Accounting for ManagersAccounting for Managers

Dr Mohinder SinghDr Mohinder SinghDepartment of Accounting and Finance,Department of Accounting and Finance,

School of Business and Management Studies, School of Business and Management Studies, Central University of Himachal PradeshCentral University of Himachal Pradesh

Course ObjectivesCourse Objectives Define management accounting and understand Define management accounting and understand

the techniques used in management accounting. the techniques used in management accounting. Apply the tools of financial analysis to perform Apply the tools of financial analysis to perform

horizontal and vertical analysis. horizontal and vertical analysis. Calculate and interpret various financial ratios. Calculate and interpret various financial ratios. Demonstrate knowledge of, and ability to prepare, Demonstrate knowledge of, and ability to prepare,

a statement of cash flows. a statement of cash flows. Define managerial accounting and understand the Define managerial accounting and understand the

techniques used in cost accounting. techniques used in cost accounting. Compute break-even and cost-revenue analysis Compute break-even and cost-revenue analysis

and understand how to interpret the results. and understand how to interpret the results. Prepare various types of budgetsPrepare various types of budgets

Evaluation CriteriaEvaluation CriteriaMid Term Examination: 25%Mid Term Examination: 25%End Term Examination: 50%End Term Examination: 50%Continuous Internal Assessment: 25%Continuous Internal Assessment: 25%Attendance 5%Attendance 5%Quiz 5%Quiz 5%Case study 5%Case study 5%Presentation 10%Presentation 10%Written tests 5%Written tests 5%

Need for AccountingNeed for Accounting Records and communicates the financial Records and communicates the financial

result of operations of an organization to result of operations of an organization to various concerned parties such as various concerned parties such as stakeholders, government agencies etc.stakeholders, government agencies etc.

Provides information that helps the Provides information that helps the management of the organization to plan management of the organization to plan the future course of action and other the future course of action and other funds related issues.funds related issues.

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Need for Accounting……….Need for Accounting………. Remembering business TransactionsRemembering business Transactions Statuary RequirementsStatuary Requirements Knowledge of Debtors and creditorsKnowledge of Debtors and creditors Assessment of Tax Liability Assessment of Tax Liability Fixation of PriceFixation of Price Evidence in Court of LawEvidence in Court of Law Enable Comparative study Enable Comparative study Language of businessLanguage of business

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Definition of AccountingDefinition of Accounting Definition of accounting by American Definition of accounting by American

Accounting Association (AAA):Accounting Association (AAA):““Accounting is the process of identifying, Accounting is the process of identifying, measuring and communicating economic measuring and communicating economic information to permit informed judgments information to permit informed judgments and decisions by users of the information”and decisions by users of the information”

Definition of AccountingDefinition of Accounting Accounting is a standardised system of Accounting is a standardised system of

recording , verifying and reporting the recording , verifying and reporting the transactions of the company in the books of transactions of the company in the books of accounts which helps the lenders, managers, accounts which helps the lenders, managers, tax authorities, investors and market tax authorities, investors and market regulators to make decisions.regulators to make decisions.

AICPA, “ Accounting is to provide quantitative AICPA, “ Accounting is to provide quantitative information of financial nature about eco. information of financial nature about eco. Entities that is useful in making eco. Decisions.Entities that is useful in making eco. Decisions.

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Functions of AccountingFunctions of Accounting RecordingRecording: Accounting helps record all the : Accounting helps record all the

business transactions of financial character in an business transactions of financial character in an orderly manner. Recording is done on various orderly manner. Recording is done on various Journals.Journals.

ClassifyingClassifying: After the systematic analysis of the : After the systematic analysis of the recorded data, the entries of similar nature are recorded data, the entries of similar nature are grouped at one place. Transactions are classified on grouped at one place. Transactions are classified on Journals.Journals.

SummarizingSummarizing: The classified data is displayed in : The classified data is displayed in understandable and easy to use statements such as understandable and easy to use statements such as balance sheet, trial balance etc.balance sheet, trial balance etc.

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Functions of Accounting (Cont..)Functions of Accounting (Cont..) Financial DealingFinancial Dealing: Accounting records only : Accounting records only

monetary transactions that are of financial nature.monetary transactions that are of financial nature. AnalyzingAnalyzing: A methodical classification of recorded : A methodical classification of recorded

data and presenting in financial statements such as data and presenting in financial statements such as current liabilities etc.current liabilities etc.

InterpretingInterpreting: Accounting helps in explaining the : Accounting helps in explaining the meaning and significance of the data in simplified meaning and significance of the data in simplified form.form.

CommunicatingCommunicating: Accounting helps in : Accounting helps in communicating the analyzed and interpreted communicating the analyzed and interpreted information in the form of graphs, ratios etc.information in the form of graphs, ratios etc.

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Book Keeping and AccountingBook Keeping and Accounting

Accounting refers to designing the system for Accounting refers to designing the system for recording the financial data and then recording the financial data and then presenting it in logical manner to the end presenting it in logical manner to the end users.users.

Book-keeping is concerned with recording Book-keeping is concerned with recording financial data in an orderly manner.financial data in an orderly manner.

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End Users of Accounting End Users of Accounting InformationInformation

ProprietorsProprietors: Profitability and financial : Profitability and financial health of an enterprise needs to be health of an enterprise needs to be communicated to the proprietors.communicated to the proprietors.

ManagersManagers: Financial disclosures : Financial disclosures communicate the financial health and help communicate the financial health and help the managers to plan and manage the the managers to plan and manage the enterprise better.enterprise better.

CreditorsCreditors: Entities that have extended credit : Entities that have extended credit look into financial statements to ascertain look into financial statements to ascertain security of their credit.security of their credit.

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End Users of Accounting End Users of Accounting Information (Cont..)Information (Cont..)

Prospective InvestorsProspective Investors: Financial statements : Financial statements communicate profitability and financial communicate profitability and financial health to attract investment into an enterprise.health to attract investment into an enterprise.

GovernmentGovernment: Financial statements serve as : Financial statements serve as the basis of meeting government liabilities the basis of meeting government liabilities pertaining to taxation, labour and corporate pertaining to taxation, labour and corporate laws.laws.

EmployeesEmployees: Bonus or profit sharing or : Bonus or profit sharing or Employees Stock Options Plan is prepared Employees Stock Options Plan is prepared using financial statements.using financial statements.

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Role of an AccountantRole of an Accountant Role of the accountant in public service:Role of the accountant in public service:

Provides services such as financial audit, cost Provides services such as financial audit, cost audit etc.audit etc.

Is the member of professional bodies, Institute of Is the member of professional bodies, Institute of Chartered Accountants of India and Institute of Chartered Accountants of India and Institute of Cost and Work Accountants of India.Cost and Work Accountants of India.

Trained in a prescribed manner and observe Trained in a prescribed manner and observe accounting principles enunciated by the accounting principles enunciated by the professional body.professional body.

Observe the code of ethics laid down by the Observe the code of ethics laid down by the professional body.professional body.

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Role of an Accountant (Cont..)Role of an Accountant (Cont..)

Role of the accountant in employment:Role of the accountant in employment: Is employed in business or non business Is employed in business or non business

entities.entities. Maintains accounting records for the entityMaintains accounting records for the entity Provides information for tax returns, Provides information for tax returns,

financial performance etc.financial performance etc.

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Accounts ServicesAccounts Services Maintenance of the books of accounts:Maintenance of the books of accounts:

Keeps a systematic record of business Keeps a systematic record of business transactionstransactions

Provides information on financial performance of Provides information on financial performance of the entitythe entity

Helps the management of an organization in Helps the management of an organization in taking important decisions on the basis of vital taking important decisions on the basis of vital accounts informationaccounts information

Reduces the risk of losing information due to loss Reduces the risk of losing information due to loss of memory because the information is recordedof memory because the information is recorded

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Accounts Services (Cont..)Accounts Services (Cont..) Helps perform the comparative study on Helps perform the comparative study on

performance after fixed interval of timeperformance after fixed interval of time Maintains the accounting records systematically Maintains the accounting records systematically

that are acceptable to tax authorities and can be that are acceptable to tax authorities and can be taken as evidence in court of lawtaken as evidence in court of law

Serves as the basis for proper evaluation of Serves as the basis for proper evaluation of business entitybusiness entity

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SummarySummary In this unit, you have:In this unit, you have:

Described the need for accountingDescribed the need for accounting Perceived the development of accountingPerceived the development of accounting Explained the meaning of accountingExplained the meaning of accounting Named the persons interested in accounting Named the persons interested in accounting

disclosuresdisclosures Identified the objectives of accountingIdentified the objectives of accounting Described the role of accountant in the societyDescribed the role of accountant in the society