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Course : Financial Accounting

Faculty : Dr. Ullas Rao Email ID: ullasrao@sdmimd.ac.in

Batch : 2014-16

Term : I

Credits : 3

Introduction

Financial Accounting forms the foundation for any managerial discipline. An essential

knowledge of this discipline is indispensable for any manager. Why should you learn

accounting? Well, remember that corporate organizations are founded on the basis of

profit maximization and distribution of the same to its owners, also called the

shareholders. Shareholders therefore have a legitimate interest in the well-being of an

organization. This ‘well-being’ for management purpose is always represented by

numbers like profitability, growth etc. Financial Accounting facilitates this process by

translating the activities of an organization into measurable terms by constructing

financial statements like Profit & Loss account or Income Statement, Balance Sheet, and

Cash Flow Statement. You will thus appreciate that by learning to read financial

statements, you are in a position to assess the ‘well-being’ or the ‘financial health’ of the

organization.

In this course, we need to understand one very important aspect. You are being exposed

to Financial Accounting to enable you to primarily take on the role of ‘Manager’

successfully. You are not here to become accountants! To become a successful

accountant, you have professional course like Chartered Accountancy. Therefore, the

coverage in this course will be restricted to things you ought to know in accounting so as

to make well informed managerial decisions.

It is also essential to understand that your ability to derive maximum benefit from this

course is primarily dependent upon the requisite practice that is put in by you. You will

be required to practice problems from the prescribed text and also appreciate the practical

application of concepts learnt by dwelling into the financial statements of corporate

organizations. Financial Statements along with virtually all other details (compressed in a

report called ‘Annual Report’) is available under the ‘Investor Relations’ for all the listed

companies. Please make it a habit to review an annual report throughout the course. An

Annual Report of a leading company like ‘Geometric Software’ will be consistently used

in the classroom to enable you to develop the ability of reading it. Please note that the

prescribed text forms the reading material. Articles and cases wherever required will be

distributed in class well in advance.

Finally, please understand that there is nothing to be afraid of accounting. Emphasizing

on understanding and appreciating the concepts will make the subject enjoyable. Rote

learninng has no place here.

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Let us together make efforts to derive maximum benefit from the course. All the very

best!

Dr. Ullas Rao

Email: ullasrao@sdmimd.ac.in

Course Objectives

a) To gain an understanding into the basic nature of financial accounting

b) To appreciate the importance of the three fundamental financial statements

c) To be aware of the basic concepts and conventions underlying the accounting

discipline

d) To develop the basic ability to read an annual report

e) To make informed decisions on the basis of financial statements

Course Module

The course on Financial Accounting is divided into five modules as shown below.

Module

No.

Content No. of

sessions

I Conceptual framework and constructing

financial statements

4

II Completing Financial Statements:

Incorporating Adjustments

6

III Company’s Financial Statements: Assets,

Liabilities, and Equity

4

IV Cash Flow Statement: Preparation & Analysis 3

V Annual Report discussion 3

A brief description to the above modules and the reading chapters from the prescribed

text book follows.

Module I: Conceptual framework and constructing financial statements

Why accounting is important; Users of accounting; Basic terminologies; The three

fundamental financial statements; Concepts and conventions underlying accounting;

Understanding the double entry system – Balance Sheet equation; Constructing basic

financial statements using Balance Sheet equation

Readings: Chapters 1 & 2 (R NARAYANSWAMY – Financial Accounting)

Suggested number of sessions – 4

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Module II: Completing Financial Statements: Incorporating Adjustments

Concepts of accruals, deferrals, provisions and depreciation; Recording adjustments;

Comprehensive illustrations on incorporating adjustments and constructing financial

statements; Accounting for Merchandizing organization

Readings: Chapters 3 & 4 (R NARAYANSWAMY – Financial Accounting)

Suggested number of sessions – 6

Module III: Company’s Financial Statements: Assets, Liabilities, and Equity

Understanding the current and non-current assets, Inventory analysis – basic methods of

inventory valuation; Non-current (Fixed assets) – concepts, methods, and accounting for

depreciation; Liabilities: current and non-current including debentures, Equity: share

capital, reserves & surplus, bonus, buyback, and dividends

Readings: Chapters 6, 7, 9 & 10 (R NARAYANSWAMY – Financial Accounting)

Suggested number of sessions – 4

Module IV: Cash Flow Analysis: Preparation and Interpretation

Understanding the Cash Flow statements – utility; Preparation of cash flow statements –

direct and indirect methods; Comprehensive illustrations and analysis

Readings: Chapter 12 (R NARAYANSWAMY – Financial Accounting)

Suggested number of sessions – 3

Module V: Annual Report discussion

Preliminary understanding on consolidated financial statements – goodwill and minority

interest; Chairman’s letter; Director’s report; Management discussion and analysis;

Auditor’s report; Notes to financial statements; Financial Statements – Income

statement, Balance sheet, and Cash flow statement; Significant schedules

Suggested number of sessions – 3

Readings: All Chapters (R NARAYANSWAMY – Financial Accounting)

Evaluation criteria

Parameter Weight

(%)

Quiz I 10

Mid-term 25

Quiz II 10

Presentation 15

End-term 30

Class participation 10

Total 100

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Pedagogy

Combination of lectures, discussions, and hands-on exercises will be employed for

driving all the concepts with a practical framework.

Compulsory Reading: Prescribed text book

Financial Accounting: A Managerial Perspective, Fifth Edition, R

NARAYANSWAMY, Prentice-Hall India (PHI)

References

a) Accounting Text and Cases, 12

th edition, Anthony, Hawkins, and Merchant, Mc-Graw Hill

b) Introduction to Financial Accounting, 9th edition, Horngren, Sundem, Elliott, and Philbrick,

Pearson

c) Financial Accounting for Management, 3rd

edition, Ramachandran and Ram Kumar Kakani

d) Financial Accounting for Management, Shankaranarayana and Ramanath, Cengage learning

e) Financial Accounting for Management – Text and Cases, Sharma and Vithal, Macmillan

f) Accounting for Management – Text and Cases, Bhattacharyya and Dearden, Vikas

Publishing House