Sample Study Materials For Sebi Grade A 2020 PDF

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Lean System is an organized method for waste minimization without sacrificing
productivity within a manufacturing system. Lean implementation emphasizes the
importance of optimizing work flow through strategic operational procedures while
minimizing waste and being adaptable. Waste is any step or action in a process that is not
required to complete a process successfully (called “Non-Value Adding”).
When Waste is removed, only the steps that are required (called “Value-Adding”) to deliver
a satisfactory product or service to the customer remain in the process. There are generally
7 type of wastes:
The Seven Wastes expanded are:

1. Overproduction: Producing ahead of demand.
2. Inventory: Having more inventory than is minimally required at any point in the
process, including end-product.
3. Waiting: Waiting includes products waiting on the next production step.
4. Motion: People or equipment moving or walking more than is required to perform

the process.
5. Transportation: Moving products that is not actually required to perform the

process.
6. Rework from defects: Not-right first time.
7. Over Processing: Unnecessary work elements (non-value added activities).

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Many large manufacturing companies like General Motors and Toyota are into lean
manufacturing. Lean manufacturing involves a shift in traditional thinking, from batch
and queue to product-aligned pull production. Instead of producing a lot of parts, the
focus is on different types of operations conducted adjacent to each other in a continuous
flow.
Some of the techniques are:

 Just-in-Time (JIT)
 Kaizen Costing
 5S
 Total Productive Maintenance (TPM)
 Cellular Manufacturing/ One-Piece Flow Production Systems
 Six Sigma (SS)
Most of these applications are based on following principles:

▪ Perfect first-time quality
▪ Waste minimization
▪ Continuous improvement
▪ Flexibility
The characteristics of lean manufacturing:

▪ Zero waiting time
▪ Zero inventory
▪ Pull processing
▪ Continuous flow of production
▪ Continuous finding ways of reducing process time.
JUST-IN-TIME (JIT) A just in time approach is a collection of ideas that streamline a

company ’s production process activities to such an extent that wastage of all kinds viz.,
of time, material, and labour is systematically driven out of the process. JIT has a decisive,
positive impact on product costs.

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A complete JIT system begins with production, includes deliveries to a company ’s
production facilities, continues through the manufacturing plant, and even includes the
types o f transactions processed by the accounting system. “Process that vastly reduces
the amount of raw materials inventory and improves the quality of received parts”
On a visit to the US the management team of Toyota were inspired by, of all things,
how they saw a supermarket (Piggly Wiggly) handle their inventory. Only what was
removed from the shelves by the customers was actually replenished and ordered from
suppliers. In this way shelves never became empty, nor did they end up overflowing with
excessive inventory.
The JIT concept of production was introduced in Japan under the name of Kanban at
the Toyota Motor Company. It is generally associated with Japanese businessman
Taichii Ohno. He introduced this production philosophy to meet the needs of the
Japanese automobile market after World War II. Later JIT was adopted in United States,
called as Learn Manufacturing. US companies seek to eliminate the wastes by calling it
as Value Added manufacturing.
The first Kanban system was developed by Taiichi Ohno(Industrial Engineer and
Businessman) for Toyota automotive in Japan. It was created as a simple planning
system, the aim of which was to control and manage work and inventory at every stage of
production optimally.
Kanban is a Japanese word that literally means “visual card or sign or Bill board”. Kanban
cards were originally used in Toyota to limit the amount of inventory tied up in “work in
progress” on a manufacturing floor. Kanban not only reduces excess inventory waste, but
also the time spent in producing it. In addition, all of the resources and time freed by the
implementation of a Kanban system can be used for future expansions or new
opportunities. The original author of Kanban was Taiichi Ohno.
Kanban is historically a pull production control system, though it is used for a wider set
of circumstances now. A pull production control system is one that is managed from the
floor. As materials are needed on the factory floor, they are pulled in. The opposite type of
system would be a push one, where a quota of materials is pushed through the system
based on customer orders, whether the floor is ready for them yet or not.
Push Production vs. Pull Production:
Push production: Traditionally production processes are scheduled, raw materials

ordered, and then manufactured to create stock based on a forecast of what the customer
is expected to order. This is push production and is driven very much by the materials
being fed into the start of the process and all processes being controlled through a
schedule.
This typically produces products in large quantities or batches and ties up a huge amount
of your capital in stock and Work in Progress (WIP).
Pull production however works in reverse, when a customer takes a product from the end
of your production process a signal is then sent back down the line to trigger the
production of the next part. Just as a supermarket will fill the empty shelf each preceding
process in the flow will request the parts that it needs from its preceding process. This
process is controlled through the use of a Kanban.

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Kanban Cards
These are usually simple cards or sheets of paper that are attached to a batch of material.
Usually there are just two or three cards for each product in the system although there
may be more if you have to handle larger batches of if the product size itself is large. These
cards will typically detail what the product is, where it is used, and the quantities that
should be there.

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When a process finishes using the materials to which the Kanban card is attached the
card is returned to the previous process. This is then used as authority for that previous
process to manufacture replacement parts. In multiple card systems, the process will
typically have to wait for a set number of cards to be returned before they start to
manufacture the next batch.

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Kanban Rules
 The later process collects product from the earlier process
 The later process informs the earlier process what to produce
 The earlier process only produces what the later process needs
 No products are moved or produced without Kanban authority
 No defects are passed to the later process
“Just-in-time (JIT): System whose objective is to produce or to procure products or

components as they are required by a customer or for use, rather than for stock. just-in-
time system Pull system, which responds to demand, in contrast to a push system, in
which stocks act as buffers between the different elements of the system such as
purchasing, production and sales”.
“Just-in-time production: Production system which is driven by demand for finished

products, whereby each component on a production line is produced only when needed
for the next stage”.
“Just-in-time purchasing: Purchasing system in which material purchases are

contracted so that the receipt and usage of material, to the maximum extent possible,
coincide”.
JIT system aims at:

▪ Meeting customer demand in a timely manner
▪ Providing high quality products and
▪ Providing products at the lowest possible total cost.
The five main features of JIT production system:

 Material – handling cost are reduced.
 The labour idle time gets reduced.
 Defects are reduced immediately.
 Company can respond to customer demand faster.
 The material receipt time is reduced.
Essential Pre-requisites of a JIT system:

▪ Low variety of goods
▪ Vendor reliability
▪ Good communication
▪ Demand stability
▪ TQM
▪ Defect free materials
▪ Preventive maintenance
Disadvantages of JIT: However, like many things in business, just-in-time is not a

panacea for all ills. JIT may not be suitable for all firms as JIT has limitations and
drawbacks:
 there is a heavy reliance on suppliers - any failures in delivery can lead to expensive
production delays and stock-outs
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 JIT does not cope well with sudden surges in demand
 lower stock order quantities do not allow for the same level of purchasing economies
of scale as found in traditional stock control systems
 frequent small deliveries are likely to be expensive as there will be fewer bulk
discounts
 administration costs are likely to be higher maintaining stock levels and ensuring
no stock-outs
 JIT requires a change in management style - not all managers and workers are
prepared to 'buy-in to the philosophy'
 training costs can be higher than traditional production systems
 JIT needs expensive computer technologies and robotics for its smooth operation
 Increasing global inflation, especially in components, makes the holding of stocks
through forward buying beneficial

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Cost Accounting:
Cost Centre in a manufacturing concern: Two main types of Cost Centres are indicated
as below:
Production Cost Centre: It is a cost centre where raw material is handled for conversion
into finished product. Here both direct and indirect expenses are incurred. Machine shops,
welding shops and assembly shops etc. are examples of production Cost Centres.
Service Cost Centre: It is a cost centre which serves as an ancillary unit to a production
cost centre. Payroll processing department, HRD, Power house, gas production shop,
material service centres, plant maintenance centres etc. are examples of service cost
centres.
Important advantages of a Cost Accounting System may be listed as below:
Scope of cost accounting consists of the following functions:

(i) Costing: Costing is the technique and process of ascertaining costs of products or
services. The cost ascertainment procedure is governed by some cost accounting principles
and rules. Generally cost is ascertained using some arithmetical process.
(ii) Cost Accounting: This is a process of accounting for cost which begins with the
recording of expenditure and ends with the preparation of periodical statement and reports
for ascertaining and controlling cost. Cost Accounting is a formal mechanism of cost
ascertainment.

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(iii) Cost Analysis: It involves the process of finding out the factors responsible for variance
in actual costs from the budgeted costs and accordingly fixation of responsibility for cost
differences. This also helps in better cost management and strategic decisions.
(iv) Cost Comparisons: Cost accounting also includes comparisons of cost from alternative
courses of action such as use of different technology for production, cost of making
different products and activities, and cost of same product/ service over a period of time.
(v) Cost Control: It involves a detailed examination of each cost in the light of advantage
received from the incurrence of the cost. Thus, we can state that cost is analyzed to know
whether cost is not exceeding its budgeted cost and whether further cost reduction is
possible or not.
(vi) Cost Reports: This is the ultimate function of cost accounting. These reports are
primarily prepared for use by the management at different levels. Cost Reports helps in
planning and control, performance appraisal and managerial decision making.
(vii) Statutory Compliances: Maintaining cost accounting records as per the rules
prescribed by the statute. As per the Companies (Cost Records and Audits) Rules, 2014,
Companies governed by the Companies Act has to maintain cost records relating to
utilization of materials, labour and other items of cost as applicable to the production of
goods or provision of services as provided in the Act and these rules.
Classification of Costs:
(1) By Nature or Element
(2) By Functions
(3) By Variability or Behaviour
(4) By Controllability
(5) By Normality
(6) By Costs for Managerial Decision Making
1. By Nature or Element: This type of classification is useful to determine the total cost.
A diagram as given below shows the elements of cost described as under:
(i) Direct Materials: Materials which are present in the finished product (cost object) or
can be economically identified in the product are called direct materials. For example,
cloth in dress making; materials purchased for a specific job etc. However in some cases
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a material may be direct but it is treated as indirect, because it is used in small quantities,
it is not economically feasible to identify that quantity and those materials which are used
for purposes ancillary to the business.
(ii) Direct Labour: Labour which can be economically identified or attributed wholly to a
cost object is called direct labour. For example, labour engaged on the actual production
of the product or in carrying out the necessary operations for converting the raw materials
into finished product.
(iii) Direct Expenses: It includes all expenses other than direct material or direct labour
which are specially incurred for a particular cost object and can be identified in an
economically feasible way. For example, hire charges for some special machinery, cost of
defective work.
(iv) Indirect Materials: Materials which do not normally form part of the finished product
(cost object) are known as indirect materials. These are —
 Stores used for maintaining machines and buildings (lubricants, cotton waste, bricks
etc.)
 Stores used by service departments like power house, boiler house, canteen etc.
(v) Indirect Labour : Labour costs which cannot be allocated but can be apportioned to
or absorbed by cost units or cost centres is known as indirect labour. Examples of indirect
labour includes foreman and supervisors; maintenance workers; etc.
(vi) Indirect Expenses: Expenses other than direct expenses are known as indirect
expenses, that cannot be directly, conveniently and wholly allocated to cost centres.
Factory rent and rates, insurance of plant and machinery, power, light, heating, repairing,
telephone etc., are some examples of indirect expenses.
(vii) Overheads: It is the aggregate of indirect material costs, indirect labour costs and
indirect expenses. The main groups into which overheads may be subdivided are the
following:
 Production or Works Overheads: Indirect expenses which are incurred in the factory
and for the running of the factory. E.g.: rent, power etc.
 Administration Overheads: Indirect expenses related to management and
administration of business. E.g.: office rent, lighting, telephone etc.
 Selling Overheads: Indirect expenses incurred for marketing of a commodity.
E.g.: Advertisement expenses, commission to sales persons etc.
 Distribution Overheads: Indirect expenses incurred in despatch of the goods
E.g.: warehouse charges, packing and loading charges.
By Variability or Behaviour: According to this classification costs are classified into

three group viz., fixed, variable and semi-variable.
(a) Fixed costs – These are the costs which are incurred for a period, and which, within
certain output and turnover limits, tend to be unaffected by fluctuations in the levels of
activity (output or turnover). They do not tend to increase or decrease with the changes in
output. For example, rent, insurance of factory building etc., remain the same for different
levels of production.
(b) Variable Costs – These costs tend to vary with the volume of activity. Any increase in
the activity results in an increase in the variable cost and vice-versa. For example, cost of
direct labour, etc.
(c) Semi-variable costs – These costs contain both fixed and variable components and
are thus partly affected by fluctuations in the level of activity. Examples of semi variable
costs are telephone bills, gas and electricity etc.

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Methods of Costing: Different industries follow different methods of costing because of
the differences in the nature of their work. The various methods of costing are as follows:
 Job Costing: In this method of costing, cost of each job is ascertained separately. It
is suitable in all cases where work is undertaken on receiving a customer’s order
like a printing press, motor workshop, etc.
 Batch Costing: It is the extension of job costing. A batch may represent a number
of small orders passed through the factory in batch. Each batch here is treated as
a unit of cost and thus separately costed. Here cost per unit is determined by
dividing the cost of the batch by the number of units produced in the batch. It is
applicable to industries like nuts and bolts, medicine, shoes, books, drugs,
computers, read made garments, laptop, radio, biscuits, spare parts of two wheeler,
components and in all concerns where production is made in batches.
 Contract Costing Here the cost of each contract is ascertained separately. It is

suitable for firms engaged in the construction of bridges, roads, buildings etc.
 Single or Output Costing Here the cost of a product is ascertained, the product
being the only one produce like bricks, coals, etc.
 Process Costing Here the cost of completing each stage of work is ascertained, like
cost of making pulp and cost of making paper from pulp. In mechanical operations,
the cost of each operation may be ascertained separately; the name given is
operation costing.
 Operating Costing It is used in the case of concerns rendering services like

transport, supply of water, retail trade etc.
 Multiple Costing It is a combination of two or more methods of costing outlined

above. Suppose a firm manufactures bicycles including its components; the parts
will be costed by the system of job or batch costing but the cost of assembling the
bicycle will be computed by the Single or output costing method. The whole system
of costing is known as multiple costing.
* It is a sample material only. In course every topic will

be covered in details as per requirement of topic.
The following are the classification of costs based on functions:

(i) Direct Material Cost
(ii) Direct Employee (labour) Cost
(iii) Direct Expenses
(iv) Production/ Manufacturing Overheads
(v) Administration Overheads
(vi) Selling Overheads
(vii) Distribution Overheads
(viii) Research and Development costs etc.

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The costs as classified on the basis of functions are grouped into the following cost
heads in a cost sheet:
(i) Prime Cost
(ii) Cost of Production
(iii) Cost of Goods Sold
(iv) Cost of Sales
Prime Cost Prime cost represents the total of direct materials costs, direct employee
(labour) costs and direct expenses. The total of cost for each element has to be calculated
separately.
(a) Royalty paid/ payable for production or provision of service;

(b) Hire charges paid for hiring specific equipment;
(c) Cost for product/ service specific design or drawing;
(d) Cost of product/ service specific software;
(e) Other expenses which are directly related with the production of goods or
provision of service.
Cost of Production In a conventional cost sheet, this item of cost can be seen. It is the
total of prime cost and factory related costs and overheads.
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(i) Factory Overheads: It is also known as works/ production/ manufacturing

overheads. It includes the following indirect costs:
(a) Consumable stores and spares
(b) Depreciation of plant and machinery, factory building etc.
(c) Lease rent of production assets
(d) Repair and maintenance of plant and machinery, factory building etc.
(e) Indirect employees cost related with production activities
(f) Drawing and Designing department cost.
(g) Insurance of plant and machinery, factory building, stock of raw material & WIP etc.
(h) Amortized cost of jigs, fixtures, tooling etc.
(i) Service department cost such as Tool Room, Engineering & Maintenance, Pollution
Control etc.
(iii) Quality Control Cost: This is the cost of resources consumed towards quality control
procedures.
(iv) Research & Development cost: It includes only those research and development
related cost which is incurred for the improvement of process, system, product or services.
(v) Administrative Overheads: It includes only those administration overheads which are
related to production. The general administration overhead is not included in production
cost.
(vi) Credit for recoveries: The realised or realisable value of scrap or waste is deducted
as it reduces the cost of production.
(vii) Packing Cost (primary): Packing material which is essential to hold and preserve the
product for its use by the customer.
Cost of Goods Sold It is the cost of production for goods sold. It is calculated after
adjusting the values of opening and closing stocks of finished goods
Cost of Sales It is the total cost of a product incurred to make the product available to
the customer or consumer. It includes Cost of goods sold, administration and marketing
expenses.
(i) Administrative Overheads: It is the cost related with general administration of the
entity. It includes the followings:
(a) Depreciation and maintenance of, building, furniture etc. of corporate or general
management.
(b) Salary of administrative employees, accountants, directors, secretaries etc.
(c) Rent, insurance, lighting, office expenses etc.
(ii) Selling Overheads: It is the cost related with sale of products or services. It
includes the following costs:
(a) Salary and wages related with sales department and employees directly related with
selling of goods.
(b) Rent, depreciation, maintenance and other cost related with sales department.
(c) Cost of advertisement, maintenance of website for online sales, market research etc.

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(iii) Distribution Overheads: It includes the cost related with making the goods
available to the customers. The costs are
(a) Salary and wages of employees engaged in distribution of goods.’
(b) Transportation and insurance costs related with distribution.
(c) Depreciation, hire charges, maintenance and other operating costs related with
distribution vehicles etc.
Employee (Labour) cost: Benefits paid or payable to the employees of an entity, whether
permanent, or temporary for the services rendered by them. Employee cost includes
payments made in cash or kind. Employee cost includes the following:
(i) Wages and salary;
(ii) Allowances and incentives;
(iii) Payment for overtimes;
(iv) Employer’s contribution to Provident fund and other welfare funds;
(v) Other benefits (leave with pay, free or subsidised food, leave travel concession etc.) etc.
Classification of Employee (Labour) cost: Employee cost are broadly classified as direct
and indirect employee cost.
(i) Direct Employee (Labour) Cost Benefits paid or payable to the employees which can
be attributed to a cost object in an economically feasible manner. This can be easily
identified and allocated to an activity, contract, cost centre, customer, process, product
etc.
(ii) Indirect Employee (Labour) Cost Benefits paid or payable to the employees, which
cannot be directly attributable to a particular cost object in an economically feasible
manner.
INVENTORY CONTROL:
The function of ensuring that sufficient goods are retained in stock to meet all requirements
without carrying unnecessarily large stocks.
The objective of inventory control is to make a balance between sufficient stock and over-
stock. The stock maintained should be sufficient to meet the production requirements so

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that uninterrupted production flow can be maintained. Insufficient stock not only pause
the production but also cause a loss of revenue and goodwill.
On the other hand, Inventory requires some funds for purchase, storage, maintenance of
materials with a risk of obsolescence, pilferage etc.
Inventory Control:
(i) Re-order Stock Level (ROL): This level lies between minimum and the maximum levels
in such a way that before the material ordered is received into the stores, there is sufficient
quantity on hand to cover both normal and abnormal consumption situations. In other
words, it is the level at which fresh order should be placed for replenishment of stock.
(ii) Re-Order Quantity: Re-order quantity is the quantity of materials for which purchase
requisition is made by the store department. While setting the quantity to be re-ordered,
consideration is given to the maintenance of minimum level of stock, re-order level,
minimum delivery time and the most important the cost. Hence, the quantity should be
where, the total of carrying cost and ordering cost be at minimum. For this purpose, an
economic order quantity should be calculated.
Economic Order Quantity (EOQ): The size of an order for which total of ordering and
carrying cost are at minimum.
Ordering Cost: The costs which are associated with the purchase or order of materials. It
includes cost to invite quotations, documentation works like preparation of purchase
orders, employee cost directly attributable to the procurement of material, transportation
and inspection cost etc.
Carrying Cost: The costs for holding/ carrying of inventories in store. It includes the cost
of fund invested in inventories, cost of storage, insurance cost, obsolescence etc.
The Economic Order Quantity (EOQ) is calculated as below:

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Inventory Control Methods:

1. Just in Time (JIT) Inventory Management JIT is a system of inventory management
with an approach to have a zero inventories in stores. According to this approach material
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should only be purchased when it is actually required for production. JIT is based on two
principles
(i) Produce goods only when it is required and
(ii) the products should be delivered to customers at the time only when they want.
It is also known as ‘Demand pull’ or ‘Pull through’ system of production. In this system,
production process actually starts after the order for the products is received. Based on
the demand, production process starts and the requirement for raw materials is sent to
the purchase department for purchase. This can be understood with the help of the
following diagram:
2. ABC analysis: Items for storage are classified into the following categories:
A Category: Material in stock will have Quantity less than 10 % but value more than 70
%
B Category: Material in stock will have Quantity less than 20 % but value about 20 %
C Category: Material in stock will have Quantity about 70 % but value less than 10%
3. Fast Moving, Slow Moving and Non Moving (FSN) Inventory: Under this system,
inventories are controlled by classifying them on the basis of frequency of usage.
(i) Fast Moving- This category of items are placed nearer to store issue point and the stock
is reviewed frequently for making of fresh order.
(ii) Slow Moving- This category of items are given stored little far and stock is reviewed
periodically for any obsolescence and may be shifted to Non-moving category.
(iii) Non Moving- This category of items are kept for disposal. This category of items is
reported to the management and an appropriate provision for loss may be created.
4. Vital, Essential and Desirable (VED): Under this system of inventory analysis,
inventories are classified on the basis of its criticality for the production function and
final product. Generally, this classification is done for spare parts which are used for
production.
(i) Vital- Items are classified as vital when its unavailability can interrupt the production
process and cause a production loss. Items under this category are strictly controlled by
setting re-order level.
(ii) Essential- Items under this category are essential but not vital. The unavailability may
cause sub standardisation and loss of efficiency in production process. Items under this
category are reviewed periodically and gets the second priority.
(iii) Desirable- Items under this category are optional in nature, unavailability does not
cause any production or efficiency loss.
5. Two bin system: If one bin items exhausts, new order is placed and till the mean time
quantity from the other bin is purchased.

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6. First-in First-out method (FIFO): The materials received first are to be issued first
when material requisition is received. Materials left as closing stock will be at the price of
latest purchases.
7. Last-in First-out method (LIFO): The materials purchased last are to be issued first
when material requisition is received. Closing stock is valued at the oldest stock price.
Meaning of Accounting:
Every individual performs some kind of economic activity. A salaried person gets salary
and spends to buy provisions and clothing, for children’s education, construction of
house, etc. A sports club formed by a group of individuals, a business run by an individual
or a group of individuals, a local authority like Calcutta Municipal Corporation, Delhi
Development Authority.
Anyway such economic activities are performed through ‘transactions and events’.
Transaction is used to mean ‘a business, performance of an act, an agreement’ while event
is used to mean ‘a happening, as a consequence of transaction(s), a result due to
transactions made.’
An individual invests `2,00,000 for running a stationery business. On 1st January, he

purchases goods for ` 1,15,000 and sells for ` 1,47,000 during the month of January. He
pays shop rent for the month ` 5,000 and finds that still he has goods worth ` 15,000 in
hand. The individual performs an economic activity.
Earning of ` 42,000 surplus is an event; also having the inventories in hand is another
event, while purchase and sale of goods, investment of money and payment of rent are
transactions.

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Similarly, a municipal corporation got government grant ` 500 lakhs for adult education;
it spent ` 250 lakhs for purchasing literacy kits, paid ` 200 lakhs to the tutors and is left
with a balance of ` 50 lakhs. These are also transactions and events.
Similarly and organization/company spent 100 crs on productions of goods and sold
goods for 150 crs, paid 15 crs Tax so company made a profit of 35 crs.
Everybody wants to keep records of all transactions and events and to have adequate
information about the economic activity as an aid to decision-making. Accounting
discipline has been developed to serve this purpose as it deals with the measurement of
economic activities involving inflow and outflow of economic resources, which helps to
develop useful information for decision-making process.
Standard definitions:
The American Institute of Certified Public Accountants (AICPA) had defined accounting as
the art of recording, classifying, and summarising in a significant manner and in
terms of money, transactions and events which are, in part at least, of financial
character, and interpreting the results thereof’.
The American Accounting Association (AAA) defined accounting as ‘the process of

identifying, measuring and communicating economic information to permit informed
judgments and decisions by users of information’.
Accounting is a system meant for measuring business activities, processing of

information into reports and making the findings available to decision-makers. The
documents, which communicate these findings about the performance of an organisation
in monetary terms, are called financial statements.
Accounting is a means by which necessary financial information about business

enterprise is communicated and is also called the language of business. Many users need
financial information in order to make important decisions. These users can be divided
into two broad categories: internal users and external users. Internal users include:
Chief Executive, Financial Officer, Vice President, Business Unit Managers, Plant
Managers, Store Managers, Line Supervisors, etc. External users include: present and
potential Investors (shareholders), Creditors (Banks and other Financial Institutions,
Debenture- holders and other Lenders), Tax Authorities, Regulatory Agencies (Department
of Company Affairs, Registrar of Companies, Securities Exchange Board of India, Labour
Unions, Trade Associations, Stock Exchange and Customers, etc.
First go through the Basic Terms in Accounting:
Entity/Enterprise: Entity means a reality that has a definite individual existence.

Business entity means a specifically identifiable business enterprise like Super Bazaar,
Hire Jewellers, ITC Limited, etc. An accounting system is always devised for a specific
business entity (also called accounting entity).

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Transaction: A event involving some value between two or more entities. It can be a
purchase of goods, receipt of money, payment to a creditor, incurring expenses, etc. It can
be a cash transaction or a credit transaction.
Credit transaction means any transaction by the terms of which the repayment of money
loaned or loan commitment made, or payment for goods, services or properties sold or
leased, is to be made at a future date or dates.
Cash transaction: A cash transaction is an immediate exchange of cash for the purchase
of an item.
Balance Sheet: A balance sheet or statement of financial position is a summary of the

financial balances of an entity on a particular point of time. i.e. summary of organization's
assets, liabilities and equity as of a specific date.
Elements of Balance Sheet:

 Assets
 Liabilities
 Owners Fund
Assets: Assets are economic resources of an enterprise that can be usefully expressed in
monetary terms. Assets are items of value used by the business in its operations. For

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example, Super Bazar owns a fleet of trucks, which is used by it for delivering foodstuffs;
the trucks, thus, provide economic benefit to the enterprise. This item will be shown on
the asset side of the balance sheet of Super Bazaar. Building of Enterprise.
Assets are reported on the balance sheet usually at cost or lower. Assets are also
part of the accounting equation:
Assets = Liabilities + Owner's (Share holders') Equity.
Examples of assets include:

 Cash and cash equivalents
 Inventory
 Investments
 Property, Plant, and Equipment
 Vehicles
 Furniture
 Patents
 Stock
Classification of Assets:
Classification of Assets: Convertibility
If assets are classified based on their convertibility into cash, assets are classified as
either current assets or fixed assets. An alternative expression of this concept is short-
term vs. long-term assets.
1. Current Assets
Current assets are assets that can be easily converted into cash and cash equivalents
(typically within a year). Current assets are also termed liquid assets and examples of such
are:

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 Cash
 Cash equivalents
 Short-term deposits
 Stock
 Marketable securities
 Office supplies
2. Fixed or Non-Current Assets

Non-current assets are assets that cannot be easily and readily converted into cash and
cash equivalents. Non-current assets are also termed fixed assets, long-term assets, or
hard assets. Examples of non-current or fixed assets include:
 Land
 Building
 Machinery
 Equipment
 Patents
 Trademarks
Classification of Assets: Physical Existence: If assets are classified based

on their physical existence, assets are classified as either tangible
assets or intangible assets.
1. Tangible Assets
Tangible assets are assets that have a physical existence (we can touch, feel, and see
them). Examples of tangible assets include:
 Land
 Building
 Machinery
 Equipment
 Cash
 Office supplies
 Stock
2. Intangible Assets
Intangible assets are assets that do not have a physical existence. Examples of intangible
assets include:
 Goodwill
 Patents
 Brand
 Copyrights
 Trademarks
 Trade secrets
 Permits
 Corporate intellectual property

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Classification of Assets: Usage: If assets are classified based on their
usage or purpose, assets are classified as either operating assets or non-
operating assets.
1. Operating Assets: Operating assets are assets that are required in the daily operation
of a business. In other words, operating assets are used to generate revenue from a
company’s core business activities. Examples of operating assets include:
 Cash
 Stock
 Building
 Machinery
 Equipment
 Patents
 Copyrights
 Goodwill
2. Non-Operating Assets:
Non-operating assets are assets that are not required for daily business operations but
can still generate revenue. Examples of non-operating assets include:
 Short-term investments
 Vacant land
 Interest income from a fixed deposit
Liabilities are obligations or debts that an enterprise has to pay at some time in the
future. They represent creditors’ claims on the firm’s assets. Both small and big
businesses find it necessary to borrow money at one time or the other, and to purchase
goods on credit.
Super Bazar, for example, purchases goods for Rs. 10,000 on credit (means 10000 will be
paid in future) for a month from Fast Food Products on March 25, 2020. If the balance
sheet of Super Bazaar is prepared as at March 31, 2020, Fast Food Products will be shown
as creditors on the liabilities side of the balance sheet.
If Super Bazaar takes a loan for a period of three years from Delhi State Co-operative
Bank, this will also be shown as a liability in the balance sheet of Super Bazaar.
Liabilities are classified as current, non-current & Contingent:
Current Liabilities: Current liabilities, also known as short-term liabilities,

are debts or obligations that need to be paid within a year. Current
liabilities should be closely watched by management to make sure that the
company possesses enough liquidity from current assets to guarantee that
the debts or obligations can be met.
Examples of current liabilities:
 Accounts payable
 Interest payable

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 Income taxes payable
 Bills payable
 Bank account overdrafts
 Accrued expenses
 Short-term loans
Current liabilities are used as a key component in several short-term liquidity

measures. Below are examples:
Examples of key ratios that use current liabilities are:
 The current ratio: Current assets divided by current liabilities

 The quick ratio: Current assets, minus inventory, divided by current liabilities
 The cash ratio: Cash and cash equivalents divided by current liabilities
Non-current/long term Liabilities: Non-current liabilities, also known as long-term

liabilities, are debts or obligations that are due beyond one year. Long-term liabilities are
an important part of a company’s long-term financing. Companies take on long-term debt
to acquire immediate capital to fund the purchase of capital assets or invest in new capital
projects.
Long-term liabilities are crucial in determining a company’s long-term solvency. If

companies are unable to repay their long-term liabilities as they become due, then the
company will face a solvency crisis.
List of non-current liabilities:
 Bonds payable
 Bank Loan
 Loan from Financial Institution
 Debentures
 Long-term notes payable
 Deferred tax liabilities
 Mortgage payable
 Capital leases
Debenture: In corporate finance, a debenture is a medium- to long-term debt instrument

used by large companies to borrow money, at a fixed rate of interest.
A mortgage payable is the liability of a property owner to pay a loan that is secured by
property.
Contingent Liabilities: Contingent liabilities are liabilities that may occur, depending on
the outcome of a future event.
For example, when a company is facing a lawsuit of INR 100,000, the company would
incur a liability if the lawsuit proves successful. However, if the lawsuit is not successful,
then no liability would arise. In accounting standards, a contingent liability is only
recorded if the liability is probable (defined as more than 50% likely to happen) and the
amount of the resulting liability can be reasonably estimated.
Examples of contingent liabilities:
 Lawsuits

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 Product warranties
Owners Fund: Owners fund is the excess of aggregate assets of an enterprise over its
aggregate liabilities.
Owner’s funds are provided by the owners of the business and are known as capital in the
case of sole proprietor, partnership, limited liability partnership etc. it is called share
capital in the case of incorporated bodies like a company or cooperative society.
Owners fund refers the funds invested by the company owners for its development.
Examples include equity and preference share capitals and retained earnings.
Owner’s funds also include the profits earned by the business that are reinvested in the
business also called as retained earnings, ploughing back of profits or self-financing.
Provision means any amount retained by way of providing for any known liability of which
amount can not be determined with substantial accuracy. Provision refers to an amount
set aside for meeting claims which are admissible but the amount whereof has not been
confirmed.
 Provision for payment of electricity charges (but bill is not yet received).
 Provision for taxes (till final amount is assessed by authorities.)
 Provision for bonus.
 Amount set aside for writing off bad debts.
Capital: Amount invested by the owner in the firm is known as capital. It may be brought
in the form of cash or assets by the owner for the business entity capital is an obligation
and a claim on the assets of business. It is, therefore, shown as capital on the liabilities
side of the balance sheet.
The excess of assets over liabilities of the enterprise. It is the difference between the total
assets & the total liabilities of the enterprise. e.g.,: if on a particular date the assets of the
business amount to Rs. 1.00 lakhs & liabilities to Rs. 30,000 then the capital on that date
would be Rs.70,000/-.
Sales are total revenues from goods or services sold or provided to customers. Sales may
be cash sales or credit sales.
Revenues: These are the amounts of the business earned by selling its products or
providing services to customers, called sales revenue. Other items of revenue common to
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many businesses are: commission, interest, dividends, royalities, rent received, etc.
Revenue is also called income.
Revenue From Operations: Revenue from operations can be defined as the income
generated by an entity from its daily core business operations. If the entity is able to
generate a steady flow of income from its operations, it is said to have been running
successfully. It is also called operating revenue. Example – ABC Automobile Co. makes
and sells automobiles as their daily core business, so their revenue from operations is said
to be generated by production and selling of automobiles only.
Expenditure: Spending money or incurring a liability for some benefit, service or property
received is called expenditure. Purchase of goods, purchase of machinery, purchase of
furniture, etc. are examples of expenditure.
If the benefit of expenditure is exhausted within a year, it is treated as an expense (also

called revenue expenditure).
On the other hand, the benefit of an expenditure lasts for more than a year, it is treated
as an asset (also called capital expenditure) such as purchase of machinery, furniture,
etc.
Income: Income is the difference between revenue and expense.
Invoice: Invoice is a business document which is prepared when one sell goods to another.
The statement is prepared by the seller of goods. It contains the information relating to
name and address of the seller and the buyer, the date of sale and the clear description of
goods with quantity and price.
Receipt: Receipt is an acknowledgement for cash received. It is issued to the party paying
cash. Receipts form the basis for entries in cash book.
Profit: The excess of revenues of a period over its related expenses during an accounting
year is profit. Profit increases the investment of the owners.
Gain: A profit that arises from events or transactions which are incidental to business
such as sale of fixed assets, winning a court case, appreciation in the value of an asset.
Loss: The excess of expenses of a period over its related revenues its termed as loss. It
decreases in owner’s equity. It also refers to money or money’s worth lost (or cost incurred)
without receiving any benefit in return, e.g., cash or goods lost by theft or a fire accident,
etc. It also includes loss on sale of fixed assets.
Discount: Discount is the deduction in the price of the goods sold. It is offered in two
ways. Offering deduction of agreed percentage of list price at the time selling goods is one
way of giving discount. Such discount is called ‘trade discount’. It is generally offered by
manufactures to wholesellers and by wholesellers to retailers. After selling the goods on
credit basis the debtors may be given certain deduction in amount due in case if they pay
the amount within the stipulated period or earlier. This deduction is given at the time of
payment on the amount payable. Hence, it is called as cash discount. Cash discount acts
as an incentive that encourages prompt payment by the debtors.

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Voucher: The documentary evidence in support of a transaction is known as voucher. For
example, if we buy goods for cash, we get cash memo, if we buy on credit, we get an invoice;
when we make a payment we get a receipt and so on.
Bad Debts: In a business scenario, amounts which are overdue to a business owner by
their debtor(s) and are declared irrecoverable are called bad debts.
Drawings: Withdrawal of money and/or goods by the owner from the business for personal
use is known as drawings. Drawings reduces the investment of the owners.
Purchases: Purchases are total amount of goods procured by a business on credit and on
cash, for use or sale. In a trading concern, purchases are made of merchandise for resale
with or without processing. In a manufacturing concern, raw materials are purchased,
processed further into finished goods and then sold. Purchases may be cash purchases or
credit purchases.
Stock: Stock (inventory) is a measure of something on hand-goods, spares and other

items in a business. It is called Stock in hand. In a trading concern, the stock on hand is
the amount of goods which are lying unsold as at the end of an accounting period is called
closing stock (ending inventory). In a manufacturing company, closing stock comprises
raw materials, semi-finished goods and finished goods on hand on the closing date.
Similarly, opening stock (beginning inventory) is the amount of stock at the beginning of
the accounting period.
Debtors: Debtors are persons and/or other entities who owe to an enterprise an amount
for buying goods and services on credit. The total amount standing against such persons
and/or entities on the closing date, is shown in the balance sheet as sundry debtors on
the asset side.
Sundry Debtors is a person or business organisation who owes money to other party.
Creditors: Creditors are persons and/or other entities who have to be paid by an
enterprise an amount for providing the enterprise goods and services on credit. The total
amount standing to the favour of such persons and/or entities on the closing date, is
shown in the Balance Sheet as sundry creditors on the liabilities side.
Working Capital: In order to maintain flows of revenue from operation, every firm needs
certain amount of current assets. For example, cash is required either to pay for expenses
or to meet obligation for service received or goods purchased, etc. by a firm. On identical
reason, inventories are required to provide the link between production and sale. Similarly,
Accounts Receivable generate when goods are sold on credit. Cash, Bank, Debtors, Bills
Receivable, Closing Stock, Prepayments etc. represent current assets of firm. The whole
of these current assets form the working capital of a firm which is termed as Gross
Working Capital.
Gross Working Capital = Total Current Assets = Long term internal liabilities plus long
term debts plus the current liabilities minus the amount blocked in the fixed assets.
Working Capital (Net) = Current Assets – Currents Liabilities.
Ledger: According to L.C. Cropper, ‘the book which contains a classified and permanent
record of all the transactions of a business is called the Ledger’.
Ledger is a principal or main book which contains all the accounts in which the
transactions recorded in the books of original entry are transferred. Ledger is also called
the ‘Book of Final Entry’ or ‘Book of Secondary Entry’, because the transactions are finally
incorporated in the Ledger.
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Accounting and Book-keeping

Accounting refers to the actual process of preparing and presenting the accounts. In other
words, it is the art of putting the academic knowledge of accountancy into practice.
Book-keeping is a part of accounting and is concerned with record keeping or
maintenance of books of accounts. It is often routine and clerical in nature. Book-keeping
provides the basis for accounting and it is complementary to accounting process.
Accounting begins where book-keeping ends. Accountancy includes accounting and book-
keeping.
Depreciation:
In accounting terms, depreciation is defined as the reduction of recorded cost of
a fixed asset in a systematic manner until the value of the asset becomes zero or
negligible.
An example of fixed assets are buildings, furniture, office equipment, machinery
etc.. A land is the only exception which cannot be depreciated as the value of land
appreciates with time.
Depreciation allows a portion of the cost of a fixed asset to the revenue generated
by the fixed asset. This is mandatory under the matching principle as revenues are
recorded with their associated expenses in the accounting period when the asset is
in use. This helps in getting a complete picture of the revenue generation
transaction.
An example of Depreciation – If a delivery truck is purchased a company with a
cost of Rs. 100,000 and the expected usage of the truck are 5 years, the business
might depreciate the asset under depreciation expense as Rs. 20,000 every year for
a period of 5 years.
Stakeholder: a person who has a legitimate interest in an entity.

 Investors
 Management of enterprise
 Creditors / Lenders
 Government
 Employees

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Investor study the Financial Statement of the company before deciding upon whether to
buy or not a business or shares.
Managers are the main users of the Financial Statement. They use the financial
statement
 To make the inter firm and inter period comparison
 To study trends in sales, expenses etc.
 To understand the relationship among various items of financial statement
 To know movement of funds through Fund Flow Analysis
Creditor or Lender study the Financial statement of the borrower before advancing credit
or loan. Thereafter also the creditors and lenders analysis the Financial statement to find
out whether the business is solvent (in position to repay the loan).
Government: The amounts payable by concern by way of taxes levied by Government

such as Income Tax, Sales Tax, Excise etc. are examined on the basis of the data in
Financial Statement.
Employees also use Financial Statements in making collective bargaining agreements

with the management, in the case of labour union or for individuals in discussing their
compensation, promotion and rankings.
AN ACCOUNTANT’S JOB PROFILE: FUNCTIONS OF ACCOUNTING A man who is

involved in the process of book keeping and accounting is called an accountant. With the
coming up accounting as a specialised field of knowledge, an accountant has a special
place in the structure of an organisation, because he performs certain vital functions.
An accountant is a person who does the basic job of maintaining accounts as he is the
man who is engaged in book keeping. Since the managers would always want to know the
financial performance of the business.
An accountant prepares profit and loss account which reports the profits/losses of the
business during the accounting period, Balance Sheet, which is a statement of assets and
liabilities of the business at a point of time, is also proposed by all accountants. Since
both statements are called financial statements, the person who prepares them is called
a financial accountant.
Capital and Revenue Expenditures and Receipts:
Capital Expenditure, on the other hand, generates enduring benefits and helps in
revenue generation over more than one accounting period.
In other words the benefit of which is not consumed within one accounting period. It is
non-recurring in nature.
Characteristics
In other words, it refers to the expenditure, which may be
i. purchase of a fixed asset.
ii. not acquired for sale.
iii. it is non-recurring in nature.
iv. incurred to increase the operational efficiency of the business concern.

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Examples
i. Expenses incurred in the acquisition of Land, Building, Machinery, Furniture,
Car, Goodwill, Copyright, Trade Mark, Patent Right, etc.
ii. Expenses incurred for increasing the seating accommodation in a cinema hall.
iii. Expenses incurred for installation of fixed assets like wages paid for installing
a plant.
iv. Expenses incurred for remodelling and reconditioning an existing asset like
remodelling a building.
Capital Receipt: Capital receipt is one which is invested in the business for a long
period. It includes long term loans obtained from others and any amount realised on
sale of fixed assets. It is generally non-recurring in nature.
Characteristics
i. Amount is not received in the normal course of business.
ii. It is non-recurring in nature.
Examples
i. Capital introduced by the owner
ii. Borrowed loans
iii. Sale of fixed asset
Revenue Expenditure: Revenue expenditures consist of those expenditures, which are

incurred in the normal course of business. They are incurred in order to maintain the
existing earning capacity of the business. It helps in the upkeep of fixed assets.
Generally it is recurring in nature.
The Revenue Expense relates to the operations of the business of an accounting period or
to the revenue earned during the period or the items of expenditure, benefits of which do
not extend beyond that period.
Characteristics
i. It helps in maintaining the earning capacity of the business concern.
ii. It is recurring in nature.
Examples
i. Cost of goods purchased for resale.
ii. Office and administrative expenses.
iii. Selling and distribution expenses.
iv. Depreciation of fixed assets, interest on borrowings etc.
v. Repairs, renewals, etc.
vi. labour expenses etc.
Revenue Receipt: Revenue receipt is the receipt of income which is earned during the
normal course of business. It is recurring in nature.
Characteristics
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i. It is received in the normal course of business.
ii. It is recurring in nature.
Examples
i. Sale of goods or services.
ii. Commission and Discount received.
iii. Dividend and interest received on investments etc.
The distinction of transaction into revenue and capital is done for the purpose of
placing them in Profit and Loss account or in the Balance Sheet.
For example: revenue expenditures are shown in the profit and loss account as their
benefits are for one accounting period i.e. in which they are incurred while capital
expenditures are placed on the asset side of the balance sheet as they will generate
benefits for more than one accounting period and will be transferred to profit and loss
account of the year on the basis of utilisation of that benefit in particular accounting year.
Hence, both capital and revenue expenditures are ultimately transferred to profit and loss
account.
Revenue expenditures are transferred to profit and loss account in the year of spending
while capital expenditures are transferred to profit and loss account of the year in which
their benefits are utilised.
The basic considerations in distinction between capital and revenue expenditures

are:
(a) Nature of business: For a trader dealing in furniture, purchase of furniture is revenue
expenditure but for any other trade, the purchase of furniture should be treated as capital
expenditure and shown in the balance sheet as asset. Therefore, the nature of business is
a very important criteria in separating an expenditure between capital and revenue.
(b) Recurring nature of expenditure: If the frequency of an expense is quite often in an

accounting year then it is said to be an expenditure of revenue nature while non-recurring
expenditure is infrequent in nature and do not occur often in an accounting year. Monthly
salary or rent is the example of revenue expenditure as they are incurred every month
while purchase of assets is not the transaction done regularly therefore, classified as
capital expenditure unless materiality criteria defines it as revenue expenditure.
(c) Purpose of expenses: Expenses for repairs of machine may be incurred in course of
normal maintenance of the asset. Such expenses are revenue in nature. On the other
hand, expenditure incurred for major repair of the asset so as to increase its productive
capacity is capital in nature.
However, determination of the cost of maintenance and ordinary repairs which should be
expensed, as opposed to a cost which ought to be capitalised, is not always simple.
(d) Effect on revenue generating capacity of business: The expenses which help to
generate income/revenue in the current period are revenue in nature and should be
matched against the revenue earned in the current period. On the other hand, if
expenditure helps to generate revenue over more than one accounting period, it is
generally called capital expenditure.
When expenditure on improvements and repair of a fixed asset is done, it has to be charged
to Profit and Loss Account if the expected future benefits from fixed assets do not change,

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and it will be included in book value of fixed asset, where the expected future benefits
from assets increase.
Deferred revenue expenditure: Deferred revenue expenditure is that expenditure for

which payment has been made or a liability incurred but which is carried forward on the
presumption that it will be of benefit over a subsequent period or periods. In short, it refers
to that expenditure that is, for the time being, deferred from being charged against income.
Such suspension of ‘charging of’ operation may be due to the nature of expenses and the
benefits expected there from. Deferred revenue expenditure should be revenue
expenditure by nature in the first instance.
The charge of these expenses is proportionately deferred over the period for which its
benefits are derived. This is as per the Matching Principle.
For example, insurance premium paid say, for the year ending 30th June, 2015 when the
accounting year ends on 31st March, 2015 will be an example of prepaid expense to the
extent of premium relating to three months’ period i.e. from 1st April, 2015 to 30th June,
2015. Thus the insurance protection will be available precisely for three months after the
close of the Year and the amount of the premium to be carried forward can be calculated
exactly.
Characteristics
i. Benefit is enjoyed for more than one year
ii. It is non-recurring in nature
Examples
i. Expenses incurred on research and development
ii. Abnormal loss arising out of fire or lightning (in case the asset has not been
insured).
iii. Huge amount spent on advertisement.
Preliminary expenses: The expenses incurred when a company is formed and before the
start of any business operations are termed as preliminary expenses, they are a good
example of fictitious assets which are written off every year from the profits earned by the
business.
Some examples of such expenses incurred before business incorporation are; Legal cost,
Professional fees, Stamp duty, Printing fees, etc.
Also known as pre-operative expenses, they are shown on the asset side of the balance
sheet (Capital Expenditure) and are preferably amortized within the same year.
Expenditure that is incurred in connection with the following:
 Preparation of feasibility reports, project reports, market survey reports,

engineering service reports
 Legal charges for drafting necessary agreements for the purpose of carrying out
business
 Legal charges for drafting Memorandum of Association and Articles of Association
 Charges for printing the above documents
 Charges incurred for registering the company with the ROC

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 Underwriting commission, brokerage, and charges paid in connection with the
issue of shares and debentures or issue of the prospectus
 Any other expenses as may be prescribed and not deductible under any other
section.
Sundry Expenses
The word “Sundry” is used for items which are unimportant to be mentioned
individually. Sundry expenses are costs incurred for small things which can not be
categorized under a specific heading. They are usually infrequent, considerably low,
miscellaneous in nature & are not classified under a specific ledger account.
They may also be referred to as “Miscellaneous Expenses”. They can be related to a
particular area within a business such as sundry office expenses, sundry retail expenses
etc.
Examples of Sundry Expenses

As mentioned above these type of expenses do not usually have a separate ledger account
however they can be grouped together and clubbed together as sundry expenses. There
are no hard and fast rules for categorizing expenses as sundries but they should definitely
not include any regular payments or capital expenses. Examples may include expenses
related to Bank service charges, gifts & flowers, festival celebration, donations, etc.
SUB-FIELDS OF ACCOUNTING:
The various sub fields of accounting are:
(i) Financial Accounting – It covers the preparation and interpretation of financial
statements and communication to the users of accounts. It is historical in nature as it
records transactions which had already been occurred. The final step of financial
accounting is the preparation of Profit and Loss Account and the Balance Sheet. It
primarily helps in determination of the net result for an accounting period and the
financial position as on the given date.
(ii) Management Accounting – It is concerned with internal reporting to the managers of

a business unit. To discharge the functions of planning, control and decision- making, the
management needs variety of information. The different ways of grouping information and
preparing reports as desired by managers for discharging their functions are referred to
as management accounting. A very important component of the management accounting
is cost accounting which deals with cost ascertainment and cost control. Management
Accounting will be dealt with at higher levels of the Chartered Accountancy Course.
(iii) Cost Accounting –

One important variant of management accounting is the cost analysis. Cost accounting
makes elaborate cost records regarding various products, operations and functions. It is
the process of determining and accumulating the cost of a particular product or activity.
Any product, function, job or process for which costs are determined and accumulated,
are called cost centres.
The basic purpose of cost accounting is to provide a detailed breakup of cost of different
departments, processes, jobs, products, sales territories, etc., so that effective cost control
can be exercised.
Cost accounting also helps in making revenue decisions such as those related to pricing,
product-mix, profit-volume decisions, expansion of business, replacement decisions, etc

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The objectives of cost accounting, therefore, can be summarized in the form of three
important statements, viz, to determine costs, to facilitate planning and control of
business activities and to supply information for short- and long-term decision

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The Seven Wastes expanded are:

3. Waiting: Waiting includes products waiting on the next production step.

4. Motion: People or equipment moving or walking more than is required to perform

5. Transportation: Moving products that is not actually required to perform the

6. Rework from defects: Not-right first time.

7. Over Processing: Unnecessary work elements (non-value added activities).

Some of the techniques are:

Most of these applications are based on following principles:

The characteristics of lean manufacturing:

JUST-IN-TIME (JIT) A just in time approach is a collection of ideas that streamline a

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Push Production vs. Pull Production:

Push production: Traditionally production processes are scheduled, raw materials

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“Just-in-time (JIT): System whose objective is to produce or to procure products or

“Just-in-time production: Production system which is driven by demand for finished

“Just-in-time purchasing: Purchasing system in which material purchases are

JIT system aims at:

The five main features of JIT production system:

Essential Pre-requisites of a JIT system:

Disadvantages of JIT: However, like many things in business, just-in-time is not a

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Important advantages of a Cost Accounting System may be listed as below:

Scope of cost accounting consists of the following functions:

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By Variability or Behaviour: According to this classification costs are classified into

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 Contract Costing Here the cost of each contract is ascertained separately. It is

 Operating Costing It is used in the case of concerns rendering services like

 Multiple Costing It is a combination of two or more methods of costing outlined

* It is a sample material only. In course every topic will

The following are the classification of costs based on functions:

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(a) Royalty paid/ payable for production or provision of service;

(i) Factory Overheads: It is also known as works/ production/ manufacturing

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The Economic Order Quantity (EOQ) is calculated as below:

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Inventory Control Methods:

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An individual invests `2,00,000 for running a stationery business. On 1st January, he

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The American Accounting Association (AAA) defined accounting as ‘the process of

Accounting is a system meant for measuring business activities, processing of

Accounting is a means by which necessary financial information about business

First go through the Basic Terms in Accounting:

Entity/Enterprise: Entity means a reality that has a definite individual existence.

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Balance Sheet: A balance sheet or statement of financial position is a summary of the

Elements of Balance Sheet:

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Assets = Liabilities + Owner's (Share holders') Equity.

Examples of assets include:

Classification of Assets: Convertibility

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2. Fixed or Non-Current Assets

Classification of Assets: Physical Existence: If assets are classified based

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