mca management accounting presentation
TRANSCRIPT
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MANAGEMENT
ACCOUNTING
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AREAS COVERED
Financial Accounting
Management Accounting
Cash Flow Statement
Fund Flow Statement
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FINANCIAL ACCOUNTING
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FINANCIAL ACCOUNTING
Introduction to Accounting
Importance of Accounting
Accounting Concepts and Conventions
Double Entry SystemAccounting Cycle
Management Accounting
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INTRODUCTIONTO ACCOUNTING
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MEANINGOF ACCOUNTING
Accounting has been defined as a discipline
which involves recording, classifying and
summarizing transactions in monetary terms
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ACCOUNTING TRANSACTION
Accounting Transactions are those events, which
involve money & leads to a change in the
financial position of any organization
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EVENT
Event is an activity observed or recorded at a
given place or time. Anything happened around
us may be termed as event
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EVENTIN A FLOWCHART
EVENT
Does it
involve
money?
Yes(it is a
transaction)No
Forget ItIs it related to
business?No
Yes
It has to be
recorded in the
Books of Accounts
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IMPORTANCEOF ACCOUNTING
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ADVANTAGESOF ACCOUNTING
Providing information for decision making
Providing information to investors and creditors
Knowing financial position
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LIMITATIONSOF ACCOUNTING
Historical in nature
No impact of inflation
No impact of qualitative data
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ACCOUNTING CONCEPTSAND
CONVENTIONS
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CONCEPTSAND CONVENTIONS - MEANING
Generally accepted set of rules
Provide uniformity in accounting system
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IMPORTANT CONCEPTSAND CONVENTIONS
Business Entity Concept
Cost Concept
Money Measurement Concept
Going Concern ConceptAccrual Concept
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BUSINESS ENTITYCONCEPT
Separate entity of company and owner of the
company
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COST CONCEPT
Shows the Asset at cost price
Prevents from recording arbitrary figures
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MONEYMEASUREMENT CONCEPT
Considers those events, which can be measured
in terms of money
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GOING CONCERN CONCEPT
Will continue for an indefinitely long period of
time
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ACCRUAL CONCEPT
States that profit is the excess of revenue over
expenses
Example: Sale of a Machinery
Costing: Rs. 1,000 (Paid Rs. 600, Due Rs. 400)
Sale: Rs. 1,400 (Received Rs. 900, Due Rs. 500)
Profit: Rs. 400
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DOUBLE ENTRYSYSTEM
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DOUBLE ENTRYSYSTEM - MEANING
Every transaction has dual aspect
Sum of debit entries must be equal to sum of
credit entries
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ACCOUNTING EQUATION
Asset = Liability + Capital
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CLASSIFICATIONOF ACCOUNTS
Personal Account
Natural Person
Artificial Person
Real Account
Property & Possession
Nominal Account
Expense
Loss
Income
Gain
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GOLDEN RULES
Personal Account
Debit the receiver, Credit the giver
Real Account
Debit what comes in, Credit what goes out
Nominal Account
Debit expenses and losses, Credit incomes and gains
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MODERN APPROACH
Income (Source of earning of the business)
Debit when decreases, Credit when increases
Expense (Costs incurred while earning revenues)
Debit when increases, Credit when decreases
Asset (Goods & Property which the firm owns)
Debit when increases, Credit when decreases
Liability (Claims against asset)
Debit when decreases, Credit when increases
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CLASSIFICATION OF INCOME
Direct Income
Indirect Income
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CLASSIFICATION OF EXPENSE
Direct Expense
Indirect Expense
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CLASSIFICATIONOF ASSETS
Fixed Asset: Permanent nature for generating
revenue over long period of time
Tangible Asset:
Physical Existence, Seen, Touched
Intangible Asset No Physical Existence, Not Seen & Touched
Current Asset
Expected to be converted into cash within a relatively
short period of time
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CLASSIFICATIONOF ASSETS
Wasting Asset
Limited useful life
Diminish in value due to extraction or removal of
natural products such as minerals, oil, gas etc.
Fictitious Asset
Really not asset
Examples: Preliminary Expenses, Debit balance of
Profit & Loss Account
Contingent Asset Depends upon certain event which may or may not
happen
Example: Claim of income tax refund
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CLASSIFICATIONOF LIABILITIES
Proprietors Equity
Amounts deposited by proprietors
Long term Liabilities
Not to be met within short period of time
Current Liabilities
To be met within short period of time
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CLASSIFICATIONOF LIABILITIES
Contingent Liability
Depends upon certain event which may or may not
happen
Example: Parts may be changed within guarantee
period
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ACCOUNTING CYCLE
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ACCOUNTING CYCLE - MEANING
Sequence of accounting procedures
Begins with identification of business
transactions
Ends with preparation of final accounts
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ACCOUNTING CYCLE - STEPS
Identification of Business Transactions
Recorded in the books of Original Entry
Posted to Ledgers
Preparation of Trial Balance Preparation of Final Accounts
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BUSINESS TRANSACTION
Differentiate between Event and Transaction
Whether related to business or not
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BOOKS OF ORIGINAL ENTRY
Called as Journal
Types
Cash Book
Purchase Day Book
Sales Day Book
Purchase Return Day Book
Sales Return Day Book
Journal Proper
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JOURNAL - FORMAT
In the Books of..
Journal
Dr. Cr.
Date ParticularsLedger Folio (LF)
No.Amount (Rs.) Amount (Rs.)
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LEDGER - FORMAT
In the Books of..
.. Account
Dr. Cr.
Date ParticularsL.F.
No.
Amount
(Rs.)Date Particulars
L.F.
No.
Amount
(Rs.)
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TRIAL BALANCE
Purpose
A statement, verifies whether all the debit entries
should be equal to all the credit entries
Proves arithmetical accuracy
Methods Totals method
Post the debit side total in debit column and the credit
side total in credit column
Balances method Show only the balances of each account
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TRIAL BALANCE
Errors
Errors of Omission
Transaction is either wholly or partly unrecorded
Errors of Commission
Transaction is incorrectly recorded
Errors of Principle
Recorded in a fundamentally incorrect manner
Compensating Error
One error is counterbalanced by another error
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TRIAL BALANCE - FORMAT
Trial Balance as at..
Dr. Cr.
Account L.F. Amount (Rs.) Amount (Rs.)
Total
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TARDING ACCOUNT
Showing the Gross Profit
Considers Direct Income and Direct Expense
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TRADING ACCOUNT - FORMAT
Trading Account of
for the year ended..
Dr. Cr.
Date ParticularsAmount
(Rs.)Date Particulars
Amount
(Rs.)
To Opening Stock By Sales
To Purchase Less: Sales Return
Less: Purchase Return By Closing Stock
To Wages By all other direct incomes
To Carriage Inward By Gross Loss
To all other direct expenses
(Transferred to P/L
Account)
To Gross Profit
(Transferred to P/L
Account)
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PROFITAND LOSS ACCOUNT
Showing the Net Profit
Considers Indirect Income and Indirect Expense
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PROFIT & LOSS ACCOUNT - FORMAT
Profit & Loss Account of
for the year ended..
Dr. Cr.
Date ParticularsAmount
(Rs.)Date Particulars
Amount
(Rs.)
To Trading Account By Trading Account
(Gross Loss) (Gross Profit)
To all indirect expenses By all indirect incomes
To Net Profit By Net Loss
(Transferred to Capital
Account)
(Transferred to Capital
Account)
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BALANCE SHEET
Ultimate objective
Showing the financial position of the business
A statement of assets and liabilities
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BALANCE SHEET - FORMAT
Balance Sheet of
as at..
Liabilities Amount (Rs.) Assets Amount (Rs.)
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MANAGEMENT ACCOUNTING
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MANAGEMENT ACCOUNTING -
MEANING
Provides information to the management in a
logical manner for better planning and decision
making
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MANAGEMENT ACCOUNTING -
FUNCTIONS
Providing Data
Modifying Data
Analysis and Interpretation
Planning and Policy formulation Decision Making
Motivating Employees
Tax Administration
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DIFFERENCE BETWEEN FINANCIAL
& MNAGEMENT ACCOUNTING
Compulsory
To record transactions to
know the financial position
Related with historical
data Takes only actual figures
Concerned with the results
of the entire business
Useful for internal and
external uses
Not compulsory
To formulate different
policies and plans
Deals with projected future
data Takes approximate figures
also
Deals with separate cost
centres or departments
Only for internal use
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CASH FLOW STATEMENT
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CASH FLOW STATEMENT -
MEANING
Showing the inflow and outflow of cash during a
particular period
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CASH FLOW STATEMENT -
OBJECTIVE
Show the causes of changes in cash balance
between the balance sheet dates
Show the factors contributing to the reduction of
cash balance
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CASH FLOW STATEMENT - USES
Explains the reason for low cash balance
Shows the major sources and uses of cash
Helps in short term financial decision
Helps the management in planning therepayment of loan, credit arrangement etc.
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CASH FLOW STATEMENT - STEPS
1. Preparation of account for non-current items
2. Preparation of Adjusted Profit & Loss Account
3. Comparison of current items
4.
Preparation of Cash Flow Statement
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CASH FLOW STATEMENT - FORMAT
Cash Flow Statement
Inflow of CashAmount
(Rs.)Outflow of Cash
Amount
(Rs.)
Opening Cash xxx Payment of Tax xxx
Cash from Operation xxx Payment of Dividend xxx
Issue of Share & Debenture xxx Redemption of Share & Debenture xxx
Sales of Assets xxx Repayment of Loan xxx
Decrease in Current Assets xxx Purchase of Assets xxx
Increase in Current Liabilities xxx Increase in Current Assets xxx
Decrease in Current Liabilities xxx
Closing Cash xxx
xxx xxx
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FUND FLOW STATEMENT
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FUND FLOW STATEMENT -
MEANING
Showing the inflow and outflow of fund during a
particular period
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FUND FLOW STATEMENT -
OBJECTIVE
Helps to understand the changes in assets
Shows the financial strengths and weakness of
the company
Highlights the changes in the financial condition
beteen to balance sheet dates
Helps to plan a dividend policy
Helps in decision making
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FUND FLOW STATEMENT - STEPS
1. Preparation of schedule of changes in Working
Capital
2. Preparation of account for non-current items
3. Preparation of Adjusted Profit & Loss Account
4. Preparation of Fund Flow Statement
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FUND FLOW STATEMENT - FORMAT
Fund Flow Statement
Inflow of CashAmount
(Rs.)Outflow of Cash
Amount
(Rs.)
Fund from Operation xxx Payment of Tax xxx
Issue of Share & Debenture xxx Payment of Dividend xxx
Sales of Assets xxx Redemption of Share & Debenture xxx
Decrease in Working Capital xxx Repayment of Loan xxx
Purchase of Assets xxx
Increase in Working Capital xxx
xxx xxx
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DIFFERENCE BETWEEN CASH &
FUND FLOW STATEMENT
Concerned with changes incash position between twobalance sheet dates
Cash from operation iscalculated only by actualreceipt of income & payment
of expense Inflow of cash indicates
definitely inflow of fund
Increase in current liabilitiesor decrease in current assetswill increase in cash balance
Decrease in current liabilitiesor increase in current assetswill decrease in cash balance
More useful as a tool offinancial analysis
Concerned with changes inworking capital positionbetween two balance sheetdates
Fund from operation iscalculated by adjusted profit &
loss account
Sound fund position does notnecessarily mean sound cashposition
Increase in current liabilities ordecrease in current assets willdecrease in working capital
Decrease in current liabilitiesor increase in current assetswill increase in working capital
Not more useful as a tool offinancial analysis
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