Chapter 1 management accounting

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<ul><li> 1. Management AccountingChapter 1: Financial AccountingConcepts &amp; Conventions</li></ul> <p> 2. Power of Accounting Accounting provides a very selective but powerful representation of the corporate identity..The detailed language of assets, liabilities, costs,profits provide a range of corporate imagery andvocabulary .Accounting provides the categories through whichorganisational participants perceive both themselvesand the organisation. Mike Powers 3. Definition of Financial Accounting Financial accounting is the process of identifying, measuring and communicating economic information about a business organisation in order to permit informed judgements by users of that information.[American accounting association] 4. The Process of Financial Accounting &amp; classifying the assets, liabilities, capital, income &amp; IDENTIFYING expenses recording each transaction of the business SUMMARISING in the form of periodic financial statements to users/stakeholders in theCOMMUNICATING business 5. Who are the Stakeholders ? SuppliersManagers Shareholders/ investorsInvestmentanalysts AccountingEmployees informationGeneralpublic CompetitorsLenders/ CustomerscreditorsGovernment 6. Necessary qualities of financial information. accuracy clarityconsistency Accountingreliability Informationtimelinessrelevance 7. Main forms of businessenterprise [entity].Non -Soleprofittraderco-opcharitypublic Businessbody partnership organisation PrivatePublic limited limitedliabilityliabilitycompanycompany[plc] 8. What is Management Accounting? It is that field of accounting which deals with providing information to managers for their use in planning, Decision making, performance evaluation, control, Management of cost, Financial Reporting. 9. The Functions of ManagementPlanningActingControlling Feedback 10. Origin This concept was not known to the business world until 1950. The term was first formally described in a report entitled Management Accounting in 1950. The report was published by the Anglo American Council of Productivity Management Accounting Team after its visit to US in first quarter of 1950 11. Definition of ManagementAccounting The process of identification, measurement, accumulation, analysis,preparation &amp; communicationOf financial information used by management to Plan, Evaluate &amp; ControlWithin the organisation&amp; to assure appropriate use &amp; accountability for its resources. -National Association of Accountants [USA] 12. Management Accounting and Financial AccountingPrimary Users Internal managers of the businessInvestors, Creditors, Government authorities 13. Management Accounting and Financial Accounting Purpose of InformationHelp managers plan and control business operationsHelp investors, creditors, and others make investment, credit, and other decisions 14. COMPARING MANAGERIAL ANDFINANCIAL ACCOUNTING 15. Phases in the evolution of Accounting?HRAInflationAcct.SocialRespon. Acct.Management Accounting Cost Accounting Financial AccountingStewardship Accounting 16. Scope of Management Accounting1. Financial Accounting2. Cost Accounting3. Financial Statement Analysis4. Forecasting &amp; Budgeting5. Cost Control Techniques6. Inflation Accounting7. Management Reporting8. Quantitative Techniques9. Taxation10.Internal Audit. 17. Functions of ManagementAccounting Planning &amp; Forecasting Furnishing Information Not confined merely to financial data Analysis &amp; Interpretation Coordinating Communication Establishing standard of performance Undertaking special studies Controlling 18. Accounting Concepts The term concept denotes the basic assumptions or pro or conditions upon which accounting is based. Accounting concepts are such ideas that are commonly associated with the theory and practice of accountancy. 19. BusinessAccounting EntityPeriod DualAspect AccrualMoneyMeasurement Accounting ConceptsRealization Going concern Matching CostCostAttach 20. Accounting Conventions Conservatism Consistency Materiality Disclosure 21. 1. Conservatism This convention put forth the concept that, Anticipate no profit &amp; provide for all possible losses. This indicate that think &amp; provide for all probable losses and expense but do not credit any probable future profit. 22. Conservatism On this basis, Closing stock is valued at cost or market price whichever is less. Creating a provision for doubtful debts, Fixed assets are shown at cost less dep. Amortizing intangible assets Providing for discount on debtors. 23. 2. Consistency Accounting policies, methods, rules and practices should remain unchanged from one year to another year. Then only the results of business concern can be compared from one year to another Consistency has to be followed in following various accounting policies. 24. Examples of Accounting policies Method of charging depreciation. Valuation of inventories Valuation of Investments &amp; Fixed assets Treatment of contingent liabilities Treatment of goodwill Treatment of revenue &amp; capital expenditure. 25. 3. Materiality Materiality means relative importance and is related to the convention of disclosure. Disclosure is necessary in financial accounts only for material facts. Materiality depends not only on the size of the amount spent but also on its nature. Ultimately, what is material in one accounting period may not be material in next accounting period &amp; what is material for one business may not be material to another business. 26. 4. Disclosure All the material facts should be disclosed in the final accounts. The object of disclosure is to make the financial statements more useful &amp; to five less scope for misinterpretation. Even significant events occurring after the end of accounting period but before the preparation of balance sheet are to be disclosed 27. Items to be disclosed. Abnormal items Contingent liabilities or gain Accounting methods &amp; policies adopted by the company Changes in method or policies of accounting &amp; its effect on profit Items of non recurring nature Significant difference between cost &amp; market value of stock Items pertaining to previous year prior period items </p>

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