FINANCIAL ACCOUNTING

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FINANCIAL ACCOUNTING
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• To measure is to manage

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• Financial Accounting
• Management Accounting
• Financial Management
• Cost Accounting

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• Financial Accounting and its role in business
  decisions
• Capital maintenance
• Productive capital
• Profitable operations
• Accounting as a measurement and valuation system

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• A manager may be required to take the
  following decisions
• Buy, sell , hold an investment
• Purchase or hire an asset
• Determine the performance of management
• Impact of taxation policies
• Determine dividend to be paid
• Regulate the activities of the business
• Decide expansion, takeover, amalgamation

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• Users of Accounting information
• investors ( Institutional and retail )
• lenders
• financial analysts
• managers
• employees
• customers
• suppliers
• government and regulatory bodies
• public

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• Financial Statements
• Balance Sheet
• Profit and Loss Account
• Notes to Account
• Cash Flow Statement

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• Accounting Principles Concepts and conventions
• GAAP

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• Accounting framework
• Components of Financial Statements
• Objectives of Financial statements
• Users and their information needs
• Underlying assumptions
• Qualitative characteristics of financial
  statements

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Concepts and Conventions

• Business entity
• Going concern
• Money Measurement
• Periodicity
• Consistency
• Accrual
• Conservatism
• Materiality
• Matching

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• Forms of business organization
• Proprietary concerns
• Partnership firms
• Companies pvt /public/govt/listed/unlisted
• Statutory corporation

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• Regulatory bodies Though Accounting is not
  governed by any Act , there are bodies which
  influence and regulate accounting and financial
  reporting.
• Government ( Company Law Board ). Companies Act
  regulates the form and contents of financial
  reports , books of accounts to be maintained,
  audit etc.
• ICAI ICAI has issued various standards known as
  Accounting Standards which deals with accounting
  and reporting practices on various matters. It
  gives professional opinion on various accounting
  matters which has an influence on accounting
  practices.
• SEBI SEBI regulates companies whose stocks are
  listed in the stock exchanges. Its main function
  is to protect the interests of investors and
  promote a healthy securities market. SEBI has
  also involved itself in ensuring that financial
  statements give a true and fair view of state of
  affairs of the company. The requirements as to
  preparation of cash flow statement , submission
  of quarterly results etc. is a step towards that
  direction.
• CBDT Income Tax authorities also influence the
  preparation of financial statements through
  various provisions for computing tax on income.
  Such provisions ensure that accounting practices
  are not misused to avoid or evade taxes.
• RBI RBI has also from time to time prescribed
  accounting and reporting requirements for
  financial institutions
• International Accounting Standards Board With a
  view to bring about uniformity in accounting
  practices and reporting IASB has developed
  International Financial Reporting Standards. With
  globalization and listing of shares in foreign
  markets , it is necessary that a uniform set of
  Accounting practices be followed across .

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• Importance of Ethics in Accounting

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• Accounting Standards
• International Financial Reporting Standards
  (IFRS)

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• Accounting terms
• Assets
• Liabilities
• Capital
• Creditors
• Debtors
• Reserves
• Incomes
• Sales
• Other incomes
• Profit on sale of assets
• Expenses
• Cost of goods sold
• Direct expenses
• Administrative expenses
• Financial expenses
• Selling expenses
• Profit Gross /Net

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• A company purchases shares of a limited co. as
  investment. The company has vanished after the
  IPO. Can the shares be called as asset ?
• A case is pending before the consumer court for
  damages of Rs.1.00 lac as at the end of the
  accounting year. Is there a liability ?
• A company is engaged in giving consultancy
  services to its clients. As at the end of the
  year , the company has completed project worth
  Rs.2.5 lac? How should it treat that amount
• ABC Ltd. purchases goods worth 5.00 lacs on
  credit . Is there an expense involved ?
• ABC Ltd. pays Rs.2.00 to a supplier for materials
  purchased last year. Is there an expense ?

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• Accounting equation
• Accounting equation shows the relationship
  between assets and liabilities of a company. It
  is the relationship between what a company owns
  and what it owes to others. It is given as
• Assets Owners capital Liabilities
• The effect of every business transaction can be
  analysed from the above equation. Any change in
  one component will have a balancing change in
  another.
• If Assets increases Another asset will
  decrease /
  
  Liability will increase
• If Assets decreases Another asset will
  increase / liability will decrease
• If liability increases Asset will increase
  /Another liability will decrease
• If liability decreases Asset will decrease
  / Another liability will increase

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• A Ltd. issues equity shares of Rs.50.00 lacs
• A Ltd. purchases Building for Rs.20.00 lacs
• A ltd. purchases Plant machinery for Rs.15 lacs
• A Ltd. takes a loan of Rs.5.00 lacs from Bank
• A Ltd.purchases raw materials for Rs.5.00 lacs
• A Ltd.pays salaries Rs.1.00 lac
• A ltd. sells goods for Rs. 2.00 lacs in cash
• A ltd. sells goods for Rs. 10.00 lacs on credit
• A Ltd. purchases equipments for Rs.5.00 lacs on
  credit
• A Ltd. repays bank loan Rs.2.00 lacs
• Arrive at the final results of the above
  transactions on the accounting equation.

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• Jai Services had the following balances as at the
  end of Mar 2010
• Cash Rs.29000, Debtors Rs.40000, Office
  Supplies Rs.12000, Office equipment Rs.15000,
  Creditors Rs.18000, Capital Rs.78000
• The following transactions took place
• Collected payments from customers Rs.18000
• Billed clients for professional services Rs.
  35000
• Purchased supplies on credit Rs. 4000
• Purchased computer Rs.25000
• Received commission Rs.3000
• Paid office rent Rs.4000
• Withdrew cash for personal use Rs.1500
• Paid staff salary Rs.9000
• Paid creditors Rs.6000
• Took a bank loan Rs.32000.
• Help Jai to find his business results.

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• Alpha , Beta and Gamma three friends decided
  to start a business of dealing in spare parts.
  Each one of them contributed Rs. 50000 for the
  business and started ABC Co. In the month of
  April 2010, they took a place on rent _at_ Rs. 5000
  p.m . They purchased some furniture for Rs. 50000
  , Office equipment for Rs.50000 and some tools
  for Rs10000. They also hired two assistants on a
  monthly salary of Rs.7000 each.
• In May 2010, they entered into a purchase
  contract with Delta Ltd. for spares worth
  Rs.300000. Half of the amount will be paid in
  cash and remaining will be paid after a period of
  30 days. They immediately sent quotations (
  margin 20 ) for getting orders from customers .
  Kapoor Co. placed an order with them for spares
  worth Rs.240000 on 30 days credit terms.
• During the period the following expenses were
  incurred Printing and stationery Rs.1200 ,
  Travelling Rs.600 , Entertainment expenses
  Rs.800.
• ABC Co. made the following sales and purchases
  during the quarter Apr- Jun on the same terms
• June Purchases Rs. 300000
• Sales Rs. 360000
• In the month of June they also took a loan of
  Rs.50000 from Money Bank and purchased a computer
  for Rs.25000.
• At the end of the quarter, they wanted to assess
  the results of their business . Help them .

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• Venus Music corner provides is in the business
  of providing audio CDs to customers. During March
  the accounts were maintained by a professional
  accountant On March 31, the records showed a
  balance of Rs.21140 in his capital account. Since
  he could not afford an accountant , he starts
  maintaining the accounting records himself. He
  prepared the statements for the month of April
  2010 and was shocked to find that his business
  had not fared well. He wants you to review his
  statements.
• Profit Loss A/c for the month
  ended April10
• Expenses Revenues
• Salaries 5600
  Investments by owner 3000
• Electricity 410 Unearned
  service revenue 600
• Advertisement 130
• Rent 300
• Drawings 4000 Loss for the
  month 6840
• 10440
  10440
• Balance Sheet
  as on April 30 , 2010
• Liabilities
  Assets
• Creditors 2510 Recording
  equipment 25500
• Service revenue Supplies
  2190
• earned 12660 Debtors
  1210
• Capital 14300 Cash
  570
• 29470
  
  29470