E2-E3

Finance

Corporate Accounts

For internal circulation of BSNL only

 WELCOME

• This is a presentation for the E2-E3(Finance)

• Module for the Topic: Corporate Accounts
• Eligibility: Those who have got the Upgradation from
E2to E3
• This presentation is last updated on 15-3-2011.
• You can also visit the Digital library of BSNL to see this
topic.

For internal circulation of BSNL only

 Accounting

• Accounting is the Art and science of

Recording
Classifying
Summarizing
Interpreting

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 Objective of Accounting

• Is to enable a person to ascertain :

– The amount he has gained or lost in the
business
– The value of assets and liabilities and the
capital in the business
– How the profit is made or loss occurred
– How the business stands in comparison to
similar business

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Various Stages of Accounting in BSNL

1. Recording transactions in cash / bank book

2. Recording transactions in journals
3. Posting as per schedule of accounts in
ledgers.
4. Preparation of Trial Balance
5. Compilation of schedules and reconciliation
6. Circle Trial Balance
7. Closure of Accounts
8. Preparation of Financial statements

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 Double Entry System

• Duality or Accounting Equivalence concept-

Owners’ equity+ outside liability = Assets
• Based on Accrual concept
• Matching concept- expenses matched with
revenue, revenue and expenses matched for a
particular period

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 Basic concepts in accounting

• True and fair view-unbiased presentation of

accounts
• Concept of capital and income-depending on
duration of benefit derived
• Money measurement concept-concerned with
facts which are expressible in monetary terms

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 Basic concepts in accounting

• Cost concept-amounts paid or payable

• Conservatism concept-revenue to be
recognised when absolute certainty of receipt
exists whereas cost to be recognised even
without absolute certainty of payment
• Consistency concept- accounting treatment
remains consistent over a period of time

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 Basic concepts in accounting

• Business entity concept- distinct entity from

the owners and managers
• Going concern concept- assumed that
operations will continue
• Accounting period concept-Financials
prepared for a particular period maintained from
year to year.

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 Financial Reporting Framework

Qualitative Characteristics:
• Understandability
• Relevance
• Materiality
• Reliability
• Comparability

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 Financial Reporting Framework

Pillars of Reliability :
• Faithful representation
• Substance over form
• Neutrality
• Prudence
• Completeness

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 Financial Statements

• Balance Sheet
• Profit and Loss Account
• Cash Flow Statement

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 Objective of Financial statements

• Is to provide information about the

financial position, performance and cash flows
that is useful to a wide range of users in making
economic decisions.

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 Users and their information needs
• Investors: Need information to decide whether
they should sell, buy or hold and also the ability
of the company to pay dividends
• Employees: Stability and profitability of the
company. Ability to provide remuneration,
retirement benefits and employment
opportunities
• Lenders: Whether their loans and interest
attaching to them will be repaid when due
• Suppliers and other creditors :Whether the
amounts owing to them will be paid when due
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 Users and their information needs
• Customers : Information about the continuance
of an enterprise
• Government and their agencies : interested in
allocation of resources and also to determine the
taxation policies
• Public : Substantial contribution to the local
economy like number of people they employ and
their patronage of local suppliers.
• Management: To carry out its planning, decision
making and control responsibilities.
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 Financial statements

• Information about financial position is primarily

provided in a Balance Sheet
• Information about the performance is primarily
provided in the Profit and Loss Account
• Information about the cash flows is provided in
the cash flow statement.

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 Financial Position
• Asset : Is a resource controlled by the enterprise
as a result of past events from which future
economic benefits are expected to flow to the
enterprise
• Liability : Is a present obligation of the enterprise
arising from past events, the settlement of which
is expected to result in outflow from the
enterprise of resources
• Equity : Is the residual interest in the assets of
the enterprise after deducting all the liabilities.
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 Balance Sheet
• Statutory format prescribed by the companies Act 1956
and contained in part I of Schedule VI
• The broad Headings under which the assets and liabilities
side are classified
Liabilities Assets
Share capital Fixed assets
Reserves and surplus Investments
Secured & unsecured loans Current assets
Current liabilities loans and advances
Provisions Miscellaneous Expr
Profit and loss account
• Notes
– Claims against the company not acknowledged as debts
– Moneys for which the company is contingently liable
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 Profit and loss account

• No prescribed format
• What information to be furnished is contained in
Part II of schedule VI of Companies Act 1956
• Should clearly set out the various items relating
to the income and expenditure arranged under
most convenient and logical heads.

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 Profit and loss account (cont)

• Financial information
• Managerial remuneration
• Payments to auditor
• Foreign exchange transactions
• Other matters

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 Cash Flow

What is a Cash Flow Statement?

‘The Cash Flow statement is a statement showing

the movement of cash into and out of the business
and its net impact on the cash balance with the
business’

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 Why Cash Flow Analysis?

• Cash position is more critical to a business

than profitability

• More direct reflection of a company’s

viability

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 Types of Cash Flows

• Operating activities

• Investing activities

• Financing activities

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Limitations of Financial Statements

• Information furnished is not precise.

• Balance sheet is a static document
• Balance sheet is not a valuation statement
• Profit shown in P&L account is not real profit
• Human capital is not shown in the financial
statements
• Due to difference in the methods of accounting
followed by different concerns it is difficult to
compare the statements

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BSNL Accounting policies

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 Accounting Policies of BSNL
• Basis :
– Financial statements are prepared under the historical cost
convention adopting accrual method of Accounting
• Revenue Recognition :
– Recognized when earned and realizable at the time of billing –
unbilled revenues are recorded as accrued revenue
– Installation charges
– Charges for services and infrastructure provided to DOT
– Income from SIMS , prepaid calling cards etc.,
– Interest on loans to employees
– Sale proceeds of scraps arising from mtcs and project works
– uncertainty in realization -Liquidated damages, Amounts due
from local bodies etc.,
– Claims from USO on a/c of provision of infrastructure.
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 Accounting Policies of BSNL

• Fixed Assets :
– Carried at cost less depreciation
– Replacement of assets
– Capitalization
• Depreciation :
– Method
– Petty Assets
– Partitions
– Buildings
– Intangible assets such as Entry license fee
– Computer software Application
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 Accounting Policies of BSNL

• Impairment of Assets
• Inventories
• Foreign currency transactions
• Extraordinary items

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 Accounting Policies of BSNL
• Employees benefits
– Short term employee benefits
– Long term employee benefits
• Defined contribution plan:
– Pension contribution
– EPF
– Contribution for leave salary
• Defined benefit plans
– Leave encashment
– Gratuity
– Other benefits including post employment
medical care
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 Accounting Policies of BSNL

• Manufacturing Expenses
• Prior period items
• Taxes on income
• Contingent liabilities
• Earning per share
• Segment reporting

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For internal circulation of BSNL only