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Introduction to Accounting
Process of identifying, measurement, classifying, recording, summarizing and interpretation of the transactions in terms of money to ascertain the result and financial position of business activities of particular period. An art of recording, classifying, summarizing the transactions in financial terms to reflect financial position of whole transactions. increased scope of accounting with competition and business complexities. Useful to customers managers, creditors, increase in the
Users of Accounting Ultimately, all accounting information is accumulated to help someone make decisions. That someone may be a company president, a production manager, a hospital or school administrator, a sales manager, a shareholder, a small-business owner, a politicianthe list is almost infinite. Almost all managers in every organization are better equipped to perform their duties when they have a reasonable grasp of accounting data. For example, a knowledge of accounting is crucial for decisions by government agencies regarding research contracts, defense contracts, and loan guarantees. In fact, a survey of managers ranked accounting as the most important business course for future managers. 3
Branch of Accounting
Cost Accounting
Costs are the volume of resources sacrificed to produce goods and services. Cost accounting is the system, which accumulates, classifies and interprets costs to use in performance evaluation and decisionmaking Deals primarily with the accumulating cost data needed by the management to control the current operations and plan for future. Provides accurate and timely information needed to help the business and control costs. Generally, both financial accounting and management accounting use costs accumulated and classified by the cost accounting for external and internal purposes. Traditionally, focused in manufacturing cost only but at present it is also used in non-manufacturing concerns for cost control.
Objectives of Cost Accounting To ascertain cost per unit of different types of products To ascertain the element of costs
Financial Accounting
Financial accounting concerns with the preparation of financial statements and reports like income statement and balance sheets of specific periods for external users to show the financial position of the company.
It is a summarized form of the overall financial position of company. It provides information for external users like shareholders, creditors, suppliers, government etc. The branch of account, which develops information for external decision makers like shareholders, creditors, government, suppliers etc.
Management Accounting
Management accounting is the branch of accounting, which is concerned with supplying relevant information to managers at appropriate time to enable them to take decisions in organization. It is the process of accounting, which generates accounting information from both financial accounting and cost accounting and provides essential accounting information to all departments concerned. Management accounting is the process of identifying, measuring, analyzing, interpreting and communicating accounting information to department concerns to meet organizational goals and objectives.
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Scope
No specific principles like Certain principles and procedures accounting and cost accounting. are followed in cost determination and allocation.
It uses past and present data in the projection of future. It uses both past and present data and figure.
Nature
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Reporting
Legal compulsion
Performance It measures the efficiency and measurements performance of various departments and divisions.
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Secrecy
Secrecy of report is compulsory because it is prepared for internal decision making for managers. Therefore, they are highly confidential. Measurement and reports are influenced by the behaviour of managers' daily behaviour. Therefore, behavioral considerations in primary in management accounting.
Generally, financial reports are published to the knowledge of the outsiders. Therefore, they are not secretly maintained as management accounting reports. Financial reports are prepared to measure and communicate the financial phenomena to the concerned parties. Therefore, behavioral implications are secondary. However, reports are influenced by the behaviour of executive managers.
Behavioral implications
Span of Time
Scope/field
Scope and field of management Scope is more clearly defined. Therefore, accounting are defined less sharply. they use economics and other disciplines Therefore, it uses economics, very low. behavioral science and decision science.
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President
Sales Vicepresident
Engineering Vice-President
Manufacturing Vice-President
Personnel Vice-President
Financial Vice-President
Treasurer Controller
Factory-Service Departments (staff function) Receiving and Storeroom Inspection Tool Room Purchasing Production Control Maintenance
Production Superintendent Production Departments (line function) Foundry ???????????? ?? ???????????? ??????? ???????????? ?????????? ???????????? ???????
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Contd.
Management accounting is the primary means of implementing the first three functions of controllership. The treasurer is concerned mainly with the company's financial matters, the controller with operating matters. The exact division of accounting and financial duties varies from company to company. In a small organization, the same person might be both treasurer and controller. The controller has been compared with a ship's navigator. The navigator uses specialized training to assist the captain. Without the navigator, the ship may founder on reefs or miss its destination entirely. The navigator guides and informs the captain as to how well the ship is being steered, but the captain exerts the right to command. This navigator role is especially evidence in the first three functions listed for controllership. 20
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Costly
No specific procedures Possibility of resentment/dislike
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Professional Certifications
ACCA/CA -The responsibility of these professional bodies is to provide assurance concerning the reliability of financial statements.
CIMA-One of the main purposes of the CIMA was to establish management accounting as a recognized, professional discipline, separate from the profession of public accounting. ICWA
CMA
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Questions
Q.1 What are the major differences between financial and managerial accounting? In what ways are the two fields of study similar? Q.2 Management accounting helps create value of the firm through profit planning, decision making and control of the activities of the organization With the light of this statement explain how management accounting creates value of the firm. The objectives of management accounting are to provide data and information to assist the different level of management, in planning, decision making and controlling operations. Discuss. Or "Managerial accounting provides economic information to facilitate the management process of planning, decision-making and control". Explain and illustrate this statement. Or Discuss management accounting and its role in planning controlling and decision making process. Or Discuss the role of management accounting in overall management process of a business. Q.3 Discuss the major current trends that are causing role of management accounting today.
Q.4 Discuss treasurership and controllership functions of chief executive officer (CFO).26
Quiz I
1 . ........................ accounting provides information for managers of organization who directs and controls the operations. a. Financial b. Management c. Cost 2. Which of the following is true? a. Financial account is geared towards the internal users b. Management accounting need not to follow any accounting principles (GAAPs) c.Management accounting uses historical data only 3. Financial accounting deals with record keeping process of financial transaction for determining profitability of company for external reporting. a. True b. False 4. Which of the following objectives are not the objectives of management accounting? a.Providing information to the managers b.Motivating managers toward the achievement of organization's goals c.Measuring the performance of managers, subunits and employees within organization d.Preparation financial report for creditors, suppliers and government 5. Both management and financial accounting uses cost accounting data for preparing reports. a. True b. False
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