17
Repaired bikes for $1100; collected $400 cash;
billed customers for the $700 balance.
$275 in bike parts were used
Collected $425 from customer accounts.
Paid $500 to suppliers for parts purchased
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