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PHI Learning, 2008. All rights reserved.*Financial Accounting:A
Managerial PerspectiveThird EditionPrepared byR.
NarayanaswamyIndian Institute of Management Bangalore
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Accounting and Economic
Decisions
Chapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*The Aim of the
CourseAppreciate the information needs of different categories of
users of company financial reports.Understand the significance of
accounting principles and the systems and processes involved in
preparing and presenting financial reports.Analyse and interpret
financial reports.Chapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*The Approach in this
BookUnderstanding the economic basis of accountingConnecting
accounting to capital market and corporate governanceEmphasis on
principlesStudent-friendly presentation, easy-to-read
styleReal-world applicationsIntegrating preparation and use of
financial statementsLinking accounting theory, empirical research
and practiceChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Understanding Business
OrganizationsWhat do business organizations do?e.g., Apollo
Hospitals, Amazon.com, Bharti Airtel, Tata MotorsTypes of business
organizationsMerchandising or tradingManufacturingServiceBusiness
organizations are cash machinesChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*What is
AccountingAccounting is the language of businessAccounting provides
information for making decisionsAccounting is an information
systemAccounting and economic decisionsWhy should managers and
other decision-makers know accounting?
Chapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*The Accounting
Information SystemInputs Processing Outputs Users
Business Accounting Financial Investors,transactions principles
statements lenders,and events and procedures and reports
managersChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Users of Accounting
InformationInvestorsLendersSecurity analysts and
advisersManagersEmployees and trade unionsSuppliers and other trade
creditorsCustomersGovernment authorities and regulatorsThe
publicChapter 1
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PHI Learning, 2008. All rights reserved.*Major Branches of
AccountingChapter 1Financial AccountingFor external usersHistorical
informationStandardized formatLaws and conventionsSummarizedIncome
statement; Balance sheet; Cash flow statement; Accounting
policiesManagement AccountingFor internal
usersFuture-orientedFlexible formatContext-specificMore
detailedProduct cost statement; Standard costs; Budgets; Variances;
Performance reports
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Accounting
MeasurementAccounting records the effect of economic
activitiesInternal eventsExternal events: transactions exchange
(e.g., purchase of goods)one-way transfer (e.g., donations,
thefts)Other external eventsno exchange or transfer (e.g., floods,
earthquakes)Chapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Assumptions Underlying
Accounting MeasurementAccounting entityBusiness is distinct from
ownerGoing concernBusiness is a continuing
enterprisePeriodicityBusiness activities divided into periodsMoney
measurementMoney is a stable measurement unitChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Generally Accepted
Accounting PrinciplesWhat is GAAP?Importance of GAAPInstitutions
that influence GAAPGovernmentAccounting professionSecurities
regulatorsOther regulatorsInternational organizations
Chapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Institutional
Environment in IndiaMinistry of Corporate AffairsNational Advisory
Committee on Accounting StandardsSecurities and Exchange Board of
IndiaInstitute of Chartered Accountants of IndiaCentral Board of
Direct TaxesReserve Bank of IndiaInsurance Regulatory and
Development AuthorityComptroller and Auditor-General of
IndiaInternational Organizations International Accounting Standards
BoardInternational Federation of AccountantsInternational
Organization of Securities CommissionsChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Accounting Standards
and PoliciesAccounting standardsAccounting policiesWhy does
accounting practice differ?Need for accounting
standardsPrinciple-based and rule-based standardsStandard-setting
mechanism in IndiaChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Forms of Business
OrganizationSole proprietorshipSingle individualPartnershipA few
individualsLimited companyNumerous individuals, often
strangersLarge businessLimited liabilityLimited liability
partnershipLegal formalities for a limited companyThe corporate
organization structureChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Accounting, Capital
Market, and Corporate GovernanceThe capital market: savers and
entrepreneursThe lemons principle and market breakdownSignalling
and capital marketCorporate governanceAccounting disciplines
managerial actionsChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*The Accounting
EquationEconomic Resources = Claims Assets = Liabilities +
Equity
Capital + Revenues Expenses Drawings Dividends
Chapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*AssetsProbable future
economic benefitsWhat a business ownsExamplesCashFinancial
investmentsLandBuildingsPlant and machineryPatents and
copyrightsChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*LiabilitiesProbable
future sacrifices of economic benefitsWhat a business
owesContractual, statutory, or constructiveExamplesLoans
payableSalaries payableWarranty obligationsPensions payableIncome
tax payableChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*EquityResidual interest
of ownersExamplesShare capitalShare
premiumRevenuesExpensesDividendsRetained profitChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Financial
StatementsProfit and loss accountStatement of financial
performanceRevenues; ExpensesBalance sheetStatement of financial
positionAssets; Liabilities; EquityCash flow statement Statement of
cash receipts and cash paymentsActivities: Operating; Investing;
FinancingChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Fields of Accounting
ActivityPublic accountingAuditingTaxManagement advisory
servicesSmall business servicesPrivate accountingManagement
accountingInternal auditingInformation systemsGovernment
accountingCentralStateLocalNot-for-profit accountingAccounting as
an academic disciplineChapter 1
PHI Learning, 2008. All rights reserved.
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PHI Learning, 2008. All rights reserved.*Ethical Issues in
AccountingBusiness and ethicsWhy do people bend the accounting
rulesGAAP is of little helpWhistle-blowingEthical conduct brings
success in the long termChapter 1
PHI Learning, 2008. All rights reserved.
Financial Accounting: A Managerial Perspective 3/e*Financial
Accounting: A Managerial Perspective 3/eFinancial Accounting: A
Managerial Perspective 3/e*Financial Accounting: A Managerial
Perspective 3/eFinancial Accounting: A Managerial Perspective
3/e*Financial Accounting: A Managerial Perspective 3/eFinancial
Accounting: A Managerial Perspective 3/e*Financial Accounting: A
Managerial Perspective 3/e
