MCA Management Accounting Presentation

7/27/2019 MCA Management Accounting Presentation

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MANAGEMENT

ACCOUNTING


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AREAS COVERED

Financial Accounting

Management Accounting

Cash Flow Statement

Fund Flow Statement


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FINANCIAL ACCOUNTING


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FINANCIAL ACCOUNTING

Introduction to Accounting

Importance of Accounting

Accounting Concepts and Conventions

Double Entry SystemAccounting Cycle

Management Accounting


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INTRODUCTIONTO ACCOUNTING


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MEANINGOF ACCOUNTING

Accounting has been defined as a discipline

which involves recording, classifying and

summarizing transactions in monetary terms


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ACCOUNTING TRANSACTION

Accounting Transactions are those events, which

involve money & leads to a change in the

financial position of any organization


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EVENT

Event is an activity observed or recorded at a

given place or time. Anything happened around

us may be termed as event


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EVENTIN A FLOWCHART

EVENT

Does it

involve

money?

Yes(it is a

transaction)No

Forget ItIs it related to

business?No

Yes

It has to be

recorded in the

Books of Accounts


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IMPORTANCEOF ACCOUNTING


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ADVANTAGESOF ACCOUNTING

Providing information for decision making

Providing information to investors and creditors

Knowing financial position


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LIMITATIONSOF ACCOUNTING

Historical in nature

No impact of inflation

No impact of qualitative data


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ACCOUNTING CONCEPTSAND

CONVENTIONS


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CONCEPTSAND CONVENTIONS - MEANING

Generally accepted set of rules

Provide uniformity in accounting system


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IMPORTANT CONCEPTSAND CONVENTIONS

Business Entity Concept

Cost Concept

Money Measurement Concept

Going Concern ConceptAccrual Concept


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BUSINESS ENTITYCONCEPT

Separate entity of company and owner of the

company


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COST CONCEPT

Shows the Asset at cost price

Prevents from recording arbitrary figures


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MONEYMEASUREMENT CONCEPT

Considers those events, which can be measured

in terms of money


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GOING CONCERN CONCEPT

Will continue for an indefinitely long period of

time


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ACCRUAL CONCEPT

States that profit is the excess of revenue over

expenses

Example: Sale of a Machinery

Costing: Rs. 1,000 (Paid Rs. 600, Due Rs. 400)

Sale: Rs. 1,400 (Received Rs. 900, Due Rs. 500)

Profit: Rs. 400


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DOUBLE ENTRYSYSTEM


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DOUBLE ENTRYSYSTEM - MEANING

Every transaction has dual aspect

Sum of debit entries must be equal to sum of

credit entries


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ACCOUNTING EQUATION

Asset = Liability + Capital


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CLASSIFICATIONOF ACCOUNTS

Personal Account

Natural Person

Artificial Person

Real Account

Property & Possession

Nominal Account

Expense

Loss

Income

Gain


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GOLDEN RULES

Personal Account

Debit the receiver, Credit the giver

Real Account

Debit what comes in, Credit what goes out

Nominal Account

Debit expenses and losses, Credit incomes and gains


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MODERN APPROACH

Income (Source of earning of the business)

Debit when decreases, Credit when increases

Expense (Costs incurred while earning revenues)

Debit when increases, Credit when decreases

Asset (Goods & Property which the firm owns)

Debit when increases, Credit when decreases

Liability (Claims against asset)

Debit when decreases, Credit when increases


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CLASSIFICATION OF INCOME

Direct Income

Indirect Income


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CLASSIFICATION OF EXPENSE

Direct Expense

Indirect Expense


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CLASSIFICATIONOF ASSETS

Fixed Asset: Permanent nature for generating

revenue over long period of time

Tangible Asset:

Physical Existence, Seen, Touched

Intangible Asset No Physical Existence, Not Seen & Touched

Current Asset

Expected to be converted into cash within a relatively

short period of time


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CLASSIFICATIONOF ASSETS

Wasting Asset

Limited useful life

Diminish in value due to extraction or removal of

natural products such as minerals, oil, gas etc.

Fictitious Asset

Really not asset

Examples: Preliminary Expenses, Debit balance of

Profit & Loss Account

Contingent Asset Depends upon certain event which may or may not

happen

Example: Claim of income tax refund


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CLASSIFICATIONOF LIABILITIES

Proprietors Equity

Amounts deposited by proprietors

Long term Liabilities

Not to be met within short period of time

Current Liabilities

To be met within short period of time


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CLASSIFICATIONOF LIABILITIES

Contingent Liability

Depends upon certain event which may or may not

happen

Example: Parts may be changed within guarantee

period


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ACCOUNTING CYCLE


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ACCOUNTING CYCLE - MEANING

Sequence of accounting procedures

Begins with identification of business

transactions

Ends with preparation of final accounts


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ACCOUNTING CYCLE - STEPS

Identification of Business Transactions

Recorded in the books of Original Entry

Posted to Ledgers

Preparation of Trial Balance Preparation of Final Accounts


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BUSINESS TRANSACTION

Differentiate between Event and Transaction

Whether related to business or not


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BOOKS OF ORIGINAL ENTRY

Called as Journal

Types

Cash Book

Purchase Day Book

Sales Day Book

Purchase Return Day Book

Sales Return Day Book

Journal Proper


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JOURNAL - FORMAT

In the Books of..

Journal

Dr. Cr.

Date ParticularsLedger Folio (LF)

No.Amount (Rs.) Amount (Rs.)


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LEDGER - FORMAT

In the Books of..

.. Account

Dr. Cr.

Date ParticularsL.F.

No.

Amount

(Rs.)Date Particulars

L.F.

No.

Amount

(Rs.)


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TRIAL BALANCE

Purpose

A statement, verifies whether all the debit entries

should be equal to all the credit entries

Proves arithmetical accuracy

Methods Totals method

Post the debit side total in debit column and the credit

side total in credit column

Balances method Show only the balances of each account


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TRIAL BALANCE

Errors

Errors of Omission

Transaction is either wholly or partly unrecorded

Errors of Commission

Transaction is incorrectly recorded

Errors of Principle

Recorded in a fundamentally incorrect manner

Compensating Error

One error is counterbalanced by another error


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TRIAL BALANCE - FORMAT

Trial Balance as at..

Dr. Cr.

Account L.F. Amount (Rs.) Amount (Rs.)

Total


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TARDING ACCOUNT

Showing the Gross Profit

Considers Direct Income and Direct Expense


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TRADING ACCOUNT - FORMAT

Trading Account of

for the year ended..

Dr. Cr.

Date ParticularsAmount


Amount

(Rs.)

To Opening Stock By Sales

To Purchase Less: Sales Return

Less: Purchase Return By Closing Stock

To Wages By all other direct incomes

To Carriage Inward By Gross Loss

To all other direct expenses

(Transferred to P/L

Account)

To Gross Profit

(Transferred to P/L

Account)


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PROFITAND LOSS ACCOUNT

Showing the Net Profit

Considers Indirect Income and Indirect Expense


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PROFIT & LOSS ACCOUNT - FORMAT

Profit & Loss Account of

for the year ended..

Dr. Cr.

Date ParticularsAmount


Amount

(Rs.)

To Trading Account By Trading Account

(Gross Loss) (Gross Profit)

To all indirect expenses By all indirect incomes

To Net Profit By Net Loss

(Transferred to Capital

Account)

(Transferred to Capital

Account)


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BALANCE SHEET

Ultimate objective

Showing the financial position of the business

A statement of assets and liabilities


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BALANCE SHEET - FORMAT

Balance Sheet of

as at..

Liabilities Amount (Rs.) Assets Amount (Rs.)


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MANAGEMENT ACCOUNTING


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MANAGEMENT ACCOUNTING -

MEANING

Provides information to the management in a

logical manner for better planning and decision

making


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MANAGEMENT ACCOUNTING -

FUNCTIONS

Providing Data

Modifying Data

Analysis and Interpretation

Planning and Policy formulation Decision Making

Motivating Employees

Tax Administration


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DIFFERENCE BETWEEN FINANCIAL

& MNAGEMENT ACCOUNTING

Compulsory

To record transactions to

know the financial position

Related with historical

data Takes only actual figures

Concerned with the results

of the entire business

Useful for internal and

external uses

Not compulsory

To formulate different

policies and plans

Deals with projected future

data Takes approximate figures

also

Deals with separate cost

centres or departments

Only for internal use


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CASH FLOW STATEMENT


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CASH FLOW STATEMENT -

MEANING

Showing the inflow and outflow of cash during a

particular period


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CASH FLOW STATEMENT -

OBJECTIVE

Show the causes of changes in cash balance

between the balance sheet dates

Show the factors contributing to the reduction of

cash balance


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CASH FLOW STATEMENT - USES

Explains the reason for low cash balance

Shows the major sources and uses of cash

Helps in short term financial decision

Helps the management in planning therepayment of loan, credit arrangement etc.


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CASH FLOW STATEMENT - STEPS

1. Preparation of account for non-current items

2. Preparation of Adjusted Profit & Loss Account

3. Comparison of current items

4.

Preparation of Cash Flow Statement


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CASH FLOW STATEMENT - FORMAT

Cash Flow Statement

Inflow of CashAmount

(Rs.)Outflow of Cash

Amount

(Rs.)

Opening Cash xxx Payment of Tax xxx

Cash from Operation xxx Payment of Dividend xxx

Issue of Share & Debenture xxx Redemption of Share & Debenture xxx

Sales of Assets xxx Repayment of Loan xxx

Decrease in Current Assets xxx Purchase of Assets xxx

Increase in Current Liabilities xxx Increase in Current Assets xxx

Decrease in Current Liabilities xxx

Closing Cash xxx

xxx xxx


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FUND FLOW STATEMENT


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FUND FLOW STATEMENT -

MEANING

Showing the inflow and outflow of fund during a

particular period


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FUND FLOW STATEMENT -

OBJECTIVE

Helps to understand the changes in assets

Shows the financial strengths and weakness of

the company

Highlights the changes in the financial condition

beteen to balance sheet dates

Helps to plan a dividend policy

Helps in decision making


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FUND FLOW STATEMENT - STEPS

1. Preparation of schedule of changes in Working

Capital

2. Preparation of account for non-current items

3. Preparation of Adjusted Profit & Loss Account

4. Preparation of Fund Flow Statement


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FUND FLOW STATEMENT - FORMAT

Fund Flow Statement

Inflow of CashAmount

(Rs.)Outflow of Cash

Amount

(Rs.)

Fund from Operation xxx Payment of Tax xxx

Issue of Share & Debenture xxx Payment of Dividend xxx

Sales of Assets xxx Redemption of Share & Debenture xxx

Decrease in Working Capital xxx Repayment of Loan xxx

Purchase of Assets xxx

Increase in Working Capital xxx

xxx xxx


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DIFFERENCE BETWEEN CASH &

FUND FLOW STATEMENT

Concerned with changes incash position between twobalance sheet dates

Cash from operation iscalculated only by actualreceipt of income & payment

of expense Inflow of cash indicates

definitely inflow of fund

Increase in current liabilitiesor decrease in current assetswill increase in cash balance

Decrease in current liabilitiesor increase in current assetswill decrease in cash balance

More useful as a tool offinancial analysis

Concerned with changes inworking capital positionbetween two balance sheetdates

Fund from operation iscalculated by adjusted profit &

loss account

Sound fund position does notnecessarily mean sound cashposition

Increase in current liabilities ordecrease in current assets willdecrease in working capital

Decrease in current liabilitiesor increase in current assetswill increase in working capital

Not more useful as a tool offinancial analysis


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THANK YOU

Documents

MCA Management Accounting Presentation