1. Fundamentals of Managerial Accounting
Module 1.2
Fundamentals of Managerial Accounting
Dr. Varadraj Bapat

2. Double Entry System, Forms of Organisation
Money Measurement Concept
Double Entry System
Single Entry System
Forms of organisation
Stakeholders
Dr. Varadraj Bapat

3. Money Measurement Concept
Money is the medium of exchange and the standard of economic value. Hence money measurement concept requires that only those transactions which are capable of being measured in terms of money are to be recorded in books of accounts.
Dr. Varadraj Bapat

4. Transactions that cannot be expressed in terms of money are not recorded in books.
Example1
Successful meeting with a prospective customer may be very important but can not be recorded in the books of accounts.
Dr. Varadraj Bapat

5. Example2
employees are the valuable resources of the organisation but their measurement in monetary terms is not possible therefore, not recorded in books.
Dr. Varadraj Bapat

6. Double Entry
Dual aspect concept is the core of double entry book-keeping system.
According to it, every transaction has two aspects and both aspects are to be recorded in the books of accounts.
Dr. Varadraj Bapat

7. Double entry system of book-keeping means that all transactions are recorded in two aspect one involving the receiving benefit and other giving benefit in the accounts system.
For instance, buying a machinery for Rs.25,000 would be entered as a decrease in the cash account, and as an increase in the ‘machinery’ account.
Dr. Varadraj Bapat

8. The advantage of a double entry system is that it is comprehensive.
It will give you an accurate picture of your true financial position, not just your cash position. As non-cash transactions can be huge, this is extremely important for robust financial management.
The disadvantage of double entry bookkeeping is that it needs
Dr. Varadraj Bapat

9. It generally needs a qualified accountant to run it.
significant details for regular maintenance of books and not always easy to use.
It generally needs a qualified accountant to run it.
Every transaction has two aspects:
i) it increases one asset and
decreases other asset
ii) it increases an asset and
increases other liability
Dr. Varadraj Bapat

10. iii) it decreases an asset and decreases a liability
iv) it decreases one liability and
increases other liability
Dr. Varadraj Bapat

11. Single Entry
It is difficult to define single entry system because, in fact, there exists no system like single entry system. Broadly speaking, it is a defective double entry system. Any system that falls short of complete double entry method is called single entry system. Under this method, sometimes both the aspects of transactions are recorded,
Dr. Varadraj Bapat

12. sometimes only one aspect is recorded or sometime no aspects of transactions is recorded in the books.
In short single entry system may be called a mix of double entry, single entry and no entry.
For instance, buying a Machinery for Rs.25,000 would be entered as a payment in a cashbook.
Dr. Varadraj Bapat

13. It has the advantage of being simple, and spontaneous to use.
However, it may not account for non-cash (or non-bank) transactions. These are transactions that will have a significant effect on the accounts, but do not immediately cause a change on the cash or bank accounts
Dr. Varadraj Bapat

14. Example
Goods sold on one months credit are not be recorded in the system at the time of sale of goods. This will create a situation where a businessman can not anticipate exact cash position of the particular month and therefore wrong planning.
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15. Example of a non-cash transaction is ordering a Machinery for Rs
Example of a non-cash transaction is ordering a Machinery for Rs.25,000. The machinery might take a month to arrive. During that month, a single entry system would not record the transaction on the formal accounts. This would mean that the accounting system has not shown liability of Rs.25,000 payable to machinery suppliers: a dangerous situation.
Dr. Varadraj Bapat

16. Forms of Business Organization
Sole Proprietorship
Hindu Undivided Family
Partnership
Company
Co-operative Society
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17. Sole Proprietorship
it is a business owned and usually carried on by a single person known as proprietor.
When the ownership and management of business are in control of one individual, it is known as sole proprietorship.
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18. Prompt Decision Making Retention of Business Secrets
Advantages:
Ease of formation
Better Control
Prompt Decision Making
Retention of Business Secrets
Personal Attention to Consumer Needs
Disadvantages:
Limited life
Unlimited liability
Limited Financial Resources
Limited Capacity of Individual
Dr. Varadraj Bapat

19. Hindu Undivided Family
Hindu Undivided Family (HUF) business is a form of business organisation found only in India. In this form of business, all the members of a Hindu undivided family own the business jointly. The affairs of business are managed by the head of the family, who is known as the “KARTA” (can be male or female).
Dr. Varadraj Bapat

20. HUF business comes into existence as per the Hindu Inheritance Laws of India. The membership is limited up to three successive generations. Thus, an individual, his child(ren), and his grandchild(ren) become the members of a HUF by birth. They are called Co-parceners. A daughter can also be a coparcener.
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21. Partnership
A partnership is a relationship between the persons who have agreed to share the profits. It is a business owned and carried on by a group of people.
Each member of such a group is individually known as partner and collectively the members are known as a partnership firm.
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22. These firms are governed by the Indian Partnership Act, 1932
These firms are governed by the Indian Partnership Act, Registration of partnership is not compulsory. But since registration entitles the firm to several benefits, it is considered desirable.
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23. No corporate income tax Disadvantages: Unlimited liability
Ease of formation
Less regulations
Sharing of Risk
No corporate income tax
Disadvantages:
Unlimited liability
Difficult to raise capital
Lack of Harmony
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24. Limited Liability Partnership
Limited Liability Partnership (LLP) can be formed by any two or more person, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with Registrar.
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25. Limited Liability Partnership (LLP) is a separate legal entity.
Liability of the partners is limited to their agreed contribution in the LLP.
A firm, private company and unlisted public company is allowed to be converted into LLP in accordance with Provisions of the LLP Act 2008.
The Indian Partnership Act 1932 is not applicable to LLPs.
Dr. Varadraj Bapat

26. Dr. Varadraj Bapat

27. Company / Corporation
Company form of business organisation is a voluntary association of persons to carry on business. Normally, it is given a legal status and is subject to certain legal regulations. It is an association of persons who generally contribute money for some common purpose. The money so contributed is the capital of the company.
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28. The persons who contribute capital are its members
The persons who contribute capital are its members. The proportion of capital to which each member is entitled is called his share, therefore members of a joint stock company are known as shareholders and the capital of the company is known as share capital.
The companies are governed by the Indian Companies Act, The Act defines a company as an artificial person created by law, having separate entity, with perpetual succession and a common seal.
Dr. Varadraj Bapat

29. Professional Management Limited liability Ease of raising capital
Advantages:
Unlimited life
Professional Management
Limited liability
Ease of raising capital
High possibility of wealth
maximization
Disadvantages:
Dividend Tax burden
High cost of set-up and report filing
More regulation
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30. Co-operative Society
Any ten persons can form a co-operative society. It functions under the Co-operative Societies Act, 1912 and other State Co-operative Societies Acts. A co-operative society is entirely different from all other forms of organisation discussed above in terms of its objective. The co-operatives are formed primarily to render services to its members.
Dr. Varadraj Bapat

31. Every member has a right to take part in the management of the society
Every member has a right to take part in the management of the society. Each member has one vote. Generally the members elect a committee known as the Executive Committee to look after the day to day administration and the said committee is responsible to the general body of members.
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32. The liability of the members is limited to the extent of capital contributed by them.
Registration of a society under the Co-operative Societies Act is a must. Once it is registered, it becomes a body corporate and enjoys certain privileges just like a joint stock company.
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33. Some of the privileges are: The society enjoys perpetual succession.
It has its own common seal.
It can own property in its name.
It can enter into contract with others.
It can sue others in court of law.
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34. (a) rendering service rather than earning profit,
Generally it also provides some service to the society. The main objectives of co-operative society are:
(a) rendering service rather than earning profit,
(b) mutual help instead of competition, and
(c) self help in place of dependence.
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35. Consumer co-operatives Producers co-operatives Marketing co-operatives
On the basis of objectives, various types of co-operatives are formed :
Consumer co-operatives
Producers co-operatives
Marketing co-operatives
Housing Co-operatives
Credit Co-operatives
Forming Co-operatives
Dr. Varadraj Bapat

36. • Democratic management • Assistance from the government
Advantages :
• Democratic management
• Assistance from the government
• Elimination of middlemen’s profit
• Fairly stable life
Disadvantages :
• Limited capital
• Lack of managerial talent
• Lack of motivation
• Lack of secrecy
• Dependence on the government
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37. Stakeholder
Stakeholder is a person who has a legitimate interest in an entity.
Investors
Management of enterprise
Creditors / Lenders
Government
Employees
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38. Consumers Local Community
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39. Investor
Investor study the Financial Statement of the company before deciding upon whether to buy or not a business or shares.
If they intend to buy, then the fair value of business or shares is also determined on the basis
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40. of the detailed analysis of the Financial Statement.
Prospective investors make use of financial statements to assess the viability of investing in a business.
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41. Management
Managers are the main users of the Financial Statement. They use the financial statement
To make the inter firm and inter period comparison
To study trends in sales, expenses etc.
To understand the relationship
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42. among various items of financial statement
To know movement of funds through Fund Flow Analysis
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43. Creditors/ Lenders
Creditor or Lender study the Financial statement of the borrower before advancing credit or loan. Thereafter also the creditors and lenders analysis the Financial statement to find out whether the business is solvent (in position to repay the loan).
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44. Government
The amounts payable by concern by way of taxes levied by Government such as Income Tax, Sales Tax, Excise etc. are examined on the basis of the data in Financial Statement.
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45. Employees
Employees also use Financial Statements in making collective bargaining agreements with the management, in the case of labour union or for individuals in discussing their compensation, promotion and rankings.
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