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© Prentice-Hall of India Private Limited, All rights reserved.1 Financial Accounting: A Managerial Perspective Second Edition Prepared by R. Narayanaswamy Indian Institute of Management Bangalore
© Prentice-Hall of India Private Limited, All rights reserved.2 Accounting and Economic Decisions Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.3 The Aim of the Course 1.Appreciate the information needs of different categories of users of company financial reports. 2.Understand the significance of accounting principles and the systems and processes involved in preparing and presenting financial reports. 3.Analyse and interpret financial reports. Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.4 The Approach in the Course 1.Understanding the economic basis of accounting 2.Connecting accounting to capital market and corporate governance 3.Emphasis on principles 4.Student-friendly presentation, easy-to-read style 5.Real-world applications 6.Integrating preparation and use of financial statements 7.Linking accounting theory, empirical research and practice Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.5 Understanding Business Organisations What do business organisations do? e.g., Infosys Technologies, BHEL, Zee Telefilms, Amazon.com Types of business organisations Merchandising or trading Manufacturing Service Business organisations are “cash machines” Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.6 What is Accounting Accounting is the language of business Accounting provides information for making decisions Accounting is an information system Accounting and economic decisions Why should managers and other decision- makers know accounting? Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.7 The Accounting Information System Inputs Processing Outputs Users Business Accounting Financial Investors, transactions principles statements lenders, and events and procedures and reports managers
© Prentice-Hall of India Private Limited, All rights reserved.8 Users of Accounting Information Investors Lenders Security analysts and advisers Managers Employees and trade unions Suppliers and other trade creditors Customers Government and regulatory agencies The public Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.9 Major Branches of Accounting Chapter 1 Financial Accounting For external users Historical information Standardised format Laws and conventions Summarised Income statement; Balance sheet; Cash flow statement; Accounting policies Management Accounting For internal users Future-oriented Flexible format Context-specific More detailed Product cost statement; Standard costs; Budgets; Variances; Performance reports
© Prentice-Hall of India Private Limited, All rights reserved.10 Accounting Measurement Accounting records the effect of economic events Internal events External events: transactions exchange (e.g., purchase of goods) one-way transfer (e.g., donations, thefts) Other external events no exchange or transfer (e.g., floods, earthquakes) Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.11 Assumptions Underlying Accounting Measurement Accounting Entity Business is distinct from owner Going Concern Business is a continuing enterprise Periodicity Business activities divided into periods Money Measurement Money is a stable measurement unit Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.12 Generally Accepted Accounting Principles and Accounting Standards What is GAAP? Importance of GAAP Why does accounting practice differ? Accounting policies Need for accounting standards Standard-setting mechanism in India Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.13 Institutional Environment Institute of Chartered Accountants of India Department of Company Affairs National Advisory Committee on Accounting Standards Securities and Exchange Board of India Central Board of Direct Taxes Reserve Bank of India Comptroller and Auditor General of India International Organisations International Accounting Standards Board International Organization of Securities Commission Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.14 Forms of Business Organisation Sole proprietorship Single individual Partnership A few individuals Limited company Numerous individuals, often strangers Large business Limited liability Legal formalities for a limited company The corporate organisation structure Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.15 Accounting, Capital Markets, and Corporate Governance The capital market: savers and entrepreneurs The “lemons principle” and market breakdown Signalling and capital market Corporate governance Accounting disciplines managerial actions Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.16 The Accounting Equation Economic Resources = Claims Assets = Liabilities + Owners’ Equity Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.17 Assets Probable future economic benefits What a business “owns” Examples Cash Investments Buildings Plant and machinery Patents and copyrights Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.18 Liabilities Probable future sacrifices of economic benefits What a business “owes” Contractual, statutory, or constructive Examples Loans payable Warranty obligations Pensions payable Income tax payable Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.19 Equity Residual interest of owners Examples Share capital Share premium Revenues Expenses Dividends Retained profit Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.20 Financial Statements Profit and loss account Statement of financial performance Balance sheet Statement of financial position Statement of cash flows Statement of cash receipts and cash payments Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.21 Fields of Accounting Activity Public accounting Auditing Tax Management advisory services Small business services Private accounting Management accounting Internal auditing Information systems Government accounting Central State Local Not-for-profit accounting Chapter 1
© Prentice-Hall of India Private Limited, All rights reserved.22 Ethical Issues in Accounting Business and ethics Why do people bend the accounting rules GAAP is of little help Whistleblowing Ethical conduct brings success in the long term Chapter 1
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 1-1 Financial Accounting John J. Wild 4th Edition John J. Wild 4th Edition Information for Decisions.
PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust. 1.1 ACCOUNTING Financial and Organisational.
Chapter 1-1 CHAPTER 1 ACCOUNTING IN ACTION Accounting Principles, Eighth Edition.
Understanding Accounting and Financial Information Chapter 17 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
Slide 1-1 ECON 3A UCSB-- ANDERSON Accounting as a Form of Communication Chapter 1.
McGraw-Hill /Irwin© 2009 The McGraw-Hill Companies, Inc. THE BALANCE SHEET AND FINANCIAL DISCLOSURES Chapter 3.
Copyright © 2004 by Prentice-Hall. All rights reserved. PowerPoint Slides to Accompany BUSINESS LAW E-Commerce and Digital Law International Law and Ethics.
6.1 PPS t/a Carnegie et al; Accounting: Financial and Organisational Decision Making © 1999 McGraw-Hill Book Co. Aust. ACCOUNTING Financial and Organisational.
© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-1 Chapter One Overview of Corporate Finance Principles of Corporate Finance Canadian Edition Lawrence.
The Role of the Public Accountant in the American Economy Chapter 01 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 8 BBI1O1. Opening Activity What do you OWN? What do you OWE? What I OWN – What I OWE = Personal Net Worth.
CHAPTER 3 FINANCIAL REPORTING STANDARDS Presenter’s name Presenter’s title dd Month yyyy.
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International Financial Reporting Standards, Dubai, June 2009 Stuart Frearson International Financial Reporting Standards, Dubai, June
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Powerpoint slides by: Copyright © 2003 McGraw-Hill Ryerson Limited, Canada Michael L. Hockenstein Commerce Department Vanier College Intermediate Accounting.
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Chapter 17 Sources of Commercial Debt and Equity Capital McGraw-Hill/IrwinCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
©The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin Chapter 4 Accounting for Branches Combined Financial Statements.
Kahn, Litwin, Renza & Co., Ltd. How to Develop Financial Projections Presented by Larry Davidson & Anthony Mangiarelli in connection with the Rhode Island.
Introduction to Accounting and Business. 1.Describe the nature of a business. 2.Describe the role of accounting in business. 3.Describe the importance.
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Accounting = Language of Business.
CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)1 This chapter describes the importance of keeping business records.
1-1 Copyright 2007 McGraw-Hill Australia Pty Ltd PPTs t/a Australian Financial Accounting 5e by Craig Deegan Slides prepared by Craig Deegan Chapter 1.
Financial Reporting TOPIC 1 Suhaimi Bin Ismail Faculty of Business Management and Globalization Tel : (Ext 8408)
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Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Financial Accounting Theory 2e by Deegan 2-1 Financial Accounting Theory Craig Deegan Chapter 2 The.
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