ACCOUNTING PROCESS and CLASSIFICATION

8/7/2019 ACCOUNTING PROCESS and CLASSIFICATION

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UNDERSTANDING HOW TO

MANAGE SCHOOL FINANCES

Venkat

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Overview of this SessionOverview of this Session

BASIC ACCOUNTING COCEPTS

FINANCIAL STATEMENTS FINANCIAL PLANNING

MODES OF INVESTMENT FOR SCHOOLS


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PRINCIPLES OF DEBIT AND CREDIT

Personal account:- Debit the receiver

credit the giver

Real account:- Debit what comes in creditwhat goes out

Nominal account:- Debit all expenses and

losses credit all incomes and gains

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THE ACCOUNTING CYCLE

Torecord opening entries in the general ledger

Torecord transactions and events in thejournal

Topostjournal entries in appropriate accounts in the general ledger

Tobalance the accounts in the general ledger

Toprepare the trial balance

Topass adjustment entries

Toprepare therevised trial balance

Topass closing entries toprepare financial statements

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TYPES OF JOURNALS

1. Purchase Day Book2. Sales Day Book

3. Purchase Return Book

4. Sales Return Book

5. Cash Book

6. Journal Proper

Core Accounting Principles

Matching Principle : Revenues have to bematched and correlated with all the expensesof a particular year. In other words , profit isdetermined after charging the expenses of aperiod with the revenues earned in the sameperiod.

Principle of Conservatism: This principlerequires the accountants not to anticipate gainsbut to provide for all possible losses Ex : Lowerof cost or market price policy is adopted whilevaluing inventory.

Principle of Materiality : Information is

material if its misstatement could influence thedecisions of users taken on the basis of financialstatements. Materiality depends on t h e sizeand nature of the item or error. It isnecessitated by practicability and feasibility

Dual Aspect Concept

Business Entity Concept

CostConcept

Money Measurement

Concept

Realization Concept

ACCOUNTING CONCEPTS

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The relationship among asset , liability andequity can be expressed by the following

equation.

Assets = Liabilities + Owners EquityThe effect of all business transactions is

reflected in this equation.

Shows Financial Position

-- Assets

-- Liabilities

--Equity

. Shows Performance

-- Income

-- Expenses

ACCOUNTING EQUATION

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1) Economic Entity

Assumption

2) Going Concern

Assumption

3) Monetary UnitAssumption

4) Periodicity

Assumption

ACCOUNTING

ASSUMPTIONS


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TRIAL BALANCE

FEATURES

Closingbalances ofaccountsintheledgeraswellas cashbalancearetaken

Itteststhearithmeticalaccuracy ofledgerbalances

It canbe preparedmonthly,quarterlyandyearly

It isasourcedocument forpreparing financialstatement

CLOSING ENTRIES

STEPS

Transferbalances inrevenue

accountsto the Profit & Loss

account

Transferbalances intheexpense

accountto the Profit & Loss

account

Transferbalances inthe Profit &

Lossaccountto Profit & Loss

Appropriationaccount

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FINANCIAL STATEMENTS

Balance Sheet

Income Statement or Profit and

Loss Account

Cash Flow Statement

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Balance Sheet

ASSET SIDE

Fixed Asset

1. Land

2. Building

3. Plant and Machinery

4. Furniture and

Fixture

5. Vehicles

LIABILITIES SIDE

Share Capital- Equity Share Capital

- Preference Share CapitalReservesand Surplus- Capital reserves- General reserve- Capital redemption

reserve- Debentureredemption

reserve

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Balance Sheet

Investment

1. Investment in govt.securities

2. Investment in shares,debentures andbonds

3. Investment inimmovable

properties4. Investment in thecapital ofpartnership firms

Balance Sheet

Loan Funds

Secured Loans

- Term Loans- Debentures

- Working capital loans

Unsecured Loans

- Fixed deposits- Debentures

- Security deposits

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Balance Sheet

Current Assets, Loans,andAdvances

Current Assets- Inventories- Sundry debtors

- Cash and bank balances

Loansand Advances- Advances recoverable in cash or in

kind or for value tobereceived- Advance income tax- Advance deposit of sales tax and

excise- Inter-corporate deposits

Current LiabilitiesandProvisions

Current Liabilities

- Sundry Creditors- Expenses Payable

- Advances fromcustomers

- Unclaimed dividends

- Interest accrued but not due

Provisions- Provision for taxation

- proposed dividend

- provision forcontingencies

Balance Sheet

Miscellaneous Expenditure

Debitbalance in Profitand Los

account

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Income Statement

The Income Statement (orProfit & Loss Statement)

reports the income, expenses

and profits for a specific

period oftime.

Sales

- Cost of Goods Sold

- SG&A Expense

+Other Income

- Other Expenses

= Income Before Taxes- Income Taxes

= Net Income(div.by SharesOutstanding)

= Earnings Per Share(EPS)

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CASH FLOW STATEMENT

Features

* Prepared foragiven period

* Comparative position foreachelement of

cash flow isgiven.

* Cash inflowsand outflows for operating,

investingand financingactivitiesaredisclosed.

* Itshowsthereconciliationbetween openingand closing cashbalances.

Operating Activities

1) Cashreceipts fromsale ofgoods orservices

2) Cashreceipts fromroyalties, fees,

commission

3) Cash paymentsto suppliers,employees

4) Cash payments orrefunds of incometax

Investing Activities

1) Cash paymentsto acquire fixedassets

2) Cashreceipts fromdisposal of fixedasset

and intangibles

3) Cash paymentsto acquireshares,

warrants ordebt instruments

4) Cashreceipts fromdisposal fromshares,

warrants ordebt instruments

5) Cashadvancesandloansmadeto third

parties

6) Cashreceipts fromtherepayment of

advancesandloansmadeto third parties

Financing Activities

1) Cash proceeds from issue ofshares,

debentures,loans,bonds

2) Cashrepayments ofamountborrowed

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Financial planning isthetask of determininghowabusinesswillaffordto achieve

itsstrategic goalsand objectives.

The Financial Plandescribeseach oftheactivities,resources,equipmentand

materialsthatareneededto achievethese objectives,aswellasthetimeframes

involved

The financial planning process involves the following steps -

1) Conducting need analysis

2) Evaluating existing resources

3) Conducting risk assessment

4) Developing a financial plan

5) Implementing the financial plan

6) Monitoring the financial plan

FINANCIAL PLANNING

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What are school managements major

responsibilities with regard to finance?

1. To develop the schools annual budget

2. Toensure that properrecords are kept of all

the schools financial operations

School Strategic Plan

Student outcomes:goals & targets

Whatwehaveto do:keystrategies

Howwewillachievethe outcomes: peopleandmoney 16


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The schools Annual Budget

The financial plan that makes sure that the schools

resources (people, programs, services, equipment etc)

support its educational priorities and objectives

How it will use these resources to produce the results

aimed for in the strategic plan

How it will maximise student outcomes through the most

efficient and effective use of its limited resources

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What funds are available to the school

each year?

Funds provided by the government (both credit& cash)

Fess Collected

The funds held in all School bank accounts

Other funds

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How is the annual budget created?

The strategic plan is used as a starting point to

determine the strategies to be funded

Finance team work out what they need to do, and

how much money will be needed This is balanced against estimates of the total

money available

Finance committee produces its recommended

plan and submits it to Management for approval

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Financeresponsibilities

Keep informed about the financial position by carefullyconsidering the financial reports.

Monitor budget income targets against what has been

collected

ensure that all money coming into the hands of themanagement/finance team is expended for proper purposes

relating to the school

Monitor school accounts to decide if there are opportunities

to invest surplus funds to earn interest income Minimise risk by creating and approving an annual

investment policy e.g. using the High Yield Investment Account

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Roleof the Principal

Chairperson of all school committee meetings Signatory for school accounts, cheques and

contracts as required

Uphold all managing decisions and work inpartnership with the team

Ensure management stays f ocused on improvingstudent learning outcomes

The principal is the overall educational leader andmanager of the school Accountable for the preparation, implementation

and evaluation of the school's strategic plan

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The Schools Processes

THE WORK OF THE SCHOOL

Recruit

Students

Recruit StaffTeach

Students

Develop

and

EvaluateTeachers

Develop

Curriculum

Manage

FinancesCommunicate Raise Funds

Manage

Facilities


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The forms and modes of investing or depositing the money.

i) investment in Government Savings Certificates and any other securities or certificates

issued by the Central Govt. under the Small Savings Scheme ;

ii) deposit in any account with the Post Office Savings Bank Account ;

iii) deposits in any account with any scheduled bank or a co-operative society engaged in

carrying on the banking business (including a co-operative land mortgage bank or a co-

operative land development bank) ;

iv) investment in units of the Unit Trust of India.

v) investment in any security for money created and issued by the Central Govt. or a StateGovt.

vi) investment in debentures of any company or corporation, the principal whereof and the

interest whereon are guaranteed by the Central or State Government.

vii) investment or deposit in any public sector company.



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viii) deposit with or investment in any bonds issued by a Central Government

approved financial corporation engaged in providing long-term finance for

industrial development in India.

ix) deposits with or investments in any bonds issued by any Central Government

approved public Company formed and registered in India with the main object

of carrying on the business of providing long-term finance for construction or

purchase ofhouses

ixa) w.e.f. 01.04.2001, deposits in bonds issued by a public company engaged in

long term finance for development of urban infrastructure.

x) investment in immovable property.

xi) deposits with the Industrial Development Bank of India (IDBI).



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xii) any other form or mode of investment or deposit as may be prescribed.

Rule 17C ofthe Income Tax Rules, 1962 have so far prescribed the following :

a) investment in the units issued under the Scheme ofthe Mutual Fund

referred to in clause (23D) of Section 10 ofthe Income Tax Act, 1961 ;

b) any transfer ofdeposits to the Public Account of India;

c) deposits made with an authority constituted in India for the purposes

of housing accommodation, planning & development of cities, towns

and villages.

d) investment by way of acquiring equity shares of a depository as

defined in clause (e) ofsub-section (1) of Section 2 ofthe Depositories

Act, 1996.



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Shri. P. Sharath Kumar, LLB, CFE, CFAP, FCA.Chartered Accountant

E-mail : [email protected] 26

Thank YouThank You

Presented byPresented by

Venkat , B.com, ACA,CSVenkat , B.com, ACA,CS

Chartered AccountantChartered Accountant

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ACCOUNTING PROCESS and CLASSIFICATION