1. Fundamentals of Managerial Accounting
Module 1
Fundamentals of Managerial Accounting

2. Dr. Varadraj Bapat Chartered Accountant Cost Accountant
Ph.D., IIT B, Powai, Mumbai
Contact Information:

3. LEARNING OBJECTIVES Need to Know About Accounting
Managerial Accounting
Financial Statements - Balance Sheet, Income Statement

4. Need to Know About Accounting
Need to Know About Accounting and Finance

5. How would you react to the above statement?
“Why do I need to learn about finance … I am very good in my own area of specialization”
How would you react to the above statement?

6. The job content Management & Finance Expertise As you move up ..
Functional
Expertise

7. About Managerial Accounting
What is Accounting?
Financial Accounting, Cost Accounting and Management Accounting
Financial Accounting and Financial Management
Finance and complexity of organisation

8. Accounting Language of Business
Performance is reported and evaluated in financial terms
Knowledge is useful for personal investment and tax planning as well

9. Accounting It is not necessary to become accountant
But its very useful if every one understands the accounting and financial concepts and terminology properly

10. Need to Learn Accounting
It assists in management
Will help in planning, organisation and control of business
Leads to increase in efficiency of business
Profit maximization

11. Streams of Accounting
Financial Accounting, Cost Accounting and Management Accounting
Let us understand the similarities and difference in these three streams of accounting

12. Financial Accounting Recording of Financial Transactions
Reporting of Financial Results
Preparation of Financial Statements
Targeted to External Users

13. Cost Accounting Recording of Costs Analysis of Costs
Preparation of Cost Statements
Targeted to Internal Users

14. Management Accounting
Recording of Financial & other data
Analysis of Financial and other information
Preparation of Statements for Managerial Decisions

15. Management Accounting
Targeted to Internal Users - All levels of Management
This is a broader concept encompasses Financial and Cost Accounting

16. Meaning of Management Accounting
Any form of accounting which enables a business to be conducted more efficiently can be regarded as Management Accounting. (Institute of Chartered Accountants of India- ICAI)
Management Accounting is the

17. application of professional knowledge and skill in the preparation of accounting information in such a way as to assist management in the formation of policies and in the planning and control of operations of undertaking. (International Capital Market Association, London- ICMA)

18. Financial Management
Financial Accounting, Managerial Accounting and Financial Management: Relationship
Financial Management deals with raising and utilization of funds
Raising of funds may include Cost of Capital, Capital Structure

19. Financial Management decisions, Capital Markets, IPOs and so on
Financial Management deals with raising and utilization of funds
Utilization of funds may include Capital Budgeting, Portfolio Management, Working Capital Management and so on

20. Managerial V/s Financial Accounting
Accounting System
(accumulates all
accounting data)
Managerial Accounting
Information for decision
making, and control
of an organization’s
operations.
Financial Accounting
Published financial
statements and other
financial reports.
Internal
Users
External
Users

21. Complexity of Organisation
Finance and complexity of organisation
As the organizations grow, they become complex
Ownership and Management are separated

22. Complexity of Organisation
Ownership is widespread
This increases the importance of Finance function

23. About this course Managerial Accounting Course
The course will cover Financial Accounting, Cost Accounting and Management Accounting
Financial Management is dealt in a different course

24. Financial Statements What are they?
Which are important Financial Statements?
What purposes do they serve?

25. Company or Organisation
PROVIDERS OF MONEY
RESOURCES FOR BUSINESS
These two are always equal

26. The Basic Business Model
Infrastructure
The Money Cycle
Billing
Money
Procurement
Consumption
Delivery
Collection
Value Addition Cycle
People

27. Infrastructure Revenue Costs Money Collection Procurement Billing
Consumption
Delivery
Collection
Revenue
Costs
To be profitable, our revenue should be more than our cost ! This would make the organisation stronger, healthy and long-lasting.

28. Borrowings from Banks / FIs
Balance Sheet
Profit & Loss Account
Liabilities
Capital
Borrowings from Banks / FIs
Current Liabilities
Assets
Fixed Assets
Current Assets or Working Capital
Human Assets
Outstanding
Infrastructure
People
Procurement & Inventory
Consumption & WIP
Delivery & Billing
Collection
Money
Revenue
Costs
Profit/ Loss
Balance Sheet shows the financial position of organisation, while Profit & loss Account shows the profitability of organisation.

29. Balance Sheet shows the cumulative position of resources (assets) and sources of funds (liabilities) at the end of the year. Profit & Loss Account shows ‘Revenue & Cost’ performance during a quarter/ year.

30. Borrowings (eg.from Banks)
Balance Sheet
Profit & Loss Account
Liabilities
Capital
Borrowings (eg.from Banks)
Current Liabilities
Assets
Fixed Assets
Current Assets or Working Capital
Human Assets
Outstanding
Infrastructure
People
Procurement & Inventory
Consumption & WIP
Delivery & Billing
Collection
Money
Revenue
Costs
Reserves
Profit
Profits build up reserves & enable an enterprise to acquire new assets without borrowing money. Exactly the way we can acquire assets for our use without borrowing.

31. Borrowings (eg.from Banks)
Balance Sheet
Profit & Loss Account
Assets
Fixed Assets
Current Assets or Working Capital
Human Assets
Liabilities
Capital
Borrowings (eg.from Banks)
Current Liabilities
Outstanding
Infrastructure
People
Procurement & Inventory
Consumption & WIP
Delivery & Billing
Collection
Money
Revenue
Costs
Reserves
Profit
Profits build up reserves & enable an enterprise to acquire new assets without borrowing money. Exactly the way we can acquire assets for our use without borrowing.

32. Balance sheet may be prepared at any time showing the position as on that date.
Profit and loss account may be prepared for any particular period.

33. Balance Sheet Owners Funds Non Current liabilities Current liabilities
Fixed Assets
Non Current Investments
Other non current assets
Current Assets

34. The Annual Report Usually Contains ...
financial statements which consist of
Balance sheet, Profit & Loss A/c
Cash Flow Statements
notes to the financial statements
disclosure of accounting policies

35. The Annual Report Usually Contains ...
Chairman’s Statement
Board of Directors & Committees
Directors Report
Directors Responsibility Statement
Auditors Report
Report on Corporate Governance

36. The Annual Report Usually Contains ...
Disclosure regarding Employee Stock options Schemes
List of employees receiving remuneration exceeding Rs. 60 Lakhs
Conservation of Energy Reports

37. The Annual Report Usually Contains ...
Consolidated Financial Statements
Subsidiaries Financial Statements
Management Discussion and Analysis
Annual General Meeting Notice