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Management and Financial Accounting
,Subject: MANAGEMENT AND FINANCIAL ACCOUNTING
Credits: 4
SYLLABUS
Introduction to Financial Accounting
Introduction, Scope and Objectives, Branches of Accounting, Accounting Principles and Standards.
Financial Accounting Framework
Journalizing Transactions: Recording of Transaction, Advantages of Journal, Classification of Accounts and its
Rules, Compound Entries; Ledger: Introduction, Posting and its Rules; Trial Balances: Trial Balance
Preparation, Errors Disclosed by Trial Balance, Methods of Allocating Errors in Trial Balance.
Basic Principles of Preparing Final Account
Capital Expenditure; Revenue Expenditure; Deferred Revenue Expenditure; Capital Receipts; Income
Statements: Profit and Loss Statement; Balance Sheet; Final Accounts: Adjustments.
Concept of Management Accounting
Principles, Functions and Scope of Management Accounting; its Limitations; Management Accountant:
Functions; Basic Cost Concepts; Components of Total Cost; Elements of Cost and Cost Sheet; Methods,
Systems and Techniques of Costing.
Tools of Financial Analysis
Budgets: Introduction, Advantages and Disadvantages, Essentials of Budgetary Control, Budget Manual and its
Working, Budget Key Factor; Fixed and Flexible Budgets; Functional and Master Budgets: Sales and Cash
Budget; Zero Based and Incremental Budgets.
Suggested Reading:
1. Financial Accounting: A Managerial Perspective, HPH by Narayanswamy, Publisher: Prentice Hall of India
Private Limited
2. Financial Accounting for Business Managers, by Bhattacharyya, Ashish K Publisher: Prentice Hall of India
Private Limited
3. Financial Accounting for Management: Text & Cases by Subhash Sharma, Publisher: Macmillan India
Limited
4. Management Accounting - Concepts & Applications by Kothari G, Publisher: Macmillan India Limited.
,----------------------------------------------------------------------------------------------------------------
INTRODUCTION TO ACCOUNTING
----------------------------------------------------------------------------------------------------------------
Structure
1.1 Introduction
1.2 Definition of Accounting
1.3 Accounting a Means and Not an End
1.3.1 Objectives and Functions
1.3.2 Branches of Accounting
1.3.3 Distinction between Book Keeping and Accounting
1.3.4 Users of Accounting Information
1.3.5 Advantages and Limitations of Accounting
1.3.6 Bases of Accounting
1.3.7 Basic Terms in Accounting
1.4 Accounting Principles and Standards
1.5 System of Book – Keeping
1.6 Summary
1.7 Review Questions
----------------------------------------------------------------------------------------------------------------
1.1 INTRODUCTION
----------------------------------------------------------------------------------------------------------------
Dear students, let me introduce to you this entire subject which is scoring and fruitful in
many ways. So let’s start… In this unit our objective is to get acquainted with the basic need,
development & definition of basic terms. The accounting records maintained help various
interested parties in variety of manner. For some persons, it will be informative whereas for
others it may take crucial investment decisions based on the accounting information.
Accounting is the language of the business, the basic function of which is to serve as a means
of communication. If you ask to whom does it communicate the results of business operations
then the various interested parties are owners, creditors, investors, governments and other
agencies. Any language has three important jobs to perform: To act as a medium of
communication; to help in understanding the existing literature; to make additions to the
already existing literature. Accounting has been performing all these roles. As a language it is
responsible for preparing financial statements with its own syntax. The syntax of the
accounting language comprises of the total system of recording and analyzing business
transaction called Double Entry System of Book-Keeping, the basic principles on which it is
based like Accounting Standards or Generally Accepted Accounting Principles (GAAP).
5
, ----------------------------------------------------------------------------------------------------------------
1.2 DEFINITION OF ACCOUNTING
----------------------------------------------------------------------------------------------------------------
To start with we can say that, accounting is concerned with the processes of recording,
sorting, and summarizing data resulting from business operations and events. The definition
is given by the American Institute of Certified Public Accountants which clearly brings out
the meaning and function of accounting. According to it accounting is: “The art of recording,
classifying and summarizing in a significant manner and in terms of money, transactions and
events which are, in part at least, of a financial character and interpreting the result thereof.”
Now as you have read the aforesaid definition now let’s perceive what it means to say:
Accounting is an art: Accounting classifies as an art, as it helps in attaining our aim of
ascertaining the financial results. Analysis & interpretation of financial data are the art of
accounting, requiring special knowledge, experience and judgment.
It involves recording, classifying and summarizing: recording means systematically writing
down the transactions and events in account books soon after their occurrences, classifying is
the process of grouping transactions or entries of one nature at one place. This is done by
opening accounts in a book call ledger. Summarizing involves the preparation of reports &
statements from the classified data (ledger) understandable and useful to management and
other interested parties. This involves preparation of final accounts. It records transaction in
the terms of money: This provides a common measure of recording and increases the
understanding of the state of affairs of the business.
Deals with financial transaction: It records only those transaction and events, which are of
financial character. If a transaction has no financial character then it will not be measured in
the terms of money and will not be recorded. Interpretation: It is the art of interpreting the
results of operations to determine the financial position of the enterprise, the progress it has
made and how well it is getting along. Accounting involves communication: The results of
analysis and interpretation are communicated to management and to other interested parties.
----------------------------------------------------------------------------------------------------------------
1.3 ACCOUNTING – A MEANS AND NOT AN END
----------------------------------------------------------------------------------------------------------------
After analyzing properly the information supplied by the accounting statements the users of
the same take decision for the future activities. Since accounting supplies the necessary
information, it performs, in fact, a service function and, at the same time, it is sued to
represent economic position of an entity. Therefore, it becomes clear that keeping of accounts
is not the primary objective of either a person or an entity. On the contrary, the primary
objective is to take decision on the basis of financial facts presented by accounting
statements. Thus, the understanding of accounts is not the basic objective; it only helps to
realize a specific objective. As such, accounting is not an end in itself but a means to an end.
It is essentially a service function designed to provide relevant information concerning an
entity for those who are interested in interpreting and using that information.
1.3.1 Objectives and Functions
As you have already seen above that, the primary or basic objective of accounting is to
supply the necessary information to the users and analysts for taking futuristic decisions, so
let’s have a look at its other objects and functions, they are:
6
Management and Financial Accounting
,Subject: MANAGEMENT AND FINANCIAL ACCOUNTING
Credits: 4
SYLLABUS
Introduction to Financial Accounting
Introduction, Scope and Objectives, Branches of Accounting, Accounting Principles and Standards.
Financial Accounting Framework
Journalizing Transactions: Recording of Transaction, Advantages of Journal, Classification of Accounts and its
Rules, Compound Entries; Ledger: Introduction, Posting and its Rules; Trial Balances: Trial Balance
Preparation, Errors Disclosed by Trial Balance, Methods of Allocating Errors in Trial Balance.
Basic Principles of Preparing Final Account
Capital Expenditure; Revenue Expenditure; Deferred Revenue Expenditure; Capital Receipts; Income
Statements: Profit and Loss Statement; Balance Sheet; Final Accounts: Adjustments.
Concept of Management Accounting
Principles, Functions and Scope of Management Accounting; its Limitations; Management Accountant:
Functions; Basic Cost Concepts; Components of Total Cost; Elements of Cost and Cost Sheet; Methods,
Systems and Techniques of Costing.
Tools of Financial Analysis
Budgets: Introduction, Advantages and Disadvantages, Essentials of Budgetary Control, Budget Manual and its
Working, Budget Key Factor; Fixed and Flexible Budgets; Functional and Master Budgets: Sales and Cash
Budget; Zero Based and Incremental Budgets.
Suggested Reading:
1. Financial Accounting: A Managerial Perspective, HPH by Narayanswamy, Publisher: Prentice Hall of India
Private Limited
2. Financial Accounting for Business Managers, by Bhattacharyya, Ashish K Publisher: Prentice Hall of India
Private Limited
3. Financial Accounting for Management: Text & Cases by Subhash Sharma, Publisher: Macmillan India
Limited
4. Management Accounting - Concepts & Applications by Kothari G, Publisher: Macmillan India Limited.
,----------------------------------------------------------------------------------------------------------------
INTRODUCTION TO ACCOUNTING
----------------------------------------------------------------------------------------------------------------
Structure
1.1 Introduction
1.2 Definition of Accounting
1.3 Accounting a Means and Not an End
1.3.1 Objectives and Functions
1.3.2 Branches of Accounting
1.3.3 Distinction between Book Keeping and Accounting
1.3.4 Users of Accounting Information
1.3.5 Advantages and Limitations of Accounting
1.3.6 Bases of Accounting
1.3.7 Basic Terms in Accounting
1.4 Accounting Principles and Standards
1.5 System of Book – Keeping
1.6 Summary
1.7 Review Questions
----------------------------------------------------------------------------------------------------------------
1.1 INTRODUCTION
----------------------------------------------------------------------------------------------------------------
Dear students, let me introduce to you this entire subject which is scoring and fruitful in
many ways. So let’s start… In this unit our objective is to get acquainted with the basic need,
development & definition of basic terms. The accounting records maintained help various
interested parties in variety of manner. For some persons, it will be informative whereas for
others it may take crucial investment decisions based on the accounting information.
Accounting is the language of the business, the basic function of which is to serve as a means
of communication. If you ask to whom does it communicate the results of business operations
then the various interested parties are owners, creditors, investors, governments and other
agencies. Any language has three important jobs to perform: To act as a medium of
communication; to help in understanding the existing literature; to make additions to the
already existing literature. Accounting has been performing all these roles. As a language it is
responsible for preparing financial statements with its own syntax. The syntax of the
accounting language comprises of the total system of recording and analyzing business
transaction called Double Entry System of Book-Keeping, the basic principles on which it is
based like Accounting Standards or Generally Accepted Accounting Principles (GAAP).
5
, ----------------------------------------------------------------------------------------------------------------
1.2 DEFINITION OF ACCOUNTING
----------------------------------------------------------------------------------------------------------------
To start with we can say that, accounting is concerned with the processes of recording,
sorting, and summarizing data resulting from business operations and events. The definition
is given by the American Institute of Certified Public Accountants which clearly brings out
the meaning and function of accounting. According to it accounting is: “The art of recording,
classifying and summarizing in a significant manner and in terms of money, transactions and
events which are, in part at least, of a financial character and interpreting the result thereof.”
Now as you have read the aforesaid definition now let’s perceive what it means to say:
Accounting is an art: Accounting classifies as an art, as it helps in attaining our aim of
ascertaining the financial results. Analysis & interpretation of financial data are the art of
accounting, requiring special knowledge, experience and judgment.
It involves recording, classifying and summarizing: recording means systematically writing
down the transactions and events in account books soon after their occurrences, classifying is
the process of grouping transactions or entries of one nature at one place. This is done by
opening accounts in a book call ledger. Summarizing involves the preparation of reports &
statements from the classified data (ledger) understandable and useful to management and
other interested parties. This involves preparation of final accounts. It records transaction in
the terms of money: This provides a common measure of recording and increases the
understanding of the state of affairs of the business.
Deals with financial transaction: It records only those transaction and events, which are of
financial character. If a transaction has no financial character then it will not be measured in
the terms of money and will not be recorded. Interpretation: It is the art of interpreting the
results of operations to determine the financial position of the enterprise, the progress it has
made and how well it is getting along. Accounting involves communication: The results of
analysis and interpretation are communicated to management and to other interested parties.
----------------------------------------------------------------------------------------------------------------
1.3 ACCOUNTING – A MEANS AND NOT AN END
----------------------------------------------------------------------------------------------------------------
After analyzing properly the information supplied by the accounting statements the users of
the same take decision for the future activities. Since accounting supplies the necessary
information, it performs, in fact, a service function and, at the same time, it is sued to
represent economic position of an entity. Therefore, it becomes clear that keeping of accounts
is not the primary objective of either a person or an entity. On the contrary, the primary
objective is to take decision on the basis of financial facts presented by accounting
statements. Thus, the understanding of accounts is not the basic objective; it only helps to
realize a specific objective. As such, accounting is not an end in itself but a means to an end.
It is essentially a service function designed to provide relevant information concerning an
entity for those who are interested in interpreting and using that information.
1.3.1 Objectives and Functions
As you have already seen above that, the primary or basic objective of accounting is to
supply the necessary information to the users and analysts for taking futuristic decisions, so
let’s have a look at its other objects and functions, they are:
6
