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ACCOUNTING FOR MANAGERS

Understanding of Business Organizations

What do business organizations do ?

e.g., Bharti Airtel, ICICI Bank, ITC etc.

Types of business organizations


Merchandising or Trading Manufacturing Service

What is Accounting

Why should managers and other decisionmakers know accounting? Accounting is the language of business Accounting provides information for making decisions
Science

Art

Identifying

Recording

Classifying

Summarizing

Reporting

Who are Interested???


Management

Customers

Investors

Suppliers

Accounting Data

Creditors

Employees

Prospective Acquirer

Government

Generally Accepted Accounting Principles (GAAP)


Operating Guidelines
Assumptions Principles
1. Revenue Recognition 2. Historical Cost 3. Matching 4. Full Disclosure 5. Objectivity

Modifying Principles

1. Accounting Entity 2. Monetary Unit 3. Periodicity 4. Going Concern

1. Cost Benefit 2. Materiality 3. Conservatism 4. Consistency 5. Timeliness 6. Industry Practice

Accounting Equation

Liabilities

Capital

Assets

The Accounting Process


Journalising in Journal or Subsidiary Books

Posting in Ledgers

Balancing the Ledgers

Preparation of Trial Balance

Preparation of Final Accounts (Manufacturing a/c, Trading a/c, P&L a/c and Balance Sheet )

Journal - Format
DATE PARTICULARS L.F. AMOUNT DEBIT CREDIT

Journalising - Types of Accounts

Real
Types of Accounts Nominal Personal

Journalising Rules of Debit and Credit

Real Accounts

Debit what comes in Credit what goes out

Nominal Accounts
Personal Accounts

Debit all expenses and losses Credit all revenues and profits

Debit the receiver Credit the giver

Special Books

Cash Book

Single Column Double Column

Purchases Book Purchases Return Books Sales Book Sales Return Book

Posting in Ledgers

A ledger is a collection of all the accounts debited or credited in the general journal and various special books

Ledger - Format
ACCOUNT NAME DR. DATE PARTICULARS J.F. AMOUNT DATE PARTICULARS CR. J.F. AMOUNT

Preparation of Trial Balance

It is a statement showing the balances, or total of debits and credits, of all the accounts in the ledger with a view to verifying the equality of debits and credits posted to the ledger accounts

Objectives of Trial Balance

To ascertain arithmetical accuracy of the ledger accounts. To help in locating errors. To help in preparation of final accounts.
Trial Balance is not the conclusive proof of accuracy of accounts. There are errors which might not be disclosed even when trial balance matches.

Preparation of Final Accounts


Final Accounts
Statement of Income Balance Sheet

For Manufacturers

For Traders

Manuf acturin g A/c

Trading A/c

P&L A/c

Trading A/c

P&L A/c

Statement of Income
Prepared by manufacturing firms Manufac Reveals the Cost of goods manufactured turing Balance is transferred to Trading A/c A/c All direct expenses and incomes are recorded Reveals the Gross Profit/Loss Trading Balance is transferred to P&L A/c A/c All indirect expenses and incomes are recorded Reveals the Net Profit/Loss P&L A/c Balance is transferred to Balance Sheet

Trading Account
Debit Side Main Items

Credit Side Main Items


Opening Stock Net Purchases Direct Expenses Wages Carriage Inward Royalty Octroi Excise Duty, Import Duty, Dock Charges etc. Gross Profit (Balancing Fig.)

Net Sales Goods sent on consignment

Closing Stock
Goods supplied on sales or return basis Gross Loss (Balancing Fig.)

P&L Account
Debit Side Main Items

Credit Side Main items

Gross Loss transferred from Trading A/c Office Expenses (e.g. salaries, lighting, rent etc.) Selling and Distribution Expenses (e.g. carriage outward, advertisement etc.) Miscellaneous Expenses (e.g. depreciation, bank charges etc.) Net Profit (Balancing Fig.)

Gross Profit transferred from Trading A/c Indirect Incomes (e.g. rent received, dividend received, profit on sale of assets etc.) Net Loss (Balancing Fig.)

Balance Sheet

It is a statement of assets and liabilities of a business enterprise at a given date i.e. Statement of Financial Position It is prepared at the end of the accounting period

Balance Sheet
Liabilities

Assets

Capital

Fixed Assets

Opening Balance Add Net Profit Less Drawings Loans etc.


Long Term Liabilities

Goodwill Building Land Plant & Machinery Furniture & Fixtures etc.

Current Liabilities

Advance Income Sundry Creditors Outstanding Expenses. Bills Payable Bank Overdraft etc.

Investments Current Assets


Closing Stock Accrued Income Prepaid Expenses Sundry Debtors Bills Receivable Cash etc.

Adjustments in Final Accounts


Outstanding Expenses Prepaid Expenses Accrued Income Advance Income Depreciation Provision for Bad and Doubtful Debts Provision for Discount on Debtors Provision for Discount on Creditors Interest on Capital Interest on Drawings Managers Commission

Final Accounts of Companies Important Points

Interim Dividend Final Dividend Proposed Final Dividend for the Current Year. Unclaimed Dividend Interest or Dividend Received and TDS Interest on Debentures Paid and TDS Calls in Arrears Forfeited Shares Account Share Premium Account Discount on Issue of Debentures