Accounting For Managers

Dr.Padma Srinivasan

Accounting
The Language of Business

What is Accounting?

Accounting is an art of recording, classifying, summarizing and reporting of transactions with the aim of showing the financial health of an entity.

What are Assets??

y Everything that

belongs to you is your asset, whether the possession is with you or not in the given date. y Assets can be tangible or intangible in nature. y Assets always get depreciated except for land. y Assets contribute towards companys worth.

What are liabilities??

y Whatever does

not belong to you but you are possessing it are your liabilities. y Shareholders fund i.e. Capital is your liability. y All Reserves and Provisions are liabilities. y All outstanding expenses, dividends, interest, commission are liabilities.

Classification of Accounting
Accounting

Financial Accounting

Cost Accounting

Management Accounting

Types of AccountsReal, Nominal & Personal

Golden Rules Of Accounting
y Personal Account

Debit The Receiver, Credit The Giver What is a Personal Account? Eg: Customers, Suppliers, Money Lenders, Bank, Owner etc.

Golden Rules Of Accounting Continued y Real Account

Debit What Comes In, Credit what Goes Out What is a Real Account? Eg: Land, Building, Plant, Machinery, Investment and so on

Golden Rules Of Accounting Continued y Nominal Account

Debit The Expenses & Loses, Credit The Incomes & Gains What is a Nominal Account? Eg: Wages, Discounts, Purchases, Sales etc.

What is Final Account?

When books of accounts are closed at the end of the year and profits are to be assessed, we make final adjustments and entries to our books of accounts. This includes assessing the Gross Profit in the Trading account assessing account, the Net Profit in the P/L account and comparing the assets with liabilities to balance them.
Balance sheet gives the true and fair view of the companys financial status.

Difference Between Final A/c & Company Final A/c

Final Account Prepared by every org. & individual doing business Company Final A/c Generally Prepared by Public Ltd. Co.

Balance sheet does not Format of the Balance have a format Sheet has to be followed In P/L A/c there is nothing below the line Net Profit/Loss gets +/to the Capital In P/L A/c we prepare P/L Appro. A/c also Net Profit/Loss tr. to Appro A/c

FINANCIAL STATEMENTS Financial Statements

are the basic and formal means through which the corporate communicate financial information to various users Balance Sheet Profit and loss Account Statement on retained earnings Cash-flow statement Notes, schedules and explanatory material

Trading, Manufacturing A/c, P&L A/c Balance Sheet

Dr
DATE

Trading a/c for the period ending

PARTICULARS DETAILS AMOUNT Rs DATE

..
PARTICULARS DETAILS

Cr
AMOUNT Rs

To opening Stock To Purchases Less : Purchase Returns To cartage To carriage To Import Duty To Clearing charges To Dock Dues To Excise Duty To Wages To Power

By Sales Less : Sales Returns By Closing Stock By Gross Loss

Dr
DATE

Manufacturing a/c for the period ending ..

PARTICULARS DETAIL S AMOUNT Rs DATE PARTICULARS DETAILS

Cr
AMOUNT Rs

To Manufacturing Expenses A/c Opening Stock Purchases Wages Carriage inwards Production Expenses

By Trading A/c Transfer

Dr

Profit & Loss a/c for the period ending

DETAILS

..

Cr

DATE

PARTICULARS

AMOUNT

DATE

PARTICULARS

DETAILS

AMOUNT

To Gross Loss To Salaries To Rent To Office Lighting To Insurance To Printing & Stationary To Postage To Telephone Rent To Audit Fees To Legal Expenses Contd . By Gross Profit By Rent received By Commission Received By Discount earned By Bad Debts Recovered By Interest Received By Net Loss

Dr

Profit & Loss a/c for the period ending

PARTICULARS DETAILS AMOUNT Rs.

..
PARTICULARS

Cr

DATE

DATE

DETAILS

AMOUNT Rs.

To Bank Charges To Repairs To Maintenance Expenses To Depreciation To General Charges To Advertisements To Traveling To Commission paid to sales agents

Contd

Dr

Profit & Loss a/c for the period ending

DETAILS

..

Cr

DATE

PARTICULARS

AMOUNT

DATE

PARTICULARS

DETAILS

AMOUNT

To Cartage, carriage, freight outwards To Bad debts To Provision for bad & doubtful debts To Cash Discount allowed To Interest paid To Net Profit

Balance Sheet of a Sole Trader

LIABILITIES
Capital 1.Capital 2.Retained ProfitsReserves, Provisions Liabilities 1.Mortgage on property 2.Long term loan Current Liabilities 1.Bank Overdraft 2. Bills Payable 3. Trade creditors 4.Creditors for expenses

AMOUNT Rs

ASSETS
Fixed Assets 1. Goodwill 2. Land 3.Building 4.Plant & Machinery 5.Loose Tools 6.Furniture & Fixtures Investments 1.Long term investments 2.Short term investments Current Assets 1.Inventory 2.Debtors 3.Bills Receivables 4.Cash at bank 5.Cash in hand

AMOUNT Rs

Typical Adjustments
What to do with Provision for tax? y What to do with Tax Paid? y What treatment for Dividend Paid? y What treatment for Proposed Dividend? y What treatment Interim Dividend? y What to do with Managers Remuneration and fees?
y

Provision for Tax

Particulars To Rent To salaries To Provision for Tax To Net Profit Amt. Particulars Amt 1000 By Gross Profit 5000 2000 1000 1000

Tax Paid
Particulars To Rent To Salaries To Net Profit To Tax Paid To balance c/d Amt. 1000 2000 2000 1000 5000 Particulars By Gross Profit Amt. 5000

By P/L (opn. Bal) By Net Profit b/d

4000 2000

Dividends Paid
Particulars To Rent To Salaries To Net Profit To Interim Dividend To Dividend Paid To Proposed Dividend To balance c/d Amt Particulars Amt 7000 1000 By Gross Profit 2000 4000

1000 By P/L (opn. Bal) 4000 1000 By Net Profit b/d 4000 2000 4000

Managers Remuneration
Net profit as per P/L A/c Add back: a. Capital Expenditure b. Provision For taxation c. Any Ex-gratia Payment made d. Managers commission already paid Less: a. Profit on Sales of Investment b. Capital Profit on sale of assets c. Profit on re-issue of shares

In the Books Of Dhara, Tarun & Deepak Bros Profit and Loss A/c For the year ending 31.03.2006

To Rent &b Taxes To Audit Fees To Director's Fees To MD's Remuneration To Sundry Expenses To Depreciation To Provision for Tax To Net Profit

By Gross Profit b/d By Interest Received A/c

To Tax Paid To Interim Dividend ToProposed Dividend To General Reserve

By P/L (Opn.Bal.) By Net Profit B/d

In the Books of Dhara, Tarun & Deepak Bros Balance Sheet as on 31.03.2006 Liabilities Capital Add/Less: Net Profit Creditors Less: Mutual Debts Bills Payable Outstanding Rent Accrued Expenses Bank Bills Receivable Preliminary Expense Prepaid Expenses Unexpired Insurance Amt.(Rs.) Assets Plant & Machinery Furniture Patents Debtors Less: Mutual Debts Less: Cur. Yr. Bad Debt Less: PVBD Amt.(Rs.)

In the Books of Dhara, Tarun & Deepak Bros Balance Sheet as on 31.03.2006 Liabilities Authorised Capital No. of shares @ Rs. Issued & Subscribed No. of shares @ Rs. Less: Calls in arrear Reserves & Surplus General Reserve Capital Redemption Reserve Secured Loan Secured Bank Loan Unsecured Loan Bank Overdraft Currrent Liabilities & Provisions Proposed dividend Provision for tax Current Assets, Loans & Advances Debtors Bank Bills Receivable Prepaid Expenses Unexpired Insurance Tax Deducted at Source Misc. Expenses Preliminary Expenses Amt.(Rs.) Furniture Investments Shares of other Cos. Assets Fixed Assets Amt.(Rs.)