PROFESSIONAL ETHICS

AND PROFESSIONAL
ACCOUNTING SYSTEM
(CLINICAL)

Module 5
Accountancy for Lawyers

1.1 Management of time, human resources, office, etc.

1.2 Accountancy knowledge for lawyers
1.2.1 Evidentiary aspects
1.2.2 Interpreting financial accounting statements in the process of lawyering
1.3 Nature and functions of accounting, important branches of accounting.
1.4 Accounting and Law
1.4.1 Use of knowledge of accountancy in Legal Disputes especially arising out
of law of contracts, tax law, etc.,
1.4.2 Accountancy in Lawyers’ office/firm: Basic financial statements, -Income
& Loss account, Balance-sheet- Interpretation thereof,
1.4.3 Feature of Balance Sheet
1.4.4 Standard costing
5.1 MANAGEMENT OF TIME, HUMAN RESOURCES, OFFICE ETC.:

What is Time Management?

Time management is a skill where an individual or a team manages the available time
efficiently to complete all the expected or required tasks as per a plan or schedule.
It also signifies how well a person or a team can divide and optimize the allocated time
to complete a process consisting of different steps, tasks, activities, or goals.

Importance of Time Management

• Time management is a critical parameter in utilizing the existing time and ensuring
maximum work is done in that period.
• Every individual, whether a student, professional, manager, entrepreneur, or
homemaker has limited time available in which multiple tasks have to be completed.
• Without time management, one would never be able to complete tasks in a given
period.
• It would also hamper output quality, and efficiency and increase workload.
Important steps and tips for effective time management:

In any field of business or personal life, time management plays an important role in
ensuring work is done on time and with maximum efficiency.
A few important steps and tips for effective time management are as follows:
1. Set Goals
For any individual, it is important to set the final objective or goals which need to be
achieved. This is the first step in effective time management.
2. Prioritize Work
Certain tasks are more important as compared to others. Hence time management
involves prioritizing work and goals so that accordingly time and resources can be
allocated.

3. Define Time Limits

Every task needs to be given a certain period to be completed. Thus, defining a certain
period is required in the management of tasks to be done to achieve goals.

4. Organize Resources
Time management requires that resources that are needed to execute a task are arranged
and organized. If that is not done, then there are delays and which eventually leads to
incomplete tasks.

5. Delegate Work
Time management also observes that a single individual cannot perform all the tasks
single-handedly. Hence delegation of work needs to be done so that the workload is
divided into smaller goals & tasks, and together it helps to achieve the final goals.
6. Reduce Redundancies
Based on priority, certain tasks can be avoided or certain processes are redundant. It is
of utmost importance that the non-priority tasks and irrelevant processes are reduced.

7. Avoid Stress
Time management should be done in such a way that it creates a stress-free working
environment. Based on planning and prioritizing stressful work situations must be
avoided, as stress will lead to poor efficiency and work output.

8. Pre-Plan Tasks
Planning for tasks beforehand is a thumb-rule for effective management. Any individual
should not only plan for the tasks at hand but also consider situations where there is a
delay, failure, or emergency task that needs to be performed.

There is no single way in which a person learns effective time management but it is a
gradual process that takes time to learn and develop those skills.
MANAGEMENT OF HUMAN RESOURCES:
Human Resource Management (HRM) is the process of organizing, coordinating, and
managing an organization’s current employees to carry out the organization’s
mission, vision, and goals.
This includes recruiting, hiring, training, compensating, retaining, and motivating
employees.
HRM professionals focus on investing in employees, ensuring their safety, and
managing all aspects of staffing from hiring to compensation and development.
HRM careers may specialize in compensation, training, or managing employees.
HRM’s goal is to build a company culture and carry out its mission and overall goals
through the management of employees.
Human resource management is a crucial aspect of any organization, including law
firms.
Effective human resource management in a law firm involves a range of strategies that
focus on attracting, developing, and retaining talented professionals while fostering a
culture of teamwork and growth.
Here are some of the key strategies:
1. Strategic Hiring and Recruitment: Identifying the specific skill sets and qualities
required for each position is essential, and then attracting candidates who align with
the firm’s values and goals.
Developing a comprehensive recruitment strategy that includes online job postings,
networking events, and referrals allows for finding the right talent and managing a
law firm more efficiently.
2. Employee Onboarding and Training: Once new hires are onboard, providing
thorough and structured onboarding and training programs is crucial.
Effective onboarding helps new employees acclimate to the firm’s culture, policies,
and procedures, setting them up for success.
This process should include introductions to key team members, an overview of the
firm’s history and mission, and training on the firm’s technology and case
management systems
Ongoing training and professional development opportunities are equally vital to
ensure that employees stay up-to-date with the latest legal developments and
enhance their skills.
3. Performance Management and Feedback: Regular performance evaluations and
constructive feedback are essential to effective human resource management.
Setting clear performance goals and expectations allows employees to understand
what is expected of them and provides a basis for evaluation.
Providing timely positive and constructive feedback helps employees boost their
performance and nurtures a culture of continuous improvement.
 Performance evaluations should be conducted regularly, with a formal review
process that includes input from supervisors and peers.
4. Employee Engagement and Recognition: Keeping employees engaged and driven
is critical for their satisfaction and productivity.
Organizing team-building activities, promoting a positive work environment, and
recognizing employees’ accomplishments and contributions are all effective ways
to boost employee morale and foster a sense of belonging within the firm.
Human resource management software can help law firms streamline their HR
processes and improve their overall efficiency.
By automating tasks such as job posting, recruiting, hiring, onboarding, managing,
developing, documenting employee discipline, and managing benefits
administration, HR software can save time and reduce the risk of errors.
Benefits of using HR management software in law firms:
1. Simplifies Scheduling and Time Off Requests: Law firms must ensure that there
are individuals with specific skill sets available at all times to help clients and attract
potential clients.
 HR software can provide scheduling templates that allow managers or employers to
schedule using attorneys’ credentials and skill sets as a guideline.
Employees hired to field calls, clean, and perform other tasks can also be scheduled
as needed.
Employees of the firm can view their schedules using the software, review PTO
balances, and request time off.
2. Assists with Time and Attendance Tracking: Lawyers may need to go into the
field sometimes or go to court with clients, so they may not always be able to check
in at the office.
HR software can make it easy for professionals to “clock in” when they are out of
the office performing duties.
This can help with payroll, labour management, legal compliance, and attendance
tracking.
3. Allows Continuous Emphasis on Performance and Training: HR software often
comes with performance evaluation functionality, which can extend far beyond the
dated performance evaluation worksheet.
 Items like 360-degree reviews, peer evaluations, and self-assessments can help law
firm employees see how they can improve.
Skills and knowledge gaps may also be revealed, clarifying where training is needed.
Training modules and connectivity to learning management systems can help firm
employees stay up to date with the latest changes in laws and legal proceedings.
Employees may also complete training based on previously identified skills gaps.
Using HR systems, law firms can work to ensure that their professionals are always
up to speed.
4. Makes Reporting and Compliance Easy: HR software can help law firms stay
compliant with legal regulations and reporting requirements.
The software can generate reports on employee performance, attendance, and other
metrics, making it easier to identify areas for improvement and track progress over
time.
Management of law firm/ office:
Law office management refers to the office management of a law firm, a single attorney,
or a group of attorneys, with or without the inclusion of secretaries, paralegals, and other
personnel.
The main tasks to perform include managing the staff and workload, office and financial
management, legal advertising, marketing, and more.
Lawyers are not perfectionists when it comes to managing their law firms and offices.
Poor law office management not only affects the efficiency of an organization but also
negatively affects the relations, environment, and overall quality of the work.
How to Manage a Law Firm:
1. Time Management-
The very first thing that should be done to make the best use of time is to have a task list
that guides you in performing the activities throughout the day.
Set time frames to respond to emails without thinking of multitasking, as it is not
considered a good approach, especially when you have a lot on your plate to manage.
Also, keep the desk as clean as possible for you to think as clearly as possible. It is
imperative to assess the time spent on the various tasks throughout the day and allocate
the unproductive tasks to someone else so that you can better manage your time and use
it right.
2. Client Management & Addressing Non-Paying Clients-
(a) Client Management:
• Carefully Onboard Client: Onboard only those clients who have realistic

expectations from you.

• Set Client Data Management Policies: Set policies to make the clients adhere to

your standards for security.

• Plan Meetings Scheduling: Planning in advance about the meetings helps save both

time and effort.

(b) Addressing Non-Paying Clients:

• Have a retainer in place to get you paid in case the clients avoid timely payments.

• Have a late payment policy set to make the clients pay on time.

3. Organize Every Item-

It is essential to organize all the items that are required for the work. This can include
anything from file cabinets to file folders, scanners, notepads, and so on. It is also
recommended to set up an incoming center for mail and follow the directions carefully
after taking the notes, which are very essential to implement in any system.
4. Leverage the Technology Use-
Almost every law firm in the present times incorporates the use of technology in one
way or the other.
This includes replacing paper billing methods with billing software to use software for
managing documents and case files, scheduling appointments, sharing files, and more.
For example, iOS today enables you to generate a PDF on the iPad and iPhone from a
webpage, email, etc. With Apple Maps, you can inform about arriving late at a meeting
by simply typing, “I’ll be late.” Good Reader and PDF Expert are some of the best apps
for annotating PDFs and managing files.
Apart from this, Notability and Good Notes top the list of the best apps for making digital
notes.
5. Create Office Management Policies-
This is one of the best ways to manage the office, employees, and work processes. Set
policies that define how the work is to be managed, what ethics are required to be
followed in the office, and the efforts and results which is expected from marketing,
billing, social media, and other teams.
Apart from this, set policies for dealing with the clients, with appropriate actions in place
in case someone breaks any of the policies, explains a provider of law office
management services.
6. Keep the Legal Research Simple-
It is imperative to conduct legal research to lay the foundation of a strong appeal
preparation against the opposing party in a court of law.
However, the research should not waste most of the time, which can be used to deal with
the sensitive issues of the case.
Opt for paralegal support services to do the research work and simply guide him/her to
look for the type of evidence and examples that you need to prepare for the case.

7. Security Management-
The cloud storage options are probably the best ones when it comes to security
management. However, you should make sure that the chosen cloud platform is safe
under all circumstances and that the information that has been shared is not accessible
to anyone without your consent.
Apart from this, it is recommended to check the cloud platform’s disaster recovery
options, along with the measures for physical security like keycard access.
Here are some law firm obligations provided by Tru Shield-
Legal Obligations: Protecting private and personal data with quick client intimation of
security breaches.
Ethical Obligations: Reasonable measures to deny access and disclosure of sensitive
information.
Regulatory Obligations: Mostly for the clients to follow as given below:
• FISMA – Federal Information Security Modernization Act
• FFIEC – Federal Financial Institutions Examination Council

• GLBA – Gramm-Leach-Bliley Act

• SOX – Sarbanes-Oxley Act

• HIPAA – Health Insurance Portability and Accountability Act

• ISO-27001 – International Organization for Standardization Standard 27001

• NIST – National Institutes of Technology

• PCI-DSS – Payment Card Industry – Data Security Standard

• FINRA – Financial Industry Regulatory Authority

8. Organize Productive Team Meetings-
It is important to have regular team meetings to boost work productivity amongst the
team members by addressing the concerns that they might have inefficiently dealing with
the various work processes.
The frequency of meetings will depend on the team size, the work complexity, and how
many difficulties the team faces regularly. For the team to perform well, one needs to
address their concerns as soon as possible, and having regular meetings is the only
solution to it.
9. Avoid Unproductive Activities-
There are a lot of unproductive activities that slow down the growth of a law firm, and
the attorneys need to avoid them in the first place.
This includes not responding to the client requests on time, saying ‘yes’ to the clients
before estimating the amount of time to be spent on their case, handling the most
important tasks at the day’s end, not planning, reacting without assessing, and more.
10. Opt for Regular Billing-
The approach of sending occasional invoices to the clients makes them very confused.
It is imperative to have regular invoices generated and let the clients know in advance
of the same.
One of the best ways to implement this into the system is by explaining to the clients in
detail why they will be receiving regular invoices and the consequences of not paying
on time.
With the help of technology, this task can be automated with ease, and to frame such
policies to perfection, it is recommended to get help from the top providers of contract
management services.
Book-keeping:

• Bookkeeping is a process of recording business transactions in the books of

accounts in a very systematic manner.

• All the transactions are recorded date-wise.

• In India, this system of bookkeeping has been in operation since the 23rd
century at the time of Chandragupta Maurya.

• Chanakya was recording the accounting transactions. He wrote a famous

book known as "Arthashastra.

• The double entry system of book-keeping was originated in Italy, developed

by Luca De Berge Pacioli in the year 1994.
 • Book-keeping is and Art of recording day-to-day business transactions in the
book of account in a systematic manner.

Definition of Book Keeping:

R.N. Carter: "Book-keeping is the science and art of correctly recording in the
books of accounts, all those businesses transactions that results in transfer of
money's worth."

Meaning and definition of Accountancy:

• Accountancy is a wider concept than Book-keeping.

• Book-keeping is the recording branch of accountancy.

• Accountancy includes Book-keeping and classifying, summarizing and

interpreting of the business transactions.
 • It makes easy to take decisions relating to business. Accountancy starts where
book-keeping ends.

• Accountancy is the science, art, and practice of an accountant.

• It is a discipline that records, classifies, summarises, and interprets financial

information about the activities of a person or concern so that intelligent
decisions can be made about future actions.

Functions of Accounting:
➢ Systematic record of transactions.
➢ Communicating results to the interested parties.
➢ Compliance with legal requirements.
➢ Ascertain the financial position of an individual.
Advantages of Accounting:
➢ Replacement of memory.
➢ Evidence in court.
➢ Settlement of taxation liability.
➢ Comparative study.
➢ Assistance to various parties.

Limitations of Accounting:
➢ Records only monetary transactions.
➢ No realistic information.
➢ The personal bias of an accountant affects the accounting statements.
➢ No real test of managerial performance.
➢ It lacks a uniform procedure.
Need For Accountancy for Lawyers:
➢Lawyers have to maintain accounts and for this they should know
accounting due to the following reasons:
➢As a member of the Bar Council, he should know its accounting.
➢He should know Legal Services Authorities and the Supreme Court Legal
Services Committee.
➢He should know the accounting of Advocates as per Supreme Court rules.
➢He should know the welfare fund accounting.
➢He should know how to prepare his accounts.
Trust Accounting and Compliance:
➢ One of the most critical aspects of accounting for lawyers is trust
accounting.
➢ Lawyers often handle client funds as retainers, and settlements should be
maintained separately from the attorney's funds.
➢ Failure to adhere to strict trust accounting rules can lead to severe
consequences, including ethics violations, malpractice claims, and even
disbarment.
➢ Bookkeeping for lawyers is necessary to adhere to accounting laws.
➢ By grasping accounting principles, lawyers can ensure compliance with
these regulations, promoting transparency and trust between clients and legal
practitioners.

Financial Planning for Law Firms:

➢ For lawyers running their law firms or involved in partnership structures,
accounting knowledge helps in effective financial planning.
 ➢ Understanding financial statements, cash flow analysis, and budgeting
helps lawyers make informed decisions about their business operations,
investment opportunities, and resource allocation.
➢ Bookkeeping for lawyers helps them understand the different
transactions of the client's business.
➢ Proper financial planning ensures that law firms remain economically
stable and sustainable, allowing them to serve their clients better in the long
run.

Handling Taxes and Reporting:

➢ Taxation can be complex, especially for lawyers with multiple income
sources, including salaries, client fees, and business profits.
➢ Adequate accounting skills enable lawyers to navigate the intricacies of
tax laws, maximizing deductions and minimizing tax liabilities.
➢ Furthermore, lawyers must comply with various reporting requirements,
and accurate accounting practices ensure to meet these obligations without
any hitches.
Valuation and Litigation Support:
➢ In some legal cases, lawyers are required to assess the value of assets,
businesses, or damages.
➢ Understanding accounting principles is crucial for conducting accurate
valuations, particularly in complex cases involving mergers and acquisitions,
divorce settlements, or economic damages in litigation.
➢ Proper valuation ensures that clients receive fair compensation and that
legal arguments are supported by sound financial evidence.

Fraud Detection and Prevention:

➢ In their line of work, lawyers may encounter cases of fraud,
embezzlement, or financial misconduct.
➢ Understanding accounting allows lawyers to identify suspicious financial
activities, discrepancies, or irregularities, thus protecting their clients from
potential losses.
➢ It also equips lawyers with the knowledge to develop effective strategies
to prevent such instances and, if necessary, to work with forensic accountants
or financial experts to investigate and resolve such matters.
Negotiations and Contractual Matters:
➢ Legal disputes often involve negotiations and the formulation of
contracts.
➢ Lawyers with accounting expertise can better comprehend the financial
implications of different settlement options and contractual terms.
➢ It allows them to negotiate from a more informed standpoint, ensuring
that their client's financial interests are safeguarded and that they achieve the
best possible outcomes.
What are the Golden Rules of Accounting?

The golden rules of accounting are a set of guidelines that accountants can follow
for the systematic recording of financial transactions.

It revolves around the system of dual entry i.e., debit and credit.

These rules will assist in identifying which account to credit and which one to
debit.

The accounting golden rules are a set of three principles that allow one to
simplify the complex rules of bookkeeping.

According to these rules, you must determine the type of account for each
transaction.

Each account type has its own set of principles that need to be applied for every
single transaction.
Types of accounts:

1. Nominal account:
➢ A nominal account is a general ledger containing the transactions of a
business, namely – expenses, incomes, profits, and losses.

➢ It contains all the transactions that occur in one fiscal year.

➢ Furthermore, it resets to zero and starts afresh when the next fiscal year
begins.

➢ Examples of nominal accounts are Commission Received, Salary

Account, Rent Account, and Interest Account.
2. Personal account:
A personal account is a general ledger that relates to people, associations, and
companies.

It can be divided into three subcategories:

A. Artificial personal account:

An artificial personal account represents bodies that are not human beings but act
as separate legal entities according to the law.

For example, government bodies, hospitals, banks, companies, cooperatives,

partnerships, etc.

B. Natural personal account:

A natural personal account represents human beings.
For example, Creditors, Debtors accounts etc.
 C. Representative personal account:
This type of personal account represents the accounts of natural or artificial
entities. However, the transactions in this type of account either belong to the
previous or the coming year.
For example, a representative personal account can contain information on an
employee’s due salary from last year. Also, it can represent the amount of rent a
company paid in advance for the coming year.

3. Real account
Like the other two, a real account is also a general ledger, but it contains
transactions related to the liabilities and assets of a company. The assets, in this
case, can be further subdivided into tangible and intangible assets.

Tangible assets include land, buildings, machinery, furniture, etc. Alternatively,

intangible assets include goodwill, patents, copyrights, etc.
Unlike a nominal account, a real account does not close when a financial year
completes. Rather, it is carried forward to the following year. In addition, a real
account also appears in the company’s balance sheet.

Golden rules of accounting:

How do you move through the nine steps of the accounting cycle?
Accountants take nine steps throughout the accounting cycle to ensure financial
statement accuracy:
1.Analyse and measure financial transactions.
2.Record transactions in a journal.
3.Post journal information to the general ledger.
4.Prepare an unadjusted trial balance.
5.Prepare adjusting entries.
6.Prepare an adjusted trial balance.
7.Prepare financial statements.
8.Prepare closing entries.
9.Prepare a post-closing trial balance.

1. Analyse and measure transactions:

Start by collecting your company’s transactions for analysis, measurement, and
recording.
One should minimally record:
➢ All cash sales
 ➢ All purchases
➢ Anything measurable, relevant, or reliable
➢ All events, including external and internal transactions.
The bottom line: Record everything, or at least as many transactions as possible
that affect your business's financial position.

2. Record transactions in a journal:

Also known as “journalizing,” recording items in a journal chronologically get
one organized by listing transactions and other events in terms of debits and
credits.

Each entry has four parts:

➢ Accounts and debit amounts
➢ Accounts and credit amounts
➢ Transaction dates
➢ Transaction explanations
If it helps to stay organized, separate the transactions and events into separate
journals—for example, cash transactions in one journal and credit sales in
another.

Bonus: One will get a glimpse of the amount of cash that is available.

3. Post journal information to the general ledger:

Regardless of whether one maintains separate journals, you need to consolidate
everything into one master source too.
The ledger contains all transactions and events as well as a chart of accounts to
track:
➢ Assets
➢ Liabilities
➢ Owner’s equity
➢ Revenue
➢ Expenses
General ledger accounting uses the double-entry method, where transactions are
recorded twice to account for debits/credits and how they offset each other.
Debits fall under the left-hand column, with credits in the right-hand column.

4. Prepare an unadjusted trial balance:

Once every transaction has been posted—be it for a month or an entire quarter—
in the ledger, one is ready to prepare his financial statement.

If someone wants to measure your unadjusted trial balance, which tell him the
balances for each of your ledger accounts at the end of your reporting period.

Just go through the debits and credits in the ledger and make sure the totals in the
debit and credit columns match.

5. Prepare adjusting entries.

Despite your best efforts at recordkeeping, your numbers might not always line
up.
Review your ledger line by line and ask yourself:
It’s easy for something to go wrong when you’re manually tracking transactions,
so the accounting cycle includes a stage to investigate and adjust entries.

Three core accounting principles guide adjusting entries:

1.Revenue recognition principle: Revenue is recognized when a critical event
has occurred, making the dollar amount easily measurable to your company.
2.Matching principle: Companies report expenses concurrently with their
associated revenues and are matched on the income statement.
3.Accrual principle: It doesn’t matter if money hasn’t changed hands yet. If
you’ve given or received products/services during that reporting period,
count them.

6. Prepare an adjusted trial balance:

If adjusting entries don’t provide the answers you need, the adjusted trial balance
can ensure your numbers are accurate. Insert yet another column in your ledger
that adds your unadjusted trial balance to your adjusting entries.
7. Prepare financial statements:
With the recording and number crunching behind you, you should have the data
required to complete most financial statements. At a minimum, you’ll need your
income statement, balance sheet, cash flow statement, and owner’s equity
statement.

8. Prepare closing entries:

There’s a finish line to everything, and by now, you’re close to actually closing
your books. Closing entries move balances from temporary accounts—such as
revenues, expenses, and dividends—to permanent accounts, such as an income
summary.

Temporary accounts are transactions that occurred during your reporting period.
They capture a snapshot of your business over the month, quarter, or year you’re
reporting on but don’t provide much of a big picture.

Permanent accounts reflect a big-picture view. By moving balances from

temporary accounts to permanent accounts, you are updating the overall financial
health of your business and emptying temporary accounts in preparation for the
next accounting cycle.

Getting these closing entries ready sets you up to determine your post-closing
trial balance and close out the accounting cycle.

9. Prepare a post-closing trial balance:

Preparing a post-closing trial balance picks up where you left off, ensuring that
your debits and credits still match up. But instead of factoring in temporary
accounts, this balance only includes permanent accounts such as
assets, liabilities, and owner’s equity.

If you see balanced totals, you journaled records properly and posted accurate
closing entries.
On the flip side, inaccurate post-closing totals set your business up for failure,
starting the next reporting period with inaccurate information and making it
impossible to report correctly.
Evidentiary aspects:
“Evidentiary aspects of accounting” is a broad topic that can refer to several
different aspects of accounting. One of the most important evidentiary aspects of
accounting is auditing.
Auditing is the process of examining financial statements and other financial
information to ensure that they are accurate and comply with relevant laws and
regulations. Evidence is used by auditors and certified public accountants (CPAs)
in determining whether an audit results in an unqualified or clean opinion. An
unqualified opinion means that the auditor has found reasonable assurance that
an entity’s accounting statements are not materially misstated.
Another evidentiary aspect of accounting is the use of books of accounts. Books
of accounts are relevant persuasive evidence but not conclusive evidence to
charge a person with liability. In other words, the entries in the books of account
must be supported by other corroborative evidence and such corroborative
evidence must have minimum probative value.
Nature and functions of accounting, important branches of accounting:

Nature of Accounting:

We realize Accounting is the methodical chronicle of monetary exchanges and

the introduction of the connected data of the fitting people. The essential
highlights of accounts are as per the following:

1.Accounting is a cycle:

A cycle alludes to the strategy for playing out a particular occupation bit by bit
by the objectives, or target. It distinguishes as a cycle as it plays out the particular
errand of gathering, preparing, and conveying monetary data. In doing as such,
it follows some unmistakable advances like the assortment of information
recording, grouping outline, conclusion, and announcing.
 2.Accounting is a craftsmanship:

Accounting is the specialty of recording, arranging, summing up, and settling

monetary information. The word ‘craftsmanship’ alludes to the method of
performing something. It is social information including certain imagination and
ability that may assist us with achieving some particular objectives. It is a
deliberate strategy comprising of unequivocal strategies and its appropriate
application requires applied ability and aptitude. In this way, by nature
accounting is craftsmanship.

3.Accounting implies and not an end:

They discover the monetary outcomes and position of a substance and

simultaneously, it conveys this data to its clients. Also, the clients at that point
take their own choices dependent on such data. In this way, it tends to say that
simply keeping records can be the essential target of any individual or element.
Then again, the principle objective might recognize as taking choices dependent
on monetary data provided by accounting. Subsequently, they themselves
certainly not even hand, it assists with accomplishing a particular goal. So, it says
the accounting is ‘an unfortunate obligation’ and it isn’t ‘an end in itself’.

4.Accounting manages monetary data and exchanges:

It records the monetary exchanges and dates in the wake of grouping the
equivalent and concludes their outcome for an unequivocal period for passing on
them to their clients. Thus, from start as far as possible, at each stage, they
manage monetary data. Just monetary data is its topic. It doesn’t manage non-
money related data of non-monetary angles.

5.Accounting is a data framework:

They perceive and describe it as a storage facility of data. As an assistance work,

it gathers measures and conveys the monetary data of any element. Also, this
order of information has been developed out to address the issue of monetary
data needed by various intrigued gatherings.
Functions of Accounting:

To push forward to the functions of accounting, above all else, it is vital to think
about the job of accounting. Also, the essential part of accounting is to give
applicable monetary data to the finance managers and the partners. Besides,
encouraging the dynamic cycles and keeping them refreshed. There are two kinds
of functions of accounting, first, authentic working, and second, administrative
functionals.

A.Historical or Authentic Functions:

The verifiable working of accounting includes keeping exact records of all the
previous exchanges made in the business. This kind of working of accounting
incorporates:

• Recording the monetary exchanges and keep a diary to keep them all.
• It is imperative to characterize and isolate the records and the record.
• The readiness of rundown happens for the brisk surveys.
 • This kind of accounting gives the net outcome other than keeping the records.
• The readiness of asset report happens to decide the monetary situation of the
business.
• The broken-down information and records are then utilized for different
purposes.
• The last advance is to impart the acquired monetary data to the intrigued
areas, for example, proprietors, providers, government, analysts, and so on.

B. Managerial or Administrative Functions:

In an association, the administration advisory group searches for all sorts of

dynamics. To guarantee that the choices are smooth and valuable for everybody,
they assess the records given by accounting. These are administrative
functions. The five administrative functions of accounting are:

• Development of plans notwithstanding controlling the monetary approaches.

• Other than that, a spending plan is set up to assess the complete consumption
for future exercises.
• Additionally, cost control makes conceivable by contrasting the expense and
the productivity of the work.
• The accounts additionally give vital data during the assessment of the
worker’s presentation.
• To check for cheats and mistakes is the thing that the functionality of the
entire method relies upon.
Use of knowledge of accountancy in Legal Disputes especially arising out of
law of contracts, tax law, etc.:
Accountancy plays a crucial role in legal disputes, especially those arising out of
the law of contracts and tax law in India. Accountants can provide expert
testimony and help lawyers understand complex financial transactions. They can
also assist in calculating damages and losses, and in determining the value of
assets. In addition, accountants can help identify fraudulent activities and provide
evidence to support legal claims.
For instance, in case of breach of contract, the injured party is entitled to
damages. The Indian Contract Act 1872 Chapter V Sec 68 to 72 recognizes four
such relationships as a contract. Section 73 of the act explains that in estimating
the loss or damage arising from a breach of contract, the means which existed of
remedying the inconvenience caused by the non-performance of the contract
must be taken into account.
Forensic accounting is another area where accountancy can be useful in legal
disputes. Forensic accounting refers to the application of accounting principles,
theories, and discipline to facts and hypotheses at issue in a legal context,
embracing litigation or any other form of dispute resolution such as arbitration.
It consists of two major components: litigation support and investigative
accounting.
Accountancy also plays a crucial role in legal disputes, especially those arising
out of tax law in India. Accountants can provide expert testimony and help
lawyers understand complex financial transactions. They can also assist in
calculating damages and losses, and in determining the value of assets. In
addition, accountants can help identify fraudulent activities and provide evidence
to support legal claims.
For instance, in case of tax disputes, accountants can help in identifying the tax
liability, calculating the amount of tax due, and determining the taxability of
various transactions. They can also assist in preparing and filing tax returns, and
in responding to tax notices and audits. In addition, accountants can help in
resolving disputes with tax authorities, and in representing clients before tax
tribunals and courts.
Navigating tax controversy in India can be challenging, given the complexity of
the Indian tax laws and the adversarial approach followed by the tax
administration. However, there are alternate dispute resolution mechanisms
available to taxpayers, such as mediation and arbitration, which can help resolve
disputes in a timely and cost-effective manner.
Accountancy in Lawyers’ office/firm: Basic financial statements -Income &
Loss account, Balance-sheet- Interpretation thereof:
Financial statements are summarised reports that provide the operating results
and financial position of a company.
They include the Income Statement and the Balance Sheet.
1. The Income Statement (also known as the Profit and Loss Account) shows
the revenue, expenses, and net income of a company over a specific period.
2. The Balance Sheet shows the assets, liabilities, and equity of a company at a
specific point in time.
• Interpretation of financial statements is a critical process that involves the
analysis of the financial information contained in the financial statements to
understand and make decisions regarding the operations of the firm.
• Financial statement analysis is a judgemental process which aims to estimate
current and past financial positions and the results of the operation of an
enterprise, with primary objective of determining the best possible estimates
and predictions about the future conditions.
 • It involves regrouping and analysis of information provided by financial
statements to establish relationships and throw light on the points of strengths
and weaknesses of a business enterprise, which can be useful in decision-
making involving comparison with other firms (cross sectional analysis) and
with firms’ own performance, over a time period (time series analysis).

Interpretation of an income statement involves analyzing the financial

information contained in the income statement to understand and make decisions
regarding the operations of the firm. Here are some steps to interpret an income
statement:
1.Analyze the revenue: The revenue of a company is the income generated
from its primary business activities. Analyzing the revenue can help you
understand the company’s sales trends and the effectiveness of its sales
strategies.
2.Analyze the cost of goods sold: The cost of goods sold (COGS) is the direct
cost of producing the goods or services sold by a company. Analyzing the
 COGS can help you understand the company’s profitability and efficiency in
producing its products or services.
3.Evaluate the gross profit: The gross profit is the difference between the
revenue and the cost of goods sold. It represents the profit generated by the
company’s primary business activities. Analyzing the gross profit can help
you understand the company’s profitability and efficiency in producing its
products or services.
4.Analyze the operating expenses: The operating expenses are the indirect
costs associated with running a business, such as rent, salaries, and utilities.
Analyzing the operating expenses can help you understand the company’s
efficiency in managing its expenses.
5.Evaluate the operating profit: The operating profit is the difference
between the gross profit and the operating expenses. It represents the profit
generated by the company’s core business activities. Analyzing the operating
profit can help you understand the company’s profitability and efficiency in
managing its expenses.
6.Analyze the non-operating income and expenses: The non-operating
income and expenses are the income and expenses that are not related to the
 company’s core business activities, such as interest income and expenses.
Analyzing the non-operating income and expenses can help you understand
the company’s financial position and the impact of external factors on its
profitability.
7.Evaluate the net income: The net income is the difference between the
operating profit and the non-operating income and expenses. It represents the
total profit generated by the company. Analyzing the net income can help you
understand the company’s overall financial performance.

Interpretation of a balance sheet involves analyzing the financial information

contained in the balance sheet to understand and make decisions regarding the
operations of the firm. Here are some steps to interpret a balance sheet:
1.Check the liquidity of the company: The liquidity of a company is its ability
to meet its short-term obligations. This can be determined by analyzing the
current assets and current liabilities of the company. If the current assets are
greater than the current liabilities, then the company is considered to be
liquid.
2.Analyze the solvency of the company: The solvency of a company is its
ability to meet its long-term obligations. This can be determined by analyzing
the long-term liabilities and the equity of the company. If the long-term
liabilities are greater than the equity, then the company is considered to be
insolvent.
3.Evaluate the profitability of the company: The profitability of a company
can be determined by analyzing the income statement and the balance sheet.
The income statement shows the revenue, expenses, and net income of a
company over a specific period of time. The balance sheet shows the assets,
liabilities, and equity of a company at a specific point in time. By comparing
the net income with the equity of the company, you can determine the return
on equity (ROE) of the company.
4.Analyze the efficiency of the company: The efficiency of a company can be
determined by analyzing the asset turnover ratio. This ratio measures how
efficiently a company is using its assets to generate revenue. The formula for
the asset turnover ratio is:
Asset Turnover Ratio = Revenue / Total Assets
 A higher asset turnover ratio indicates that the company is using its assets
more efficiently.
Balance Sheet – Importance & Features:
A balance sheet is one of the three crucial financial statements that help in the
evaluation of a business. It gives a clear-cut view of a company’s financial state
on a given date.

What is a Balance Sheet?

• A company’s balance sheet is a financial record of its liabilities, assets, and
shareholder’s equity at a specific date.
• It helps evaluate a business’s capital structure and also calculates the rate of
returns for its investors.
• Moreover, you can pair a balance sheet with other financial statements to
calculate financial ratios and conduct fundamental analysis.
What are the features of a balance sheet?
The features of a balance sheet are as follows:
• A balance sheet consists of all the liabilities and assets of a company. It shows
their value and nature enabling you to know the position of the capital on a
specific date.

• However, it does not show any revenues or expenses.

• Balance sheets follow the equation “Asset = Liability + Capital”, and both of
its sides are always equal.

• It takes into account the credit as well as debit balances of a company’s

current and personal accounts.

• The credit balance comes under the personal account and is called the
liabilities of a business.

• In comparison, the debit balance comes under the real account and is known
as the assets of a business.
 • A company’s accountants generally prepare the balance sheet on the last day
of an accounting year. This is so as it is the ultimate step of final accounts
and needs an assessment of the company’s trading as well as profit and loss
account for its preparation.

What is the importance of a balance sheet?

A balance sheet is an essential component that assists in the smooth running of
a business.
Some of the reasons that explain the importance of a balance sheet are as follows:

o Assists banks in evaluating a firm’s net worth:

When a business wants to expand its operations and make future investments, it
seeks loans from banks. Under such circumstances, the banks will look at the
firm’s balance sheet to evaluate whether or not it has the financial position to
pay back the loan amount.

o Helps investors make decisions:

While choosing a firm for investment, a majority of investors look at the
company’s balance sheet to determine its financial position. Moreover, they
combine it with various other factors to assess the firm’s future growth potential.

o Serves as a determiner for risk and returns

Being a business owner, maintaining a balance sheet will enable one to determine
the ease with which one can meet short-term obligations. Furthermore, it will
enable one to put a check on the liabilities of the business if they are rapidly
growing and avoid the chances of bankruptcy.

o Enables financial analysis:

Having a proper balance sheet will give a clear idea of the liquidity conditions of
your company. Thus, one can check the cash flow of the firm, working capital
funding, trade receivable status, and also how many daily transactions the
business can afford.
Standard costing:

What is Standard Costing?

Standard costing is a perfect system of controlling costs and measuring

efficiency and development. It is a technique of cost reduction and cost control.
It helps to provide valuable guidance in several management functions such as
formulating policies, determining price levels, etc.

The essence of standard costing is to set objectives and targets to achieve them
and to compare the actual costs with these targets.
Standard Costing is used to ascertain the standard cost under each element of
cost, i.e., materials, labour, and overhead.
Standard Costing can eliminate all kinds of waste. Through the application of
this costing, it can be ascertained whether or not the activities of production are
going on according to the pre‐determined plan.
Definition of Standard Costing:
Standard Costing is “a technique of cost accounting which compares the standard
cost of each product or service with the actual costs to determine the efficiency
of the operation so that any remedial action may be taken immediately”. - Brown
and Harward
Standard Costing is “the preparation and use of standard costs, their comparison
with actual cost and the analysis of variance to their causes and points of
incidence”. - CIMA, London
Features of Standard Costing:
With the help of the above definitions, the following Features of Standard
Costing can be pointed out:
1.In Standard Costing all costs are pre-determined in advance. These
predetermined costs are compared with the actual costs incurred. The
difference between the standard cost and the actual cost is known as the
Variance.
2.These variances are then analyzed and reasons are found for taking
corrective action.

3.The standards are set based on records and performances.

4.Comparison between actual performance and standard performance is

shown by way of reports which are presented to the top management.

5.Analysis of variances are made for taking appropriate action according to

the nature of expenses, i.e. controllable and uncontrollable.

6.In case of controllable costs if there is adverse variance, efforts are taken to
prevent its recurrence. But in case of uncontrollable costs, the standards are
revised.

7.Standard Costing may be applied to any industry.

Objectives of Standard Costing:
The Objectives of the Standard Costing technique are as follows:
1.Cost Control
2.Management by Exception
3.Develops Cost Conscious Attitude
4.Fixation of Prices
5.Fixing Prices and Formulating Policies
6.Management Planning

1.Cost Control:
The most important objective of standard cost is to help the management in cost
control. It can be used as a yardstick against which actual costs can be compared
to measure efficiency.
The management can make a comparison of the actual costs with the standard
costs at periodic intervals and take corrective action to maintain control over
costs.
 2.Management by Exception:
The second objective of standard cost is to help the management in exercising
control over the costs through the principle of exception.
Standard cost helps to prescribe standards and the attention of the management
is drawn only when the actual performance is deviated from the prescribed
standards. It concentrates its attention on variations only.
3.Develops Cost Conscious Attitude:
Another objective of standard cost is to make the entire organization cost-
conscious. It makes the employees recognize the importance of efficient
operations so that costs can be reduced by joint efforts.
4.Fixation of Prices:
To help the management in formulating production policy and in fixing the price
quotations as well as in submitting tenders of various products.
This can be done with accuracy with standard costs rather than the actual costs.
It also helps in formulating production policies. Standard costs remove the
reflection of abnormal price fluctuations in production planning.
 5.Fixing Prices and Formulating Policies:
Another object of standard cost is to help the management in determining prices
and formulating production policies. It also helps the management in the areas
of profit planning, product-pricing inventory pricing, etc.
6.Management Planning:
Budget planning is undertaken by the management at different levels at periodic
intervals to maximize profit through different product mixes.
For this purpose, it is more convenient to use standard costing than actual costs
because it is done scientifically and rationally by taking into account all technical
aspects.
Advantages of Standard Costing:
In the areas of Accounting, Cost Accounting, and Management Accounting,
Standard Costing enjoys a significant place in acting as a cost-controlling and
cost-reducing managerial tool. The utility of standard costing is unlimited. The
following are some advantages:
 1.Proper Planning
2.Efficient Cost Control
3.Motivational Factor
4.Comparison of Forecasting and Outcome
5.Inventory Control
6.Economical System
7.Helpful in Budgeting
8.Helps Formulate Policies
9.Helps Distinguish Activities
10. Eliminates Wastage

1.Proper Planning:
Standard Costing helps to apply the principle of “Management by exception”.
That is, the management need not worry over those activities that proceed in
tandem with plans. It is only on the issues of exceptions that they have to
concentrate.
 2.Efficient Cost Control:
Standard Costing is a tool for the management to gain a reduction in the cost and
control over it. Under this technique, differences are analysed and responsibilities
are determined.
3.Motivational Factor:
Labor efficiency is promoted and they are destined to be cost-conscious.
Standards provide incentives and motivation to work with greater effort. This
increases efficiency and productivity.
4.Comparison of Forecasting and Outcome:
A target of efficiency is set for the employees and the cost consciousness is
stimulated. Since the process of standard costing allows an appraisal to be made
of personnel, machines, and methods of working, current inefficiencies come to
notice and get eliminated.
5.Inventory Control:
Standard costing facilitates inventory control and simplifies inventory valuations.
This ensures uniform pricing of stocks in the form of raw materials, work‐in‐
progress, and finished goods.
 6.Economical System:
Standard costing system is an economical system from the viewpoint that it does
not require detailed records. It also does not require a big staff. It results in a
reduction in paperwork in accounting and needs very few records. Thus, there is
a saving of time as well as money.
7.Helpful in Budgeting:
Budgets are prepared based on standard costing. Standards which are set up in
respect of materials, labor, and overheads, are helpful in preparing various
budgets. For example, flexible budget, sales budget, etc.
8.Helps Formulate Policies:
This technique is a valuable aid to the management in determining prices and
formulating production policies. Standard costing equips cost estimates while
planning the production of new products.
9.Helps Distinguish Activities:
Standard costing helps in distinguishing between skilled and unskilled activities.
So, the skilled worker only pays attention to improving the activities of the
unskilled workers.
 10. Eliminates Wastage:
Through fixing standards, certain waste such as material wastage, idle time, lost
machine hours, etc. is reduced.

Disadvantages of standard costing:

Following are some of the disadvantages of standard costing:
1.Costly System
2.Difficulties in Fixation of Standard
3.Constraint for Service Industry
4.Consistency of Standard
5.Unsuitable for Non‐standardised Products
6.Relatively Fixed Standards
7.Difficulties for Small Industries
8.Discouragement for Workers
9.Inaccurate Diverse Results
 1.Costly System:
Because the Standard Costing requires highly skilful and competent personnel, it
becomes a costly system too. For the same experts are paid high remuneration.
2.Difficulties in Fixation of Standard:
It is always difficult to determine precise standard costs in a given situation which
will coincide with actual cost when operations are over. Standard cost are
determined partly by the past experience and partly by the cost projections based
on advanced statistical techniques. Thus, uncertainties revolve around standards.
3.Constraint for Service Industry:
Standard costing is applied for planning and controlling manufacturing costs.
Thus, it cannot be applied in a service industry.
4.Consistency of Standard:
Consistency of Standard because the standards of marginal costing fluctuate and
vary time to time, it is difficult to always sustain and continue the same standards.
 5.Unsuitable for Non‐standardised Products:
Standard costing is expensive and unsuitable for job manufacturing industries as
they manufacture non standardized products such as catering, tailoring, printing,
etc.
6.Relatively Fixed Standards:
A business may not be able to keep standards up‐to‐date. In other words, a
business may not revise standards to keep pace with the frequent changes in
manufacturing conditions. Firms may avoid revising standards as it is a costly
affair.
7.Difficulties for Small Industries:
Difficulties for Small Industries’ establishment of standards and their
implementation involve initial high costs. Standards have to be revised and new
standards be fixed involving larger costs. Thus, small firms find it expensive to
operate standard costing system. This system is not fit for each type of industries.
 8.Discouragement for Workers:
Sometimes the employees and workers are discouraged when the standards are
fixed at a high level. The unreal high standards may adverse by effect the morale
of workers rather than working as an incentive for better efficiency.
9.Inaccurate Diverse Results:
Inaccurate and unreliable standards cause misleading results and thus may not
enjoy the confidence of the users of this system.