ACCOUNTING FOR MANAGERS

Faculty: Ms. Luvnica Rastogi Email id: lrastogi@amity.edu Imp Website: www.investorwords.com

Learning Objectives

Learning Objectives

Learning Objectives

Learning Objectives

Introduction

Definition:

Meaning of Accounting
Accounting is an Art
Accounting classifies as an art as it helps in attaining the goal of ascertaining the financial results. Analysis and interpretation of the financial data is the art of accounting, requiring special knowledge, experience and judgment.

Contd.
Involves Recording, Classifying and Summarizing
Recording means systematically writing down the transactions and events in account books soon after their occurrence. Classifying is the process of grouping transactions or entries of similar nature at a place. This is done by opening accounts in a book called ledger. Summarizing involves the preparation of reports and statements from the classified data (ledger), understandable and useful to management and other interested parties. This involves preparation of final accounts.

Records Transaction in Terms of Money

Recording business transaction in terms of money is the common measure of recording and helps in better understanding of the state of affairs of the business.

Deals with Financial Transactions

Accounting records only those transactions and events which are of financial character. If a transaction has no financial character, it will not be measured in terms of money and hence will not be recorded.

Interpretation
Interpretation is the art of interpreting the results of operations to determine the financial position of an enterprise, the progress it has made and how well it is getting along.

Accounting involves Communication

The results of analysis and interpretation are communicated to management and to other interested parties

Accounting-- A Means and Not an End

Keeping accounts is not the primary objective of a person or an entity. On the contrary, the primary objective is to take decision on the basis of the financial facts given by the accounting statements. Thus, the understanding of accounts is not the basic objective. It only helps to realize a specific objective. As such, accounting is not an end in itself but a means to an end.

Objectives and Functions

Provides necessary information about the financial activities to the interested parties Provides necessary information about the efficiency or otherwise of management with regard to the proper utilization of scarce resources Provides necessary information for making predictions (financial forecasting) Facilitates to evaluate the earning capacity of a firm by supplying the statement of financial position, the statement of periodical earning, together with the statement of financial activities to various interested parties

Contd
Facilitates in decision-making with regard to the changes in the manner of acquisition, utilization, preservation and distribution of scarce resources Facilitates in decision-making with regard to the replacement of fixed assets and expansion of the firm Provides necessary data to the government to enable it to take proper decisions concerning to duties, taxes, price control etc. Devices remedial measures for the deviations of the actual from the budgeted performance Provides necessary data and information to managers for internal reporting and formulation of overall policies

Branches of Accounting
Financial Accounting

Accounting deals with recording, classifying and summarizing the business events that have already occurred. It is, therefore, historical in nature. That is why it is called historical accounting or post-mortem accounting or more popularly financial accounting. Its aim is to collate the information about income and financial position on the basis of business events that have taken place during a particular period of time.

Cost Accounting

Cost accounting deals with the detailed study of cost pertaining to cost ascertainment, cost reduction and cost control. The emphasis is on historical costs as well as future decisionmaking costs.

Management Accounting

Management accounting provides information to management not only about cost but also about revenue, profits, investments etc. to enable managers to discharge their duties more efficiently and effectively. Thus, it provides required database to managers to plan and control the activities of business.

Social Responsibility Accounting

Social responsibility accounting involves accounting of social costs incurred by an enterprise and reporting of social benefits created by it.

Users of Accounting Information

(1) OWNER(S)
Owner(s) refers to a person or a group of persons who has provided capital for running the business. It refers to an individual in case of proprietor, partners in case of partnership firm and shareholders in case of a joint stock company. The information needs of shareholders have assumed a greater significance in the corporate business world because of the separation of ownership and management in the case of joint stock companies.

Contd.
(2)MANAGERS
For managing business profitably, management requires adequate information about financial results and financial position. By providing this information, accounting helps managers in efficient and smooth running of the business.

(3). INVESTORS
Prospective investors would be keen to know about the past performance of business before making investment in that concern. By analyzing historical information provided by accounting records, they can arrive at a decision about the expected return and the risk involved in investing in a particular business.

Contd.
(4). CREDITORS AND FINANCIAL INSTITUTIONS
Whosoever is extending credit or loan to a business enterprise would like to have information about its repaying capacity, credit worthiness etc. Analyzing and interpreting the financial statements of an enterprise can help in obtaining the required information.

(5). EMPLOYEES
Employees are concerned about job security and future prospects. Both of these are intimately related with the performance of business. Thus, by analyzing the financial statements, they can draw conclusions about their job security and future prospects.

Contd.
(6). GOVERNMENT
Government policies relating to taxation, providing subsidies etc. are guided by the relevance of industries in the economic development of the country. The policies also consider the past performance of industries. Information about past performance is provided by the accounting system. Collection of taxes is also based on accounting records.

(7).RESEARCHERS
Researchers need financial information for testing hypothesis and development of theories and models. The required information is provided by accounting system.

Contd.
(8). CUSTOMERS
The customers who have developed loyalties toward a business are those who are certainly interested in the continuance of the business. They certainly want to know about the future directions of the enterprise with which they are associating themselves. The way to information about the enterprise is through their financial statements.

(9).PUBLIC
Public at large is always interested in knowing the future directions of an enterprise and the only window to peep inside an enterprise is through their financial statements.