Don Bosco College, Mampetta

(Affiliated to the University of Calicut)

Kozhikode

ASSIGNMENT ON
“Accountancy”

Financial and Management

Accounting (BCA2C03)

Submitted To: Submitted By:

Ms.Sheeja E Abhinand p
Asst. Professor Reg No:BOAXBCA032
Dept. of Commerce Class: BCA 1st year

Date:26-06-2024
 FINANCIAL & MANAGEMENT ACCOUNTING
Accounting:
Accounting is a system of collecting, classifying, summarising, analysing and reporting
financial information about a firm to users for decision making
Characteristics of Accounting
• Accounting is the art of recording the transactions in the books.
• Accounting is a science.
• Accounting records only those transactions and events which are of financial
character.
• Accounting classifies the recorded transactions in a systematic manner.
• Accounting summarises the classified data.
Book Keeping :
Book-keeping is a part of accounting that is concerned with the recording of transactions and
maintenance of books of accounts. It’s primary objective is to maintain a systematic
recording of transactions on a regular basis.
Accountancy:
Accountancy is a broader term. It covers the basic functions of book keeping and accounting
in addition to formulation of concepts, principles, methods and techniques of accounting. It is
the theory and practice of accounting.
Functions of Accounting :
Functions of accounting may be broadly classified into two, namely, primary functions and
secondary functions.
The primary functions of accounting are:
• Keeping a systematic record of business transactions.
• Ascertaining the operating results by preparing the income statement.
• Ascertaining the financial position of the business by preparing the balance sheet.
• Analysing income statement and balance sheet and interpreting the results and finally
communicating the information to the users for making appropriate decisions.
The secondary functions are:
• Forecasting future performance and financial position with the help of past data and
present information of an enterprise.
• Comparing and assessing the performance achieved by the firm in relation to pre-
determined targets (i.e., budgeted targets).
• Identifying the weakness of the business operations and financial position of an
enterprise and submitting feedback to management for further improvement.
Subsidiary Books:
The Subdivisions of journal for recording transactions of similar nature are known as
subsidiary books.
Types of Subsidiary Books:
• Cash Book
• Purchase Book
• Sales Book

Cash Book:
A cash book records all cash transactions in chronological order, serving as both a subsidiary
book (original entry) and a principal book (final entry). It functions as a combined journal
and ledger, eliminating the need for a separate cash account in the ledger.
 Features of Cash Book:
- Two Sides: Debit side for receipts, credit side for payments.
- Dual Role: Combines elements of a journal and a ledger.
 Advantages of Cash Book
1. Comprehensive Recording: Captures all cash transactions.
2. Balance Tracking: Monitors cash in hand and at bank in real time.
3. Efficiency: Saves time by eliminating the need for a separate ledger account.
4. Fraud Prevention: Maintains clear transaction records.
 Types of Cash Book:
1. Simple/Single Column: One column for cash amounts.
2. Double Column: Columns for both cash and bank transactions.
3. Three Column: Adds a discount column.
4. Petty Cash Book: For small, repetitive expenses.
 Petty Cash Book: An Overview:
Manages small expenses like stationery and postage without overburdening the main cash
book. It is handled by a petty cashier who receives a specific amount from the chief cashier
 Advantages of Petty Cash Book:
1. Reduces Entries: Lessens the number of small entries in the main cash book.
2. Saves Time and Labour: Frees up the main cashier.
3. Simplicity: Easy to manage without specialized knowledge.
4. Convenient Posting: Totals are transferred easily to the main cash book.
5. Fraud Prevention: Requires vouchers for each expense.
6. Effective Control: Better management of small payments.
 Types of Petty Cash Book:
1. Simple Petty Cash Book: One column for all petty payments.
2. Analytical/Columnar Petty Cash Book: Multiple columns for different expense categories.
Trial Balance:
A trial balance checks the arithmetic accuracy of accounting entries by listing all debit and
credit balances from ledger accounts, ensuring total debits equal total credits.
 Features of Trial Balance
1. List or Statement: Compilation, not an account.
2. Summary: Includes all accounts with balances.
3. Equality: Debit and credit totals must match.
4. Timing: Typically prepared at the end of an accounting period.
5. Accuracy Check: Verifies the mathematical correctness of the books.
6. Non-Account: Not part of the formal books of account
 Objectives of Trial Balance
1. Ensure Accuracy: Verifies correctness of accounts.
2. Preparation Base: Foundation for final accounts.
3. Error Detection: Identifies posting errors.
4. Management Aid: Assists in decision-making.
5. Comparative Tool: Facilitates period comparisons.
Trading Account:
A trading account reflects the result of trading activities, showing either a gross profit or
gross loss.
Gross Profit Calculation
- Formula: Gross Profit (or Loss) = Net Sales - Cost of Goods Sold
- Cost of Goods Sold: Opening Stock + Net Purchases + Direct Expenses - Closing Stock
- Net Sales: Gross Sales - Sales Returns
- Net Purchases: Gross Purchases - Purchase Returns
 Objectives of a Trading Account
1. Ascertain Gross Profit/Loss: Determine gross profit or loss.
2. Track Direct Expenses: Provide information on direct expenses.
3. Stock Comparison: Compare closing stock with previous year’s stock.
4. Loss Prevention: Offer insights to prevent potential losses.
Trading Account Items
- Debits: Opening stock, net purchases, direct expenses.
- Credits: Net sales, closing stock.
Closing Entries
All revenue items (expenses and incomes) are closed by transferring them to the Trading and
Profit and Loss Account at the end of the accounting period.
Profit and Loss Account
Prepared after the Trading Account to determine the net profit or net loss. It starts with the
gross profit from the Trading Account, debits indirect expenses, credits incomes, and
transfers the net result to the capital account on the balance sheet.
Balance Sheet:
The balance sheet shows the financial position of a business on a specific date, listing assets
on the right and liabilities and capital on the left. Totals on both sides must match.
 Features of Balance Sheet
1. Statement, Not Account: Lists assets and liabilities.
2. Specific Date: Prepared at the end of the accounting year.
3. Post-Accounts: After Trading and Profit and Loss Account.
4. Financial Snapshot: Shows financial position on a specific date.
5. Balanced Totals: Assets equal liabilities and capital.
6. Classified Summary: Includes real and personal account balances.
 Importance of Balance Sheet
1. Financial Position: Shows true financial status.
2. Assets and Liabilities: Details nature and value.
3. Capital Information: Reveals invested capital.
4. Solvency Check: Indicates firm's solvency.
5. Working Capital: Calculates working capital (current assets - current liabilities).
 Classification of Assets
1. Fixed Assets: Long-term (e.g., buildings, machinery).
2. Intangible Assets: Non-physical (e.g., goodwill, patents).
3. Financial Assets: Investments (e.g., securities).
4. Current Assets: Short-term (e.g., cash, stock).
5. Fictitious Assets: Not real (e.g., preliminary expenses).
6. Wasting Assets: Depleting resources (e.g., mines).
7. Contingent Assets: Potential future assets.
 Classification of Liabilities
1. Long-term Liabilities: Payable over a long period (e.g., loans).
2. Current Liabilities: Payable within a year (e.g., creditors).
3. Contingent Liabilities: Dependent on future events.
 Limitations of Financial Statements
1. Not Precise: Based on concepts and conventions.
2. Subjective: Influenced by judgment.
3. Historical Data: Reflects past, not future.
4. Incomplete: Excludes non-monetary items.
5. Ignore Price Changes: Original cost, not current value.
6. Static: Shows a specific time, not changes.
7. Lack Comparability: Different methods hinder comparison.
8. Require Analysis: Need further interpretation.
Management Accounting
Management accounting provides information to managers for decision-making, planning,
and evaluating performance. It transforms data from financial and cost accounting into useful
information for managing business activities.
Financial Statement Analysis.
Financial statement analysis involves breaking down and interpreting financial data to assess
a firm's profitability and financial health.
Types of Financial Analysis
(a) On the basis of material used on the basis of material used, financial analysis can be
of
Two types:
 1. External Analysis: This type of analysis is done by those who are outsiders to
the business. The outsiders are investors, creditors, govt. etc. External analysis
is based on the published financial statements
2. Internal Analysis: This is done within the organisation. It is done for internal
purposes. This is undertaken by management. This is done with the help
3. internal records. These are not published. These are used in decision making
purposes.
b) On the basis of the objectives of the analysis: On the basis of the objectives of the
analysis, the analysis can be classified into two:
1)Short term analysis: It is made to determine the short term solvency, liquidity and earning
capacity of the business. The purpose of this analysis is to know whether the business will
have adequate funds available for its short term requirements.
2) Long term analysis: This analysis is made to determine the long term solvency, stability
and future earning capacity of a business. The purpose of this analysis is to know whether a
business will be able to earn sufficient amount of rate of return on investments in the long run
so as to provide funds for the future growth, expansion, development and modernisation of
the business.
c) On the basis of modus operandi (mode of operation): On the basis of modus operandi,
financial analysis can be of two types.
Trend Analysis
Trend analysis examines financial data over time to understand the direction of the
organization.
Objectives:
1. Identify trends over time.
2. Conduct comparative studies.
3. Understand financial positions.
Methods:
1. Trend percentages.
2. Trend ratios.
3. Graphic method.
Marginal Cost and Marginal Costing
 Definition:
Marginal cost is the cost of producing one more unit of output.
 Characteristics:
1. Decision-making technique.
2. Classifies costs into fixed and variable.
3. Fixed costs charged to period profits.
4. Inventory valued at marginal cost.
5. Selling price equals variable cost plus contribution.
6. Profitability based on contribution.
 Objectives:
1. Aid in profit planning and decision-making.
2. Assist in flexible budgeting.
3. Determine sales volume to avoid losses.
4. Achieve profit goals.
5. Assess impact of price changes.
6. Evaluate product profitability.
7. Measure performance.
 Assumptions:
1. Costs are fixed or variable.
2. Fixed costs are constant.
3. Variable cost per unit is constant.
4. Selling prices are constant.
5. Material and labor costs are unchanged.
6. Costs influenced by production volume only.
7. No inventory considered.
 Advantages:
1. Simple operation.
2. Easy stock valuation.
3. Effective cost control.
4. No overhead absorption issues.
5. Assess product profitability.
6. Useful for profit planning.
7. Facilitates decision-making.
8. Helps in pricing policy decisions.
 Disadvantages:
1. Difficult cost classification.
2. Inapplicable in capital-intensive industries.
3. Undervalues inventory.
4. Short-term focus.
5. Ignores time factor.
6. Unrealistic pricing potential.
7. Overemphasis on sales.