FINANCIAL MANAGEMENT

DEFINITION
American Institute of Certified Public
Accountants defines:
“ The Art of recoding, classifying and
summarizing in a significant manner
and of in Money, transactions, and
events, which are in a part at least of
a financial character and interpreting
the results thereof” .
 FUNCTIONS

• 1) RECORDING
• 2) CLASSIFICATION
• 3) SUMMERISING
• 4) INTERPRETATION
 FUNCTIONS
• Recording:- All financial transactions must be put in writing as
soon as it is incurred in the Books of Accounts.
• Classification:- All financial transactions should be recorded
after systematic analysis under appropriate Head of Accounts.
• Summarising:- The classified financial data must be presented
before the Management and End users. The financial statement
includes preparation of final Accounts I,e Trading and Profit &
Loss account, Balance-sheet etc.
• Interpretation:- After studying the financial statements a
meaningful judgment can be drawn about the financial
condition and profitability of the enterprises. Management can
take a future decision of the Company.
 ACCOUNTING PRINCIPALS

• ACCOUNTING CONCEPTS

• ACCOUNTING CONVENTIONS
 ACCOUNTING PERIOD

• As per Indian Companies Act 1956 the

accounting period starts from 1st April to 31st
March.
• Accounting period for 2013-14 will be from 1st
April 2013 to 31st March 2014.
• Accounting period is also known as the
Financial Year.
 ACCOUNTING CONCEPTS
• BUSINESS ENTITY CONCEPTS:-An Organisation is treated as a separate
legal entity specially A Company registered under the Indian Companies
Act-1956. Share capital is a liability of the company to those who have
invested.
• GOING CONCERN CONCEPTS:- The organization shall continue to operate
as a going concern year after year and have perpetual succession. Future
decision is possible only when the Company operates year after year.
• Revenue recognition concept:-Revenue is recognized only when it is
earned and expenditure is booked only when it is incurred. In other
words it must be legally receivable and payable.
• Money measurement concept:- All transactions recoded in the Books of
Accounts must be expressed in monitory terms. Currency is the common
denomination for measurement.
 ACCOUNTING CONCEPTS
• MONEY MEASUREMENT CONCEPTS
• COST CONCEPT
• DUAL ASPECT CONCEPT
• PERIODICITY CONCEPTS
• ACCRUAL CONCEPTS
• MATCHING CONCEPTS
DUAL ASPECT CONCEPT

ASSETS = LIABILITIES +
CAPITAL OR CAPITAL =
ASSETS – LIABILITIES
 ACCOUNTING CONVENTION
• CONVENTION OF MATERIALITY

• CONVENTION OF CONSERVATION

• CONVENTION OF CONSISTENCY

• CONVENTION OF DISCLOSURE
 LIMITATIONS
• HISTORICAL IN NATURE
• NOT DEPARTMENTWISE
• NO MEASUREMENT OF INEFFICIENCIES AND WASTAGE
• COMPARISION OF STANDARDS
• NO IMPACT OF INFLATION
• NO QUALITITATIVE INFORMATION
• NO STRATEGIC INFORMATION
• NO ACOOUNTING OF TECHNOLOGICAL CHANGES
• NO VALUATION OF HUMAN RESOURCES
 PARTIES INTERESTED
IN FINANACIAL STATEMENT
• MANAGEMENT
• SHAREHOLDERS
• CREDITORS
• BANKS AND FINANCIAL INSTITUTIONS
• GOVERNMENT
• PUBLIC AT LARGE
• POLICY MAKERS
 BOOKS TO BE MAINTAINED

• CASH BOOK
• PETTY CASH BOOK
• PURCHASE DAY BOOK
• SALES DAY BOOK
• PURCHASE RETURN BOOK
• SALES DAY BOOK
• BILLS RECEIVABLES BOOK
• BILLS PAYABLE BOOK
• JOURNAL
• LEDGER
 FINANCIAL STATEMENTS

• INCOME AND EXPENDITURE ACCOUNT

• RECEIPTS AND PAYMENTS ACCOUNT
• TRIAL BALANCE
• PROFIT & LOSS ACCOUNT FOR THE YEAR
• BALANCE-SHEET AS ON DATE
• DIRECTORS’ REPORT TO THE SHAREHOLDERS
• AUDITORS REPORT
• MICRO & MACRO ECONOMIC INFLUENCE
 REVENUE AND CAPITAL EXPENDITURE
• Revenue expenditure of an Accounting year are those expenditure
the benefit of which are derived within the financial year. Salary,
wages, cost of materials and services to derive revenue income for
the financial year etc. are revenue expenditure. These expenditure
are charged in the profit & Loss account of the particular year.
• Capital expenditure are those expenditure which are incurred to
acquire Movable and Immovable assets and Properties which are
having productive life for certain years and used for generating
revenue or income. Plant & Machinery purchased for production,
Building for office or factory use, costly software for programming
etc. these capital Expenditure are shown in the Asset side of the
Balance-sheet.
 PROFIT AND LOSS STATEMENT AND
BALANCE-SHEET
• Profit & Loss Account for a financial year is prepared to determine
the profit earned or loss incurred during the accounting year i.e.
from 1st April to 31st March. All revenue expenditure and revenue
income are taken in the profit and Loss Account for the year. The
revenue expenditure are shown in the left hand side (DR.-side )
including opening stock or opening Works in progress and revenue
income is shown on the right hand side (CR-side) including closing
stock and closing works in progress. If the revenue expenditure is
more than the revenue income, for the year there is a loss during
the year. In the revenue income is more than the revenue
expenditure during the year there is a profit for the year.
• A sample is given below.