ACCOUNTING FOR

MANAGERS

Dr.R.Vasanthagopal
University of Kerala
 Accounting-Introduction
Accounting is the art of recording, classifying and
summarizing 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
(American Institute of Certified Public Accountants
(AICPA))
 Purpose of Accounting
 To provide the means of guiding and controlling the
business activities
 To analyze and interpret the results enabling the
management to find out the past, present and future
 To provide guidelines for making wise decisions to achieve
the corporate objectives
 Book Keeping Vs. Accounting
 Book keeping is the art and science of recording business
transactions in a systematic manner
 The scope of book keeping is confined to recording of
business transactions only.
 Accounting on the other hand processes, analyses and
interprets the data for the purpose of meeting the
requirements of different users.
 Thus, book keeping represents only a part of total
accounting system
 However, book keeping serves as the base for accounting.
 Branches of Accounting
 Financial Accounting
 Cost Accounting

 Management Accounting

 Each branch emerged owing to the developments in

the corporate world
 Cost accounting and management accounting cannot
exist without a suitable system of financial accounting
 Accounting-An Information
System
 Accounting as the language of business
 Accounting is designed primarily to serve the different
stakeholders in their decision making process
Input Processing Output

Business Analysis and Reports,

transactions Interpretation statements etc.
Users of Accounting Information
 Internal parties
 Top management
 Middle managers
 Lower level managers
 External parties
 Share holders
 Debenture holders
 Other financiers
 Govt. and tax authorities
 General public
 Uses of Accounting Information
 Managerial decisions
 Managerial planning

 Managerial control

 Evaluation of performance

 Assistance to external parties

 Generally Accepted Accounting
Principles (GAAP)
 GAAPs guide an govern the accountants in their
functions of preparing the Accounting reports.
 GAAPs comprise of
 Assumptions
 Concepts
 Principles
 Conventions and
 Rules
Generally Accepted Accounting
Principles (GAAP): Structure

Business entity
Assumptions Going concern
Money measurement
Concepts Accounting period concept
Objectivity
Dual aspect concept
GAAP Cost principle
Principles
Accrual principle
Matching principle
Realization principle
Conventions Conservatism
Consistency
Materiality
Rules Disclosure
 Systems of Accounting
 Cash System
 Accrual System

 Hybrid (Mixed) System

 Steps in Accounting
(Accounting Cycle)
 Recording Journal
 Classifying Ledger
 Verification Trail Balance
 Summarizing Final Accounts
 Analysis and Interpretation Ratio Analysis
 Business Transactions
 Any event, activity, dealing or happening whose effects can
be measured in terms of money.
 Transactions may be of:
 Cash transactions
 Credit transactions
 Barter/exchange transactions
 Book or paper transactions (E.g. depreciation charged on
factory building)
 Accounting Equation
 Assets= liabilities+ proprietors capital
 Proprietors capital= Assets-liabilities

 Profit= Proprietors capital at the end- Proprietors capital at

the beginning
 Principles of Double-entry
System of Accounting
 Every transaction has two effects (dual effects)
 Increase in the assets and a corresponding increase in
the liabilities. E.g. Investments made by the proprietor
 Decrease in the assets and a corresponding decrease in
the liabilities. E.g. Payment of suppliers bill
 Decrease in some assets and a corresponding increase
in some other assets. E.g. Cash purchase of some
assets.
 Decrease in some liabilities and a corresponding
increase in some other liabilities. E.g. Conversion of one
kind of loan.
 Principles of Double-entry
System of Accounting-Cont’d
 For every transaction there are two aspects-receiving
aspects and giving aspects.
 E.g. Firm A buys raw material worth Rs. 10000 from firm B
 Firm A: Effect 1: Receives goods worth Rs. 10000 from B
2: Gives Rs.10000 to B
 Firm B: Effect 1: Receives Rs. 10000 from A
2: Gives goods worth Rs.10000 to A
 Kinds of Accounts

Natural personal accounts

Personal
Accounts Artificial personal accounts
Representative personal accounts
Tangible
Kinds of accounts
Real
Accounts accounts Intangible
accounts
Impersonal
Accounts
Expense
Nominal accounts
accounts Income
accounts
 Summary Rules for Debit and
Credit

Sl.No Kind of account Debit Credit

01 Personal accounts The receiver The giver
02 Real accounts What comes What goes
in out
03 Nominal accounts Expenses Incomes
and losses and gains
 Rules of Debit and Credit
Sl.No Category of accounts Rules of debit and credit
01 Assets Debit increase in an asset
Credit decrease in an asset
02 Liabilities Debit decrease in a liability
Credit increase in a liability
03 Capital Debit decrease in capital
Credit increase in capital
04 Income and gains Debit decrease in an income
Credit increase in an income
05 Expenses and losses Debit increase in an expense
Credit decrease in an expense
Journal
 Journal derived French word Jour means a
day
 Journal means a day book or daily record
wherein the transactions of business concern
are recorded on daily basis in the order of
their occurrence.
 It is also called a book of Original or Prime
Entry as the transactions are first recorded in
the journal
Ledger
 Ledger is derived from the Dutch word
Lagger means Lie (kept).
 It refers to a book wherein different accounts
of all persons, assets, expenses,
incomes,etc.are kept and maintained.
 It is also called Book of Secondary or Final
Entry.
Trail Balance
 It is statement and it is prepared at the end of
a specified period
 It is prepared with the help of the balances in
ledger accounts
 Only those ledger accounts which show
some balance appear in the tail balance