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Note COl'npiled by M.B. Tltakoor

FINANCI L CCOUNTING

1. Functions of Financial Accounting

2. Need for Financial Accounting
3. Concepts & Convention
4. Classification of Expenditure & Receipt
5. Depreciation - Need for Depreciation
6. Process of Preparation of Financial Statement
7. Golden Rules of Accounting

COST ACCOUNTING
1. Need for Cost Accounting
2. Classification of Cost
3. Cost Centre
4. Cost Unit
5. Introduction to Methods of Costing - Cost Sheet
6. Introduction to echniques of Costing
Notes Compiled by M.B. Tltakoor
NEED FOR FINANCIAL ACCOUNTING

The need for financial accounting arises because if achieves certain Aims or
objectives.

(]) Maintaining of Accounting Records

Now a days the volume of transactions are so large that human
memory cannot remember them. Hence the need arises to keep a systematic
record of all financial transactions & of all assets & all liabilities.

(2) alculation of Results

The main purpose of doing any business is to earn more & more
profits. Once the records arc maintained of the business then it is easy to
calculate the profit or loss & the financial position of the business. The profit
& loss statement & financial position statement measures the performance of
the business.

(3) om municati ng the res ult to be uscn

The U!><:rs arc (I) Internal Users, (2) External Usen. l"he Internal u~cr-.
un: basi'-ally ·r OP Level Management who require, information for
planning. 'Il1c information is provided in lht! fonn of report~
I·xtemal u~r arc (I) Creditor, (2) Government, (3) lnve~tor~ who ar~
interested m the solvenc) & profitability of the busin~i.

.,
Notes Compiled by Af.B. Thakoor
The users can be sunm1arized as under:-

Users Their Needs

1 Short tem1 creditors Whether the amount owing to them will
be paid within due time or not
2 Long tenn creditors Information to decide whether their
principal & interest will be paid when
due or not
3 Present I Existing investors To judge the prospects for their
investment and to decide whether they
should purchase or sell the shares
4 Potential investors To judge the prospects of enterprises &
decide whether they should purchase the
shares of the company or not
5 Employees Information bout the stability &
profitability of the employees and to
assess the ability to pay salary,
retirement benefits and providing
employment opportunities
6 Management To review the short term solvency, long
term solvency, profitability & to decide
course of action like expansion,
diversification
7 Tax Authorities Information to assess the tax liabilities
of any enterprise
8 Government Interested to regulate the activities of
enterprise, deciding taxation policies as
base for National Income
9 Customer Information about continuation of an
enterprise
10 Public Substantial contribution to be local
economy

3
Notes Conipihd by M.B. Thal.oor
PROCE OF PREPARATIO OF
Fl ClAL T TEMENT
OR
CCOUNTING PROCE

... TEP-I
IDENTIFICATIO OF
TRAN ACTIO

• TEP-II
PREPARATIO OF BU I ES DOCUMENTS
I.E. VOUCHER . CA H MEMO . BILL

. TF:P-11I
RECORDING OF TR.Ai ACTIO
IN JOURNAL

.. TEP-1\'
PO Tl 1G LEDGER PO TlNG

TEP-V

PREPARATION OF TRIAL BALA CE (UNADJUSTED TRIAL BALANCE)

i
TEP-V I

PA ING OF ADJUSTING ENTRIES

TEP-Vil
PREPARATION OF ADJU TED TRIAL BALANCE

PREPARATION OF FINAL A/C'

i.e. Profit & Loss Ale. & Balance heel

4
'ote Compil •d by M.B. Thakoor

AC O TA CY

I
i l l i
Bok ccounting Auditing Consultancy
.
eep1ng Services

Tran a tion Journal Ledger Trial Final

Balance Accounts
ot ompil d by M. B. Thakoor

I I

inancial Ace unting is the pro ess of Identifying, ea urmg ifying1

ec rding and mmunicating the economic inform tion to the u rs wh
n d i for deci i n m king.

(1

2 RI

7)

6
 Notes Compiled by 1'1.B. Tl,akoor

ACCOUNTING COVERS THE FOLLOWING ACTIVITIES:

+ + + + + + + +
rIdentifying I!Measuring I[Recording I Classifying [s ummarising l~nalysing l l1nterpretingl ....
lc_o_m_m_u_n_ic-a-tin- g-,]

( 1) Identifying the Transaction: A transactions is an exchange in which

each participant receives or sacrifices value, while an event is happening of
consequences of an entity (economic unit like TISCO, TATA, Reliance etc.)
(2) Measuring: Accounting measures the transactions in terms of a
common measurement unit like Rupee, Dollar, Pound etc.
(3) Recording: It is concerned with the recording of financial transaction
in an orderly manner in the proper books of accounts.
(4) Classifying: It is related by maintaining the ledger in which different
accounts are opened to which related transactions are posted at appropriate
accounts. For example, all sales are written in one account known as sales
account.
(5) Summarising: It is related with the summarization of the classified
transactions in a specified manner. lt involves the preparation of various
types of statements such as income statement, statement of Cash Flow and
Balance Sheets etc.
(6) Analysing: It is related with the establishment of relationship between
the various items taken from Income Statement or Balance Sheet. The main
purpose is to identify the financial strength or weakness of the organisation.
(7) Interpreting: It is concerned with explaining the meaning of the
relationship between various items. The accountant has to concentrate on the
interpretation aspects of accounting. The accountant has to explain why it
happened and what is likely to happen under given conditions.
(8) Communicating: It 1s concerned with the transmission of
summarized, analysed and interpreted information to make suitable
decisions.
Thus accounting 1s an information system, which communicates the
accounting information to the users for taking suitable decisions.