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Accounting for management

By -Dr. Anubha Srivastava Sr. Lecturer ( Finance) Amity business school Noida-201301 Ph. No-0120-4392674 E-Mail Id-asrivastava5@amity.edu


Objective of the Subject

Understand the concept and conventions of accounting Understand the technique for preparation of financial statement Analyze the financial statement Understand various elements of cost and preparation of cost sheet To know how management accounting can be used as a tool to help in taking financial decisions

Session plan
Session plan for AFM.doc

Teaching learning strategy

TLS for AFM.ppt

Text & References

Text: Bhattacharya, S.K. and Dearden, J. 2006 - Accounting for Management, Vikas Publishing House Tulsian, P.C. 2006 - Financial Accounting, Tata McGraw Hill. Maheshwari S N and S K Maheshwari, 10th edition , Introduction to Accounting ,Vikas Publishing House Pvt. Ltd Jelsy Joseph kuppapally , 2009, Accounting of Managers , PHI learning Pvt.Ltd , M.N. arora , A text book of cost and management accounting , 8th edition , vikas publication Jawahar Lal,Advanced mangement accounting text problems and cases , S. Chand References: Narayanaswamy R,2005, 2nd Edition,Finanacial Accounting A Managerial Perspective,PHI (Prentice Hall of India.). Banerjee, A. 2005 - Financial Accounting, 2nd Ed, Excel Books. Ghosh,T.P, 2005, Fundamentals of Management Accounting, Excel Books Ambrish Gupta Financial accounting for management , an analytical perspective ,Third edition; Pearson publication .

Introduction to accounting
Points to discussMeaning, nature, functions and usefulness of accounting, Branches of accounting, Concepts & Convention of accounting

Meaning of Accounting
Accounting is a practice of recording, classifying, summarizing, analyzing and interpreting the financial transactions and communicating the results thereof to the persons interested in such information. 1. Recording the business transactions of financial character in the books. (preparation of first book called journal' 2. Classifying the recorded data of similar nature in one place (preparation of second book called 'Ledger')

3. Summarizing the classified data to know the result of business operation and its financial position (preparation of Trial balance, Income statement and Balance sheet) 4. Analysis and interprets the summarized data in such a way to get a meaningful judgment about the operational result an financial position of the business

Functions of accounting
Recording: This is the basic function of accounting.
Classifying: Classification is concerned with the systematic analysis of the recorded data, with a view to group transactions or entries of one nature at one place. Summarizing: This involves presenting the classified data in a manner which is understandable and useful to the internal as well as external end-users of accounting statements.

Analysis and Interprets: This is the final function of accounting. The recorded financial data is analyzed and interpreted in a manner that the end-users can make a meaningful judgment. Communicate: The accounting information after being meaningfully analyzed and interpreted has to be communicated in a proper form and manner to the proper person.

Usefulness of Accounting
Accounting plays important and useful role by developing the information for providing answers to many questions faced by the users of accounting information. (1) How good or bad is the financial condition of the business? (2) Has the business activity resulted in a profit or loss? (3) How well the different departments of the business have performed in the past? (4) Which activities or products have been profitable? (5) Out of the existing products which should be discontinued and the production of which commodities should be increased. (6) Whether to buy a component from the market or to manufacture the same?

(7) Whether the cost of production is reasonable or excessive? (8) What has been the impact of existing policies on the profitability of the business? (9) What are the likely results of new policy decisions on future earning capacity of the business? (10) In the light of past performance of the business how it should plan for future to ensure desired results ?

Besides, accounting is also useful in the following respects :(1) Increased volume of business results in large number of transactions and no businessman can remember everything. Accounting records obviate the necessity of remembering various transactions. (2) Accounting record, prepared on the basis of uniform practices, will enable a business to compare results of one period with another period. (3) Taxation authorities (both income tax and sales tax) are likely to believe the facts are contained in the set of accounting books if maintained according to generally accepted accounting principles. (4) If a business is to be sold as a going concern then the values of different assets as shown by the balance sheet helps in bargaining proper price for the business

Investors Employees Customer Lenders /Financial institutions Government Suppliers Competitors Management owners

Various parties

Branches of Accounting
Financial accounting Cost accounting Management accounting Inflation accounting Human resources accounting

Accounting conventions
Convention of Disclosure:-The disclosure of all significant information is one of the important accounting conventions. It implies that accounts should be prepared in such a way that all material information is clearly disclosed to the reader. The term disclosure does not imply that all information that any one could desire is to be included in accounting statements. The term only implies that there is to a sufficient disclosure of information which is of material in trust to proprietors, present and potential creditors and investors. Convention of Materiality:-It refers to the relative importance of an item or even. According to this convention only those events or items should be recorded which have a significant bearing and insignificant things should be ignored. This is because otherwise accounting will be unnecessarily over burden with minute details. There is no formula in making a distinction between material and immaterial events. It is a matter of judgment and it is left to the accountant for taking a decision.

Convention of Consistency: This convention means that accounting practices should remain uncharged from one period to another. For example, if stock is valued at cost or market price whichever is less; this principle should be followed year after year. Similarly, if depreciation is charged on fixed assets according to diminishing balance method, it should be done year after year. This is necessary for the purpose of comparison. However, consistency does not mean inflexibility. Convention of Conservatism:-This convention means a caution approach or policy of "play safe". This convention ensures that uncertainties and risks inherent in business transactions should be given a proper consideration. If there is a possibility of loss, it should be taken into account at the earliest. On the other hand, a prospect of profit should be ignored up to the time it does not materialize. On account of this reason, the accountants follow the rule 'anticipate no profit but provide for all possible losses'. On account of this convention, the inventory is valued 'at cost or market price whichever is less.'

Accounting concepts
Monetary measurement-Accountants do not account for items unless they can be quantified in monetary terms. Items that are not accounted for (unless someone is prepared to pay something for them) include things like workforce skill, morale, market leadership, brand recognition, quality of management etc.

Separate Entity-This convention seeks to ensure that private transactions and matters relating to the owners of a business are segregated from transactions that relate to the business.

Going Concern-Accountants assume, unless there is evidence to the contrary, that a company is not going broke. This has important implications for the valuation of assets and liabilities. Dual aspect concept every transaction has duel effect . E.g. Asset=liabilities + Capital. Accrual concept-we record the transaction when they become due , not when actually recd. E.g. prepaid exp. Outstanding exp. .

Cost concept This is based on going concern concept , therefore asset purchased in past are recorded at cost price Matching concept revenue of current year should match with expenses of the same year

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