1. ACCOUNTING
FOR MANAGERS

2. OBJECTIVES To know the historical perspectives of Accountancy.
Definition & meaning of Accountancy
Accounting Concepts , conventions & accounting Systems.
Various Methods of Accounting.

3. HISTORICAL PERSPECTIVES
Accountancy is as old as money it self
In 1494 at Venice , Luca De Bargo Pacioli, an Italian Monk , published his book called “SUMMA” which contained a section on DOUBLE ENTRY Book – keeping

4. DEFINITION & MEANING
Accounting refers to the art of recording the business transaction in the analytical form .

5. The Definition given by AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS is as under:
“ Accounting is an art of regulating classifying & summarizing in a significant manner & in terms of Money transactions & events which are , in part at least , of Financial character & interpreting the results there of ”.

6. The process of creation of Financial Information
Analysis of
Business
Transaction
evidenced by
a SOURCE
DOCUMENT
Recording in
JOURNAL
BOOKS
Classification
In LEDGER
BOOKS
Summarization
In TRIAL
BALANCE
And then in
FINANCIAL
STATEMENTS

7. Difference between Book – keeping & Accountancy
People take book – keeping & accounting to mean one and same but they are different.
Book – keeping means recording the business transactions in the books of original entry & in ledgers.
Accountancy refers to compilation of accounts in such a way that one is in a position to know the state of affairs of business.

8. Underlying Assumptions, Principles & Conventions
GAAP
Underlying Assumptions, Principles & Conventions

9. Accounting communicates financial information to a variety of users
Accounting communicates financial information to a variety of users. so it is necessary to that financial statements of different enterprises are prepared on a uniform basis.
To have uniformity & consistency in preparation & presentation of financial statements accounting operates within the frame work of “GENERALLY ACCEPTED ACCOUNTING PRINCIPLES” - GAAP

10. The term GAAP is used to describe rules developed for preparation & presentation of Financial statements & are variously called concepts, conventions, principles modifying principles etc.
GAAP follows a conceptual frame work & adheres to The “ACCOUNTING STANDARDS” (AS) issued by the regulatory authority.

11. GAAP are the building blocks of accounting language, they include the following
BUSINESS ENTITY CONCEPT: The business is an entity that is separate & distinct from its owners.
A business organization has a separate legal status
This concept also ensures that accounting records reflect only the activities of the business.

12. STABLE MONEY MEASUREMENT:
Accounting records only those transactions which can be recorded in monetary terms or which can be converted into monetary terms.
Money provides a standard of exchange ability and & implicit assumptions that changes in the purchasing power are not of sufficient importance as to require adjustment.

13. GOING CONCERN
Going concern concept means that business activities will continue for a fairly long time until the business has entered into a process of liquidation.
This imply stability & continuity for a period sufficient to carry business plans.

14. ACCOUNTING PERIOD
This refers to the span of time at the end of which financial statements are prepared, to throw light on the results of operation of business during relevant period & the financial position at the end of the relevant period.
In India Accounting year starts on 1st of April & ends on 31st of March.

15. COST CONCEPT
As per this concept transactions are recorded at the amount involved while assets are always recorded at cost.
Assets are usually entered in the books of account at price of acquisition .This is also called as Historical cost.
The Historical cost of the assets are subject to depreciation & this is also known as Book – Value of an assets

16. REVENUE RECOGNITION
Revenue is considered as being realised or earned on the date when the sales process is complete and transfer of title or ownership takes place.

17. MATCHING(ACCRUAL) CONCEPT
Matching Concept requires recognition of revenue & expenses on a comparable basis. i.e. revenue & expenses are allocated to a particular accounting period on a consistent basis.
There are usually three possible basis
CASH METHOD
MERCANTILE METHOD
HYBRID METHOD

18. CASH METHOD: entries are recorded only when cash is received or paid.
MERCANTILE /ACCRUAL :Here income & expenditures are recorded at the time of their occurrence during the year
HYBRID METHOD: When a business entity follows both the above system then it is called hybrid method.

19. FULL ,FAIR & ADEQUATE
Accounting is the language of business and it aims to communicate financial information.
It is therefore necessary that significant material information is disclosed & honestly prepared & nothing is omitted
The disclosures of all major accounting policies and other information are to be provided in the form of footnotes, annexes.

20. DUAL ASPECT CONCEPT
Each transaction in accounts has Dual (two) aspects which are expressed as DEBIT & CREDIT.
This principle is the core of Double Entry
System & it is to be strictly observed.

21. OBJECTIVE EVIDENCE
This is a very important aspect attached with reliable information.
All the transactions recorded in the books of accounts should be supported by documentary evidence.

22. MATERIALITY
Materiality requires that accounting should focus on material facts & resources should not be wasted in recording and analyzing immaterial & insignificant facts.
Materiality places restriction on what should be recorded & what not.

23. CONSISTENCY
The need of consistency arises from the need to make comparisons of a business over a period of time (called Time series Analysis) and of various business belonging to one industry or many or many industries (call cross sectional Analysis)

24. CONSERVATISM (PRUDENCE)
Conservatism is the quality of judgment to be exercised in evaluating the uncertainties and risks present in a business entity to ensure that reasonable provisions are made for potential losses in the realisation of recorded assets and in settlement of actual & contingent liabilities.

25. TIMELINESS
Financial Reports must be timely to have any usefulness to the decision makers
Timeliness in Financial reporting requires estimation of depreciation , provision for bad & doubtful debts, provision for discount etc.

26. INDUSTRY PRACTICE
Sometimes practice prevailing in the industry is given precedence over generally accepted accounting practices .

27. SUBSTANCE OVER FORM
The accounting treatment and presentation in Financial statements of transaction and events should be governed by their substance and not merely by their legal form

28. To quote SHIV KHERA
“ ATTITUDES CAN MAKE OR BREAK YOU .SUCCESS IS VITAL BUT NOT WITH A FEELING OF FULFIIMENT,LIKE GOOD LOOKS ARE A WASTE WITHOUT GOODNESS.SO ALWAYS CHOOSE SUBSTANCE OVER FORM.NEVER THE REVERSE”

29. PRACTICAL BASE OF ACCOUNTING

30. Financial Accounting begins with the origin of business transactions and is followed by analysis of these transactions.
Then comes recording ,classification & summarization of business transactions culminating in the preparation of Financial Statements.

31. “Every business transaction has a two – fold effect and that it affects two accounts in opposite directions and if a complete record is to be made of each such transaction , it would be necessary to Debit one account & Credit another. It is this recording of the two fold effect of every transactions that has given rise to the Double Entry System of Accounting”.
- J.R.Batliboi

32. ACCOUNTING EQUATION APPRAOCH
The Accounting Equation is an essential notion in financial accounting.
The equation derives from Assets and Claims on Assets.
Equality of assets on one hand and Claims on asset the other hand is called basic accounting Equation

33. Claims on Assets Assets What a company owns
Liabilities:    What a company owes
Owners' Equity: Claims of owners against
the business

34. Assets = Liabilities + Owners' Equity
CLAIMS ON ASSETS
In other words, the equation illustrates that the
assets of the company must equal the claims against the
company. Those claims arise from both creditors
of the company and owners of the company.
In other words, the equation illustrates
that the assets of the company must equal the
claims against the company. Those claims arise
from both creditors of the company and owners
of the company.

36. DOUBLE ENTRY ACCOUNTING
Debit and Credit arises whenever a “transaction” occurs such as a change in assets or a claims on assets.
Debit
Credit
A debit is an increase in an asset item;
A decrease in a claim or expense item.
A credit is an increase in a claim item;
A decrease in an asset or revenue item

37. In other words the Rule is :
Debit all increases in Assets.
Credit all decreases in Assets.
Debit all decreases in liability.
Credit all Increase in Liability.

38. Revenue & Expenses
The Concept of Revenues & Expenses is a bit more difficult to understand
One reason is for the fact that Revenues are treated as CREDIT & Expenses are treated as DEBIT.
This concept seems to be contrary to the logical notion that revenue means more money & more money means more assets.
The term expenses logically means a drain on one's assets.

39. TRADITIONAL APPROACH Accounts Personal Impersonal REAL NOMINAL
REVENUE/
INCOME
TANGIBLE
NATURAL
ARTIFICIAL
GROUPS/
REPRESEN
TATIVE
INTANGIBLE
EXPENSES &
LOSS

40. PERSONAL ACCOUNTS
Accounts representing transactions with a person or a group of persons are called personal Accounts.
Natural Person(s) accounts are accounts of individual living beings and include accounts of individuals such as Ram Account, Neha account etc
Artificial or Legal Person(s) account include accounts of legal entities such as Reliance Ind, City Bank Accounts.

41. Group/Representative Account: Group personal accounts are account of natural and legal persons grouped together such as debtors account, Share capital etc. salaries outstanding account, commission outstanding account, represent the person to whom salary or commission is payable and not yet paid are called representative personal accounts.

42. Accounts which are not personal are termed as impersonal accounts and are divided into Real & Nominal Accounts
Real Accounts: This relates to properties of business enterprise which can be tangible or intangible.

43. Tangible accounts : These are the accounts of properties that are having physical existence like cash, building, stock of goods, furniture etc
Intangible Accounts: Includes accounts of things which cannot be physically felt or touched, but are capable of monetary measurement

44. NOMINAL ACCOUNTS :
Accounts relating to income ,revenue, gain expenses or losses are termed as Nominal Accounts.
Thus nominal includes salaries account, rent account, commission account, discount allowed.

45. RULES For Personal Accounts: DEBIT THE RECEIVER AND CREDIT THE GIVER
For recording changes in the personal, real & nominal account , the following RULES Followed:
For Personal Accounts:
DEBIT THE RECEIVER AND CREDIT THE GIVER

46. For Real Accounts:
DEBIT WHAT COME IN AND CREDIT WHAT GOES OUT

47. For Nominal Accounts
DEBIT ALL EXPENSES AND LOSSES & CREDIT ALL REVENUE INCOMES & GAINS

48. JOURNAL
“Journal is derived from the French word – ‘JOUR’ – which means daily record
A journal is a book of original entry in which transactions are recorded .
The process of recording the transactions
in a journal is called journalising.

49. FORM OF A JOURNAL
DATE
PARTICULARS
CREDIT LF
DEBIT