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UNIT I

Book Keeping: - Book keeping involves chronological recording of financial


transactions in a set of books in a systematic manner. The objective of Book keeping
is to prepare original books of accounts. It is restricted to journal, subsidiary books &
ledger accounts only. In Book keeping it is not possible to know the final result of the
business every year.
Accounting: - Accounting begins where Book keeping ends. The main objective of
accounting is to record, analyse and interpret the business transactions. Accounting
gives the net results of the business every year. Accountancy means the compilation
of accounts in such a way that one is in a position to know the state of affairs of the
business.
Definition: - Accounting is a means of measuring & reporting the results of
economic activities Smith & Ashburne.

Objectives: 1. To maintain records of the business.


2. To calculate profit or loss.
3. To ascertain financial position.
4. To communicate financial information.
Advantages: 1. Provides financial information about the business.
2. Provides assistance to management.
3. Helps in comparison of financial results.
4. Helps in decision making.
5. Accounting information can be used as evidence in legal matters.

Disadvantages: 1. Accounting ignores non monetary transactions.


2. Accounting information is sometimes based on estimates which may be unrealistic.
3. Window dressing may lead to faulty results.
4. Accounting information can be manipulated and thus can no be considered as the
true test of performance.
Differences between Book Keeping & Accountancy
Book Keeping
Accountancy
1. The objective is to prepare original 1. The objective is to record, analyse and
books of accounts.
interpret the business transactions.
2. Restricted to level of work, clerical 2. Accountancy is concerned with all
work is mainly involved in it.
levels of management.
3. Accounting concepts will be followed 3. Various firms follow various methods of
by all without any difference.
reporting & interpretation in accounting.
4. It is not possible to know the final 4. Accounting gives the net results of the
result of business every year.
business every year.
Generally Accepted Accounting Principles: - Accounting has been evolved over a
period of several centuries ago. During this period certain rules and conventions have
been adopted. They serve as guide lines in identifying the events and transactions.
They help in measuring, recording and summarising the business transactions.
These guidelines are called as Generally Accepted Accounting Principles (GAAP).
These principles are divided in to two categories. They are,
I. Concepts: 1. Business Entity Concept: - This concept implies that the business is distinct from
the person who owns it. If the owner takes any cash or goods from the business, it is
treated as personal account i.e. drawings accounts and the cash / goods are
credited. Otherwise the personal and business transactions will get mixed up and the
accounting statements become confused. This concept also helps to develop the
theory of,
Assets = Liabilities + capital
2. Dual Aspect Concept: - This concept throws light on the point that each cash
transaction has two fold effects.
a. The receiver of benefit.
b. The giver of benefit.
Receiving aspect is turned as debit and the giving aspect is credit.
3. Money Measurement Concept: - While recording the business transactions we
do not record them in terms of kilograms, meters, litres, quintals etc. We record them
in common denomination so as to see that they become homogeneous and
meaningful. Hence recording is done in terms of currency of the country.

4. Going Concern Concept: - It is assumed that business will continue for a long
time. With this assumption fixed assets are recorded in the books of their original
cost. Keeping this assumption in view prepaid expenses or not treated as expenses
of the year in which they are incurred.
5. Objective Evidence Concept: - According to this concept all accounting
transactions should be evidenced and supported by objective documents. The
documents include invoices receipts, cash memos etc.

Accounting records are

unbiased, they are not affected by personal judgements in recording these events.
6. Cost Concept: - Usually all the transactions will be recorded at cost in the books.
However at the end of the every year the accountant shows the reduced value of the
assets after providing for depreciation.
7. Accounting Period Concept: - Accounting period is the period following the
business concerns to maintaining accounts to known profits or loss usually one year,
it will be the accounting period starting from the 1 st April and ending at 31st March
every year.
8. Accrual Concept: - The accrual system use a method where by revenues and
expenses are identified with specific period of time like a month, quarter year, half
year or year. It implies recording of revenues and expenses of the particular
accounting period. The excess of revenues over expenses is income and the excess
of expenses over revenues is loss.
9. Matching Cost Concept: - According to these principles the expenses incurred in
an accounting period should be matched with the revenues recognised in that period.
10. Historical Record Concept: - The accountant shows only the transactions which
have actually taken place and not those which may take place in future. All
transactions in accounting are to be recorded in the books of chronological order, this
means the preparation of a historical record for all transactions. Hence this concept is
called as historical record concept.
II. Conventions: 1. Fully Disclosure Concept: - This concept deals with the convention that all
information which is of material importance should be disclosed in the accounting
statements. The accounting reports should disclose fully and fair information to the
Proprietors, Creditors, investors and others.
2. Materiality Concept: - Under this concept the trader records important facts about
commercial activities in the form of financial statements if any unimportant
information is to be given for the sake of clarity.

3. Consistency Concept: - The method of principles followed in the preparation of


various accounts should be followed in the years to come. It means that there should
be consistency in the methods or principles followed.
4. Conservatism Concept: - This concept fairly applied for some important things
followed by an accountant or manager that is making provisions for doubtful debts
and discount on debtors and valuing of stock in trade at cost or market price
whichever is less.
Types of Accounting: 1. Financial Accounting: - It is mainly concerned with recording the business
transactions in the books of accounts for the purpose of presenting final accounts to
management, share holders, tax authorities etc. It is defined as the art of recording,
classifying and summarising in a significant manner and in terms of money. Here
transactions and events which are impart at least of a financial character and
interpreting the results thereof.
The information applied by Financial Accounting is summarised in the following two
statements at the end of the accounting period generally one year.
a. Profit & Loss A/c.
b. Balance Sheet.
Objective: - The objective of Financial Accounting is to present a true or fair view of
(financial) companys income and financial position at regular intervals of one year.
2. Cost Accounting: - It is the process of accounting for cost from the point at which
expenditure is incurred or committed to the establishment of its ultimate relationship
with cost centres and cost units. It shows classification and analysis of costs on the
basis of functions, processes, products, centres etc. It also deals with cost
computation , costs saving, cost reduction etc.
Objectives: a. Ascertainment of cash.
b. Control of cost.
c. Guide to business policy.
d. Determination of selling price.
e. Measuring & improving the performance.
3. Management Accounting: - It is the process of identification, measurement,
accumulation, analysis, preparation and communication of financial information used
by management to plan, evaluate and control within the organization and to assure
appropriate use and accountability for is resources. It is concerned with accounting
information that is useful to management.
Objectives: -

a. Planning.
b. Decision making.
c. Coordinating.
d. Controlling.
e. Communicating.
f. Interpreting.
UNIT II
Double Entry System: - It is a scientific way of presenting A/cs. As such all the
business concerns feel it convenient to prepare the accounts under double entry
system. The taxation authorities also compel the businessmen to prepare the A/cs
under Double Entry System. Every business transaction has got two A/cs, one is
debited and the other one is credited. The principle of double entry is based on the
fact that there can be no giving without receiving nor can there be receiving without
something giving. The receiving A/c is debited on the debited side of A/c and the
giving is credited on the credit side of A/c.
Advantages: 1. Scientific system.
2. Full information.
3. Assessment of P&L.
4. Knowledge of debtors.
5. Knowledge of creditors.
6. Arithmetical accuracy.
7. Assessment of financial position.
8. Comparison of results.
9. Maintenance according to tax rules.
10. Detection of frauds.
Limitations: 1. Errors of Omission

If entire transaction is not recorded in banks of A/cs the

mistake cannot be detected by accounting.


2. Errors of Principle
3. Compensating errors

Not able to detect the mistakes.


If Rahims A/c debited Rs 50 lesser & Mohans A/c

credited Rs 50 lesser trial balance will tally but mistake will remain in A/cs.

Classification of A/cs: -

Rules: 1. Personal A/cs Debit the receiver / Credit the giver.


2. Real A/cs Debit what comes in / Credit what goes out.
3. Nominal A/cs Debit all expenses / Credit all incomes and gains.
Journal: - The word Journal is derived from the Latin word Journ which means a
day. Therefore journal means a day book where in day to day business transactions
are recorded. Journal is treated as the book of original entry or first entry or prime
entry. The process of recording transactions in the journal is called journalising. The
entries made in the book are called journal entries.
Rules: 1. Date.
2. Particulars.
3. Narration.
4. Ledger folio.
5. Debit.
6. Credit.
Importance: 1. Availability of full information.
2. Posting becomes easy.
3. Explanation of the transaction.
4. Location of the errors easy.
Ledger: - It contains the final & permanent record of all the transactions in duly
classified form. A ledger is a book which contains various accounts. The process of
transferring the entries from the journal in to the ledger is called posting.
Features: 1. It contains all the accounts personal, real & nominal.
2. It is permanent record of business transactions.
3. It provides a means of easy reference.
4. It provides final balance of the accounts.

5. Easy to know how much amount is due from others.


6. Easy to know how much amount is owed to others.
7. Easy to know total sales to an individual customer & total purchases of him.
Differences between Journal & Ledger
Journal

Ledger

BUS 1.5 ACCOUNTING FOR MANAGERS


Unit I: - General Management: Management concept, Managerial roles, Managerial
skills, Brief treatment of managerial functions, Scientific Principles of management,
Administrative Principles of Management.
Forms of Business Organisation: Salient features of sole proprietorship,
Partnership, Joint Stock Company, private limited and public limited companies.
Unit II: - Financial Management: Objectives of Financial Management, Concept of
interest, Simple interest, Compound interest, equivalent cash flow diagram.
Economic Evaluation of Alternatives: Basic methods, the annual equivalent
method, present worth method, future worth method.
Depreciation: Purpose, types of depreciation, common methods of depreciation. The
Straight line method, Declining balance method, the sum of the years digits method.
Unit III:- Human Resource Management: Functions of Human Resource
Management Job Analysis, Human Resources Planning, Brief treatment of
Recruitment, Selection, Placement, Induction & Orientation, Training & Development,
Performance Appraisal, Job Evaluation, Career Planning & Development, Stress
Management, Compensation.
Directing: - Motivation and Leadership, Theories of motivation and styles of
Leadership.
Unit IV: - Materials Management: Functions of Materials Management, Material
Requirement Planning, Purchasing, objective of Purchasing, source selection,
Procurement methods, Vendor Rating, Inventory Management EOQ, EPQ, ABC
Analysis. FSN Analysis, VED Analysis.
Marketing Management: Functions of Marketing, Marketing Mix, Product Life Cycle,
Channels of distribution, Marketing Segmentation, Advertising & Sales promotion,
Market Research.
Text Books: 1. KK Ahuja, Industrial Management, Vol. I & II, Dhanpat Rai, 1978.

2. E.Paul Degarmo, John R Chanda, William G Sullivan, Engineering Economy, Mac


Millan Publishing Co, 1979.

P.SIDDHARDHA
M.B.A., M.PHIL

ACCOUNTING
FOR MANAGERS