I Semester MBA – Accounting for Manager
Subject Code: 16MBA13
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Introduction to Accounting
Unit I
Introduction
- Wherever money is involved, accounting is required to it.
- Accounting is often called the language of business.
- The basic function of any language is to serve as a mean communication.
- Accounting also serves this function.
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Accounting helps answering questions like:
- Am I earning or losing money from my business?
- How much am I worth?
- Should I put more money in my business or sell it and another business?
- How much is owed to me, and how much do I owe?
- How can I change the way I operate to make more prof
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Accountancy: refers to systematic knowledge of accounting. I why to do, and how to do of various aspects of accounting.
Accounting: refers to the actual process of preparing and pres accounts. Putting the academic knowledge of accountancy into
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Book-keeping: is a part of accounting and is concerned w keeping which is often routine and clerical in nature. The di remembering vast business transactions gave rise to book keepi
Book-keeping is part of accounting and Accounting is a Accountancy.
- Basic objective of Book-keeping is to maintain systematic financial transactions.
- Basic objective of Accounting is to ascertain net results of and financial position and to communicate information to the parties.
Accounting
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Is the process of recording, classifying, summarising, analysi interpreting, the financial transactions and communicating the to the persons interested in such information.
Involves:
- Recording
- Classifying
- Summarising
- Analysing
- Interpreting
- Communicating
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The Accounting Information System
INPUT PROCESS OUTPUT
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Economic events measured in financial terms
- Recording
- Classifying
- Summarizing
- Analyzing
- Interpreting
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Communicating information to users (P&L A/c, B/S, CFS, et c)
Definition of Accounting
The American Institute of Certified Public Accountants (AICPA) defines accounting as “the art of recording, classifying and summarizing in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character, and interpreting the results thereof”.
Need for Accounting
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- Keeping systematic record.
- Ascertain the results of the operation.
- Ascertain the financial position of the business.
- Portray the liquidity position.
- To protect the business properties.
- To communicate the information to the users.
- To facilitate rational decision making.
- To satisfy the requirements of law.
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Types of Accounting
Financial Accounting
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- The accounting system is concerned only w financial state of affairs and financial result operations.
- It is the original form of accounting.
- It is mainly concerned with the preparat financial statements for the use of outside creditors, debenture holders, investors and fi institutions.
Cost Accounting
- In view of the limitations of financial accountin respect of information relating to the cost of indiv products, cost accounting was developed.
- It is that branch of accounting which is concerned wi accumulation and assignment of historical costs to ur product and department, primarily for the purpo valuation of stock and measurement of profits.
- Cost accounting seeks to ascertain the cost of produced and sold or the services rendered by business unit with a view to exercising control over costs to assess profitability and efficiency of the ente
- It involves an estimation of future costs to be inc based on the data provided by the financial accountin
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Management Accounting
- It is the presentation of accounting information in s way as to assist management in the creation of polic the day-to-day operation.
- It covers all arrangements and combination adjustments of the traditional information to provid Chief Executive with the information from which h control the business e.g. Information about funds, profits etc.
- Management accounting is not only confined to the of cost accounting but also covers other areas (su capital expenditure decisions, capital structure decis and dividend decisions) as well.
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USERS OF ACCOUNTING INFORMATION
Internal Users:
Management group:
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- Board of Directors
- Partners
- Managers
- Officers
External Users:
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Financing group:
- Investors (present and potential)
- Lenders
- Suppliers
Public Group:
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- Govt and Regulatory Authorities
- Employees and Trade Union
- Customers
- Rating Agencies
- Others:
- Security Analysts
- Academicians
- Researchers
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Generally Accepted Accounting Principles - Meaning
- Accounting principles may be defined as the set of conventions, rules, and procedures necessary to define universally accepted accounting practice at a particular time.
- These principles enable to a certain extent standardization in recording and reporting of information.
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Classification of Accounting Principles
Accounting Concepts:
- Postulates i.e. basic assumptions or conditions upon which the science of accounting is based.
Accounting Conventions:
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- Circumstances or traditions which guide the accountant while preparing the accounting statements.
ACCOUNTING PRINCIPLES
A/CING CONCEPTS A/CING CONVENTIONS
- Business entity concept
- Money measurement concept
- Going concern concept
- Cost concept
- Dual aspect concept
- Accounting period concept
- Matching concept
- Realization concept
- Objective evidence concept
- Accrual concept
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- Consistency
- Full disclosure
- Conservatism
- Materiality
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