1. FINANCIAL ACCOUNTING

2. To measure is to manage

3. Financial Accounting
Management Accounting
Financial Management
Cost Accounting

4. Financial Accounting and its role in business decisions
Capital maintenance
Productive capital
Profitable operations
Accounting as a measurement and valuation system

5. A manager may be required to take the following decisions :
Buy, sell , hold an investment
Purchase or hire an asset
Determine the performance of management
Impact of taxation policies
Determine dividend to be paid
Regulate the activities of the business
Decide expansion, takeover, amalgamation

6. Users of Accounting information
investors ( Institutional and retail )
lenders
financial analysts
managers
employees
customers
suppliers
government and regulatory bodies
public

7. Financial Statements
Balance Sheet
Profit and Loss Account
Notes to Account
Cash Flow Statement

8. Accounting Principles – Concepts and conventions
GAAP

9. Accounting framework
Components of Financial Statements
Objectives of Financial statements
Users and their information needs
Underlying assumptions
Qualitative characteristics of financial statements

10. Concepts and Conventions
Business entity
Going concern
Money Measurement
Periodicity
Consistency
Accrual
Conservatism
Materiality
Matching

11. Forms of business organization
Proprietary concerns
Partnership firms
Companies – pvt /public/govt/listed/unlisted
Statutory corporation

12. Regulatory bodies :Though Accounting is not governed by any Act , there are bodies which influence and regulate accounting and financial reporting.
Government ( Company Law Board ). Companies Act regulates the form and contents of financial reports , books of accounts to be maintained, audit etc.
ICAI : ICAI has issued various standards known as Accounting Standards which deals with accounting and reporting practices on various matters. It gives professional opinion on various accounting matters which has an influence on accounting practices.
SEBI : SEBI regulates companies whose stocks are listed in the stock exchanges. Its main function is to protect the interests of investors and promote a healthy securities market. SEBI has also involved itself in ensuring that financial statements give a true and fair view of state of affairs of the company. The requirements as to preparation of cash flow statement , submission of quarterly results etc. is a step towards that direction.
CBDT : Income Tax authorities also influence the preparation of financial statements through various provisions for computing tax on income. Such provisions ensure that accounting practices are not misused to avoid or evade taxes.
RBI : RBI has also from time to time prescribed accounting and reporting requirements for financial institutions
International Accounting Standards Board : With a view to bring about uniformity in accounting practices and reporting IASB has developed International Financial Reporting Standards. With globalization and listing of shares in foreign markets , it is necessary that a uniform set of Accounting practices be followed across .

13. Importance of Ethics in Accounting

14. Accounting Standards
International Financial Reporting Standards (IFRS)

15. Accounting terms : Assets Liabilities Capital Creditors Debtors
Reserves
Incomes
Sales
Other incomes
Profit on sale of assets
Expenses
Cost of goods sold
Direct expenses
Administrative expenses
Financial expenses
Selling expenses
Profit – Gross /Net
Dividend
Taxes
Provisions
Bad debts

16. A company purchases shares of a limited co. as investment
A company purchases shares of a limited co. as investment. The company has vanished after the IPO. Can the shares be called as asset ?
A case is pending before the consumer court for damages of Rs.1.00 lac as at the end of the accounting year. Is there a liability ?
A company is engaged in giving consultancy services to its clients. As at the end of the year , the company has completed project worth Rs.2.5 lac? How should it treat that amount
ABC Ltd. purchases goods worth 5.00 lacs on credit . Is there an expense involved ?
ABC Ltd. pays Rs.2.00 to a supplier for materials purchased last year. Is there an expense ?

17. Accounting equation
Accounting equation shows the relationship between assets and liabilities of a company. It is the relationship between what a company owns and what it owes to others. It is given as :
Assets = Owners capital +Liabilities
The effect of every business transaction can be analysed from the above equation. Any change in one component will have a balancing change in another.
If Assets increases : Another asset will decrease / Liability will increase
If Assets decreases : Another asset will increase / liability will decrease
If liability increases : Asset will increase /Another liability will decrease
If liability decreases Asset will decrease / Another liability will increase

18. A Ltd. issues equity shares of Rs.50.00 lacs
A Ltd. purchases Building for Rs lacs
A ltd. purchases Plant & machinery for Rs.15 lacs
A Ltd. takes a loan of Rs.5.00 lacs from Bank
A Ltd.purchases raw materials for Rs.5.00 lacs
A Ltd.pays salaries Rs.1.00 lac
A ltd. sells goods for Rs lacs in cash
A ltd. sells goods for Rs lacs on credit
A Ltd. purchases equipments for Rs.5.00 lacs on credit
A Ltd. repays bank loan Rs.2.00 lacs
Arrive at the final results of the above transactions on the accounting equation.

19. Jai Services had the following balances as at the end of Mar 2010
Cash – Rs.29000, Debtors – Rs.40000, Office Supplies – Rs.12000, Office equipment –Rs.15000, Creditors – Rs.18000, Capital –Rs.78000
The following transactions took place:
Collected payments from customers Rs.18000
Billed clients for professional services Rs
Purchased supplies on credit Rs. 4000
Purchased computer Rs.25000
Received commission Rs.3000
Paid office rent :Rs.4000
Withdrew cash for personal use Rs.1500
Paid staff salary Rs.9000
Paid creditors Rs.6000
Took a bank loan Rs
Help Jai to find his business results.

20. Alpha , Beta and Gamma – three friends decided to start a business of dealing in spare parts. Each one of them contributed Rs for the business and started ABC & Co. In the month of April 2010, they took a place on Rs p.m . They purchased some furniture for Rs , Office equipment for Rs and some tools for Rs They also hired two assistants on a monthly salary of Rs.7000 each.
In May 2010, they entered into a purchase contract with Delta Ltd. for spares worth Rs Half of the amount will be paid in cash and remaining will be paid after a period of 30 days. They immediately sent quotations ( margin 20% ) for getting orders from customers . Kapoor & Co. placed an order with them for spares worth Rs on 30 days credit terms.
During the period the following expenses were incurred : Printing and stationery :Rs.1200 , Travelling Rs.600 , Entertainment expenses : Rs.800.
ABC & Co. made the following sales and purchases during the quarter Apr- Jun on the same terms
June : Purchases Rs
Sales Rs
In the month of June they also took a loan of Rs from Money Bank and purchased a computer for Rs
At the end of the quarter, they wanted to assess the results of their business . Help them .

21. Venus Music corner provides is in the business of providing audio CDs to customers. During March the accounts were maintained by a professional accountant On March 31, the records showed a balance of Rs in his capital account. Since he could not afford an accountant , he starts maintaining the accounting records himself. He prepared the statements for the month of April 2010 and was shocked to find that his business had not fared well. He wants you to review his statements.
Profit & Loss A/c for the month ended April’10
Expenses Revenues
Salaries Investments by owner
Electricity Unearned service revenue
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Rent
Drawings Loss for the month
Balance Sheet as on April 30 , 2010
Liabilities Assets
Creditors Recording equipment
Service revenue Supplies
earned Debtors
Capital Cash