Management Accounting I

July 2021
BMJ Term 1
Tuesday
(6 - 7pm)
debarati@xlri.ac.in
 Key Terms: Assets
• Assets: resources

 controlled by the entity and

 expected to provide future benefits

• What a company OWNS!

• Classification:

 Current Assets
 Non-current Assets
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 Key Terms: Liabilities
• Liabilities: obligations

 arising from past events and

 expected outflow of resources / economic benefits

• What a company OWES (to outsiders)!

• Classification:

 Current Liabilities
 Non-current Liabilities
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 Key Terms: Equity
• Residual interest in assets post liabilities
Equity =
Share Capital + Revenues –
• What a company OWES (to owners)! Expenses – Dividends/Drawings

• Components:
Net profit =
 Share capital – contribution by owners Revenues – Expenses
 Revenues – amounts charged to customers
Retained Earnings =
 Expenses – costs of earning revenue Net profit – Dividends/Drawings
 Dividends / Drawings – distribution of profits to owners
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 The Accounting Equation
Economic Resources = Claims

Assets = Liabilities + Equity

Assets = Liabilities + Share Capital + Revenues – Expenses

– Dividends/Drawings

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 Test!
• Assets = 70,000; Liabilities = 48,000; Equity = ? Equity = Assets – Liabilities = 22,000

• Share capital = 20,000; Revenues = 10,000; Dividends = 2,000; Equity = 17,000;

Expenses = ? Expenses = Share capital + Revenues - Dividends - Equity = 11,000

• Equity = 60,000; Assets = 5 x Liabilities; Accounting Equation figures?

Equity = Assets – Liabilities
Equity = 5*Liabilities – 1*Liabilities
60,000 = 4*Liabilities

Liabilities = 15,000; Assets = 75,000; Equity = 60,000

Basu, XLRI
 Analysing Business Transactions
• Owner invests 50,000 on 15th May 2020

• Pick-up truck purchased worth 1,00,000 on credit on 23rd May 2020

• Supplies worth 18,000 purchased with cash on 25th May 2020

• Services worth 15,000 provided for cash on 30th May 2020; agreed on further services of 12,000

• Paid truck supplier 16,000 on 1st June 2020

• Owner incurred personal travel expenses of 8,000 on 5th June 2020

• Salaries due 10,000; 7,000 paid in cash on 8th June 2020

• Owner was paid 1,500 out of profits on 9th June 2020

Basu, XLRI
 Date Assets Liabilities Equity

15th May Cash +50,000 No effect Share Capital +50,000

23rd May Truck +1,00,000 Truck Payable +1,00,000 No effect

Supplies +18,000
25th May No effect No effect
Cash -18,000

30th May Cash +15,000 No effect Revenue +15,000

1st June Cash -16,000 Truck Payable -16,000 No effect

5th June No effect No effect No effect

8th June Cash -7,000 Salaries Payable +3,000 Expenses -10,000

9th June Cash -1,500 No effect Dividends -1,500

Balance 1,40,500 87,000 53,500

Basu, XLRI
 Financial Statements
• Statement of Profit and Loss / Profit and Loss Account / Income Statement

• Balance Sheet

• Statement of Cash Flows / Cash Flow Statement

• Statement of Changes in Equity

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 Test!
• ABC Ltd details:
Assets Liabilities
Beginning of the Year 3,60,000 1,37,500
End of the Year 5,80,000 3,03,000

• Determine Net Profit / Net Loss if,

 Shareholders made no investments; no dividends were paid 54,500

 Shareholders made no investments; dividends of 55,000 paid 1,09,500

 Shareholders invested 65,200; no dividends were paid -10,700

 Shareholders invested 55,000; dividends of 57,000 paid 56,500

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 Problems Discussion
• 2.3

• 2.4

• 2.8

• 2.11

• 2.12

• BDC 2.2
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 The rest…

in a while,
Questions for Next Class
3.4

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