Cont.

• Accounting
• Accounting Policy
• Accounting Postulates
• Accounting Principles
• Accounting Theory
 Users of Accounting Information
1. The equity investor group, including existing and
potential shareholders.
2. The loan creditor group, including existing and
potential holders of debentures and loan stock, and
providers of short-term secured and unsecured
loans and finance.
3. The employee group, including existing, potential
and past employees.
4. The analyst-adviser group, including financial
analysts and journalists, economists, statisticians,
researchers, trade unions, stockbrokers and other
providers of advisory services such as credit rating
agencies.
Cont.

5. The business contact group, including customers, trade

creditors and suppliers and, in a different sense,
competitors, business rivals and those interested in
mergers, amalgamations and takeover.
6. The government, including tax authorities, departments
and agencies concerned with the supervision of
commerce and industry, and local authorities.
7. The public, including taxpayers, ratepayers, consumers
and other community and special interest groups such
as political parties, consumer and environmental
protection societies and regional pressure groups.
Cont.

• Cost Accountancy: the application of costing

and cost accounting principles, methods and
techniques
• Cost Accounting: It is the process of
accounting for ascertaining and controlling of
cost.
• Costing: It is the technique and process of
ascertaining costs.
 Generally Accepted Accounting Principles
(GAAP)
Basic Objectives: Provides information to potential investors regarding:
1. Economic Resources, their claim and changes in them
2. Assessment of amount, timing and uncertainty of prospective cash
receipts
3. rationality of investment and financial decisions
4. Assure that financial statements are Relevant, Reliable, Comparable
and Consistent.
Organisations:
1. Securities and Exchange Commission (SEC)
2. American Institute of Certified Public Accountants (AICPA)
3. Financial Accounting Standards Board (FASB)
4. Government Accounting Standards Board (GASB)
 Difference Between Financial Accounting
and Cost and Management Accounting
Basis Financial Accounting Cost and Management
Accounting
Purpose External Internal
Information Records Information based Provides Information for
on Past data future decisions
Emphasis Emphasis on the types of Emphasis on the products,
accounts processes and
departments
Accounting Aspect Stewardship aspect of Controlling aspect of
accounting accounting
View of Enterprise Overall View of Enterprise Analytical View of
Enterprise
Legal Obligations Legally Obligatory Relatively Free

Follow Up Should Compulsorily Tailored to suit the needs

comply GAAP of company
 Trial Balance
Characteristics:
Lists balances of all Ledger
Not a Part of Accounting
Ensures Arithmetical Accuracy
Can be prepared at any point of time.

Errors Disclosed by a Trial Balance:

Wrong Totaling of Subsidiary Books
Wrong Posting of an amount in one side
Error in the Computation of Balances
Omission of One Account Balance
Errors in the Extraction of Trial Balance
Cont.

Errors Disclosed by a Trial Balance:

Error of Omission
Error of Principle
Compensating Error
Recording of Wrong Amount in the Books
Recording in Wrong Account
Difference Between Trial Balance and Balance Sheet

• Trial Balance is the 'means' of a accounting process of which Balance sheet is

the 'end' because a balance sheet is always prepared from the figures taken
out of trial balance.
• The purpose of preparing a trial balance is to check the arithmetical accuracy
of account books; but balance sheet is drafted to reveal the financial position
of the business.
• The two sides of balance sheet are called 'liabilities' and 'assets' sides
respectively but in case of trial balance the columns are 'debit' and 'credit'
columns.
• For completing the accounting cycle, the preparation of balance sheet is
necessary; but the preparation of trial balance is not always necessary.
• Trial balance contains in it all the three types of account viz. personal, real and
nominal, but balance sheet contains only personal and real accounts.
• Generally, trial balance does not contain closing stock but balance sheet does.
 Management Accounting
Management Accounting is concerned with the
accounting information that is useful to management
R.N.Anthony
Nature:
1. Selective Nature
2. Provides Data and not Decisions
3. Futuristic
4. Analysis of Different Variables
5. No set Format
 Scope of Management Accounting
• Financial Accounting
• Cost Accounting
• Budgeting and Forecasting
• Cost Control Procedures
• Reporting
• Methods and Procedures Tax Accounting
• Internal Financial Control
• Interpretation
 Objectives of Management Accounting

1. Management Accounting is helpful in

2. Planning and Formulation of Policies
3. Interpretation of Financial Information
4. Controlling
5. Organising
6. Coordinating Operations
7. Solution of Strategic Problems
8. Motivating Employees
9. Communicate up-to-date Information
10.Performance Assessment
 Tools and Techniques of Management
Accounting
• Financial Planning
• Analysis of Financial Statements
• Historical Cost Accounting
• Standard Costing
• Budgetary Control
• Marginal Costing
• Fund Flow Statement
• Cash Flow Statement
• Decision Making Revaluation Accounting
• Statistical and Graphical Techniques
• Reporting
 Limitations of Management Accounting

• Based on Records
• Lack of Objectivity
• Intuitive Decisions
• Management Accountant's Inefficiency
• Lack of Continuity and Coordination
• Costly
• Psychological Resistance
• Unquantifiable Variables
• No substitute of Administration
 Financial Statement
Financial Statements are the organised summaries of detailed information
about operating results and financial position of the concern.
Contents:
1. Board Report
2. Director’s Responsibility Statement
3. Management Discussion and Analysis
4. Report on Corporate Governance
5. Auditor’s Report
6. Balance Sheet
7. Profit and Loss A/C
8. Cash Flow Statement
9. Notes and Annexure
 Importance of Financial Statement
Owners
Creditors
Investors
Employees
Government
Research Scholars
Consumers
Managers
 Limitations of Financial Statement
• Interim and not Final Report
• Lack of Precision and Definiteness
• Lack of Objective Judgment
• Record only Monetary Facts
• Historical Nature
• Artificial
• Scope of Manipulation
• Inadequate Information
 Financial Statement Analysis
The analysis and interpretation of Financial
Statements are an attempt to determine the
significance and meaning of the financial
statements data so that a forecast may be
made of the prospects for future earnings,
ability to pay interest and debt maturities
( both current and long term), and probability
of a sound dividend policy.
Kennedy and Memullar
 Types of Financial Statement Analysis

• On the Basis of Analyst: External Analysis and

Internal Analysis
• On the Basis of Objective: Long tern Analysis
and Short Term Analysis
• On the Basis of Mode: Horizontal or Dynamic
Analysis and Vertical or Static Analysis
Techniques of Financial Statement Analysis

• Comparative Statements
• Common Size Statements
• Trend % Method
• Fund Flow Analysis
• Cash Flow Analysis
• Net Working Capital Analysis
• Ratio Analysis
 Ratio Analysis
It is a process of identifying the financial
strengths and weaknesses of the firm by
logically establishing relationships among
various financial items and interpreting the
results thereof in order to derive meaningful
conclusions.
 Importance of Ratio Analysis
Ratio Analysis is useful in:
Financial Position Analysis
Summarising and Systematising Accounting
figures
Assessing Operational Efficiency
Identifying Strengths and Weakness of
Organisation
Comparative Analysis of Organisation
 Limitations of Ratio Analysis
• Variation in Accounting Methods
• Incorrect Accounting Statements
• No Idea of Probable Happenings
• Not Consider Inflationary Effects
• No Common Standards
• Ambiguity
• Ignores Qualitative Factors
• No use of Ratio Calculated for Unrelated Figures