Fundamentals of Managerial Accounting

Managerial Accounting - Dr. Varadraj Bapat

Fundamentals of Managerial Accounting

Module 1


Dr. Varadraj Bapat

Chartered Accountant Cost Accountant Ph.D., IIT B, Powai, Mumbai

Contact Information:

[email protected]


LEARNING OBJECTIVES

Need to Know About Accounting Managerial Accounting Financial Statements - Balance Sheet,

Income Statement


Need to Know About Accounting

Need to Know About Accounting and Finance


“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?


The job content

Functional

Expertise

Management & Finance Expertise

As you move up ..


About Managerial Accounting

What is Accounting? Financial Accounting, Cost Accounting and

Management Accounting Financial Accounting and Financial

Management Finance and complexity of organisation


Accounting

Language of Business Performance is reported and

evaluated in financial terms Knowledge is useful for

personal investment and tax planning as well


It is not necessary to become accountant

But its very useful if every one understands the accounting and financial concepts and terminology properly

Accounting


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


Streams of Accounting

Financial Accounting, Cost Accounting and Management Accounting

Let us understand the similarities and difference in these three streams of accounting


Financial Accounting

Recording of Financial Transactions

Reporting of Financial Results Preparation of Financial

Statements Targeted to External Users


Cost Accounting

Recording of Costs Analysis of Costs Preparation of Cost

Statements Targeted to Internal Users


Management Accounting

Recording of Financial & other data

Analysis of Financial and other information

Preparation of Statements for Managerial Decisions


Management Accounting

Targeted to Internal Users - All levels of Management

This is a broader concept encompasses Financial and Cost Accounting


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


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)


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


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


Managerial V/s Financial Accounting

Accounting System(accumulates all accounting data)

Accounting System(accumulates all accounting data)

Managerial AccountingInformation for decision

making, and controlof an organization’s

operations.

Managerial AccountingInformation for decision

making, and controlof an organization’s

operations.

InternalUsers

ExternalUsers

Financial AccountingPublished financial

statements and otherfinancial reports.

Financial AccountingPublished financial

statements and otherfinancial reports.


Complexity of Organisation

Finance and complexity of organisation

As the organizations grow, they become complex

Ownership and Management are separated


Complexity of Organisation

Ownership is widespread This increases the importance of

Finance function


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


Financial Statements

What are they? Which are important Financial

Statements? What purposes do they serve?


Company or Organisation

These two are always

equal

RESOURCES FOR

BUSINESS

PROVIDERS OF MONEY


The Basic Business Model

Billing

Money

Procurement

ConsumptionDelivery

Collection

The Money Cycle

Value Addition

Cycle

Infrastructure

People


To be profitable, our revenue should be more than our cost ! This would make the organisation stronger, healthy and long-lasting.

Infrastructure

Billing

Money

Procurement

ConsumptionDelivery

Collection CostsRevenue


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 & WIPDelivery &

Billing

CollectionMoney

RevenueCosts

Profit/ Loss

Balance Sheet shows the financial position of organisation, while Profit & loss Account shows the profitability of organisation.


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.



Liabilities

Capital

Borrowings (eg.from Banks)

Current Liabilities

Assets

Fixed Assets


Human Assets

Outstanding

Infrastructure

People



Billing

CollectionMoney

RevenueCosts

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.

Reserves



Liabilities

Capital

Borrowings (eg.from Banks)

Current Liabilities

Assets

Fixed Assets


Human Assets

Outstanding

Infrastructure

People



Billing

CollectionMoney

RevenueCosts

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.

Reserves


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.


Balance Sheet

Owners Funds Non Current

liabilities Current

liabilities

Fixed Assets Non Current

Investments Other non

current assets Current

Assets


The Annual ReportUsually Contains ...

– financial statements which consist of

• Balance sheet, Profit & Loss A/c• Cash Flow Statements• notes to the financial statements• disclosure of accounting policies



- Chairman’s Statement- Board of Directors & Committees- Directors Report- Directors Responsibility Statement- Auditors Report- Report on Corporate Governance



- Disclosure regarding Employee Stock options Schemes

- List of employees receiving remuneration exceeding Rs. 60 Lakhs

- Conservation of Energy Reports



- Consolidated Financial Statements- Subsidiaries Financial Statements- Management Discussion and

Analysis- Annual General Meeting Notice

Documents

Fundamentals of Managerial Accounting