accounting & financial analysis (1)(1)

7/28/2019 Accounting & Financial Analysis (1)(1)

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Accounting & Financial Analysis

Unit 1

Confidential


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Unit-Overview

Accounting Concepts, Conventions and Principles, Accounting Equation,

International Accounting Principles and Standards & Matching of Indian

Accounting Standards with International Accounting Standards

Page 2


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Discussion Topics

Accounting Equation


Accounting Standards with International

Accounting Concepts ,Conventions & Principles


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Accounting Concepts ,Conventions & Principles Accounting is the language of business. The affairs and the results of the

business are communicated to others through accounting information, which

has to be systematically recorded and presented.

According to Bierman and Derbin , Accounting may be defined as the

identifying , measuring , recording and communicating of financial

information.

Accounting can be defined as the process of identifying, measuring, recording

and communicating the economic events of an organization to the interested

users of the information.


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Characteristics of Accounting

Economic events

Identification, measuring, recording and communication

Organization

Interested users of information


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Accounting PrinciplesAccounting Principles can be divided between :-

1. Accounting Concepts

2. Accounting Conventions

The term concept is used to connote accounting postulates, which are

necessary assumptions and conditions upon which accounting is based. The

term convention is used to signify customs and traditions as a guide to the

presentation of accounting statements.


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Accounting Concepts Business Entity Concept

Business is separate entity than owner. All business transaction recorded in separate

books & even owner is treated as a creditor to the extent of his/her capital.

Money Measurement Concept

Only monetary transactions are recorded in accounting books.

Cost Concept

Transactions are recorded at actual cost.


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Conti Dual Aspect Concept

Every transaction has two aspectsa debit & a credit'. The sum of all debits will

equal the sum of all debits.

Realisation Concept

Transactions are recorded only when they occur & not in anticipation of their occurrence.

Going Concern Concept

At the time of recording the transaction, it is assumed that entity will continue to remain

in business for as long as can be foreseen.


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Accounting Convention Consistency

Accounting practices should remain the same from year to year.

Disclosure

All information which is essential for fully understanding the financial statement should be

disclosed in addition to the information required to be disclosed by law.

Conservatism

Financial statements should be drawn up on a conservative basisi.e. anticipated income

should not be recorded whereas likely losses should be provided for


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Functions of Accounting Keeping Systematic Records

Systematic record of financial statements, maintain theses records in financial

statements.

Protecting Properties Of The Business

Protect assets from an unjustified & unwarranted use.

Communicating The Results

Communicate & share results with stakeholders for showing true position of the

business.

Meeting Legal Requirements

Meet the legal requirements under the Companies Act, Income Tax Act, Sales Tax

Act and so on.


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The Accounting Cycle

Recording transactions in subsidiary books.

Classifying data by posting from subsidiary books to the accounts.

Closing the books and preparation of final accounts.


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Cash System

This system takes into account only cash receipts and payments on the assumption that there

are no credit transactions.

Single Entry System

It deals with only one aspect of transaction. This system recognizes cash and personal items

of the transactions and it ignores the impersonal items. So it is incomplete, inaccurate and

unscientific.

Double Entry System

This system takes into account every business transaction in its double aspect, i.e. receiving

benefit by one party and giving the like benefit by another. So it records the two-fold aspect of

every business transaction.

Systems Of Accounting


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Discussion Topics

Accounting Concepts ,Conventions & Principles



Accounting Equation


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The Accounting EquationAssets = Liabilities + Owners Equity

The resources

owned by a

business


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Conti..Assets = Liabilities + Owners Equity

The rights of thecreditors, which

represent debts of

the business


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Assets = Liabilities + Owners Equity

The rights of theowners

Conti..


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Business Transactions

A business transaction is an economic event or

condition that directly changes an entitys financial

condition or directly affects its results of operations.


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a. John deposits Rs.25,000 in a bank

account in the name of Soft Solutions.

John, Capital

25,000 Investment

by John

Cash

25,000a.

Assets Owners Equity=

=

On November 1, 2010, John begins a business that will be known as Soft Solutions.


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b. Soft Solutions exchanged Rs.20,000 for

land.

John, Capital

25,000

Cash + Land

25,000Bal.

Assets Owners Equity=

=b. 20,000 +20,000

Bal. 5,000 20,000 25,000


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Accounts John ,Cash + Supplies + Land Payable Capital

Assets

c. During the month, Soft Solutions purchasedsupplies for Rs.1,350 and agreed to pay the

supplier in the near future (on account).

Owners

Liabilities + Equity=

Bal. 5,000 20,000 25,000c. + 1,350 + 1,350

Bal. 5,000 1,350 20,000 1,350 25,000

=


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d. Soft Solutions provided services to

customers, earning fees of Rs.7,500

and received the amount in cash.

Bal. 12,500 1,350 20,000 1,350 32,500

d. + 7,500 + 7,500

Accounts John,Cash + Supplies + Land Payable Capital

AssetsOwners

Liabilities + Equity

Bal. 5,000 1,350 20,000 1,350 25,000Fees

earned

=

=


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e. 3,650 2,125

800

450

275

Wages

Rent

Util.

Misc.


Assets

e. Soft Solutions paid the following expenses:

wages, Rs.2,125; rent, Rs.800; utilities,

Rs.450; and miscellaneous, Rs.275.

Owners


Bal. 12,500 1,350 20,000 1,350 32,500

=

Bal.8,850 1,350 20,000 1,350 28,850


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Assets

f. Soft Solutions paid Rs.950 to

creditors during the month.

Owners


Bal. 8,850 1,350 20,000 1,350 28,850

f. 950 950

=

Bal. 7,900 1,350 20,000 400 28,850


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Assets

g. At the end of the month, the cost of

supplies on hand is Rs.550, so Rs.800 of

supplies were used.

Owners


Bal. 7,900 1,350 20,000 400 28,850

g. 800 800

=

Bal. 7,900 550 20,000 400 28,050

Supplies

expense


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Assets

h. At the end of the month, John

withdrew Rs.2,000 in cash from

the business for personal use.

Owners

Liabilities + Equity

Bal. 7,900 550 20,000 400 28,050

h. 2,000 2,000

Bal. 5,900 550 20,000 400 26,050

With-

drawal

=

=


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Owners

withdrawals

Expenses

Decreased by

Owners Equity

Effects of Transactions on Owners Equity

Increased by

Owners

investments

Revenues

Net

income


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Discussion Topics Accounting Concepts ,Conventions & Principles

Accounting Equation




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Introduction Financial statements are prepared to summarize the end-result during an

accounting period in monetary terms.

Comparison of financial statements poses some difficulties because of thedivergence in the methods and principles adopted by different enterprises.

In order to make these methods principles uniform and comparable to the

extent possiblestandards are evolved.


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Accounting Standards Accounting Standards are the statements of code of practice of the regulatory

accounting bodies that are to be observed in the preparation and presentation of

financial statements.

The uniform , definite and universally accepted accounting rules developed by

International Accounting Standards Committee (IASC) are known as

Accounting Standard.


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Objectives of Accounting Standards Remove variations in the treatment of several accounting aspects and to bring about

standardization in presentation.

They intent to Harmonize diverse accounting policies followed in the preparation

and presentation of financial statements by different reporting enterprises so as to

facilitate intra-firm and inter-firm comparison.


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Conti The Institute of Chartered Accountants of India (ICAI) recognizing the need to

harmonize the diverse accounting policies and practices at present in use in India

& constituted Accounting Standards Board (ASB) on April 21, 1977. The main

role of ASB is to formulate Accounting Standards from time to time.

The International Accounting Standards Board (IASB) is the

independent, accounting standard-setting body of the IFRS foundation.

It is responsible for developing International Financial Reporting System(the new

name for International Accounting Standards issued after 2001), and promoting

the use and application of these standards.
http://en.wikipedia.org/wiki/International_Accounting_Standardshttp://en.wikipedia.org/wiki/International_Accounting_Standards


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Matching of Indian Standards with International StandardsINDIAN ACCOUTNING STANDARDS INTERNATIONAL ACCOUNTING

STANDARDSAS 1- Disclosure of Accounting Policies

IAS 1- Disclosure of Accounting PoliciesAS 2- Valuation of Inventories

IAS 2- Valuation of Inventories

AS 3- Cash Flow Statements

AS 4- Contingencies and Events Occurring after

the Balance Sheet Date IAS 4- Depreciation Accounting

AS 5- Net Profit or Loss for the period, PriorPeriod Items and Changes in Accounting Policies

IAS 5- Information to be Disclosed in Financial

AS 6- Depreciation Accounting..

AS 7- Construction Contracts (revised 2002)

IAS 7 -Cash Flow Statement

.

IAS 8- Net Profit or Loss for the period,Fundamental Errors and change in Accounting

Policies

AS 9 -Revenue RecognitionIAS 9- Research and Development Costs

AS 10 -Accounting for Fixed Assets IAS 10 -Contingencies and Events Occurring after

the Balance Sheet Date


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ContiAS 16 - Borrowing Costs

IAS 16- Property , Plant and Equipment

AS 17- Segment ReportingIAS 17- Accounting for leases

AS 18- Related Party Disclosures

IAS 18- Revenue

AS 19- LeasesIAS 19- Retirement Benefit Costs

AS 21- Consolidated Financial StatementsIAS 21- Effect of Changes in foreign Exchanges Rates

AS 22- Accounting for Taxes on Income.

IAS 22 - Business Combinations

AS 23- Accounting for Investments in

Associates in Consolidated Financial

StatementsIAS 23- Borrowing Costs

AS 24-Discontinuing OperationsIAS 24 - Related Party Disclosures

AS 25- Interim Financial Reporting

IAS 25- Accounting for Investments


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ContiAS 26- Intangible Assets IAS 26- Accounting and Reporting by Retirement Benefit

Plans

AS 27- Financial Reporting of Interests in JointVentures

IAS 27- Consolidated Financial Statements andAccounting for Investments in subsidiaries

AS 28- Impairment of Assets IAS 28- Accounting for Investment in Associates

AS 29- Provisions, Contingent` Liabilities and

Contingent Assets

IAS 29- Financial Reporting in Hyperinflationary

Economics

.. IAS 30- Disclosure in the Financial Statement of Banks

and Similar Financial Institutions

..IAS 31- Financial Reporting of Interests in Joint Ventures

IAS 32- Financial Instruments: Disclosure and

Presentation

IAS 33- Earnings per Share

IAS 34-Interim Financial Reporting

. IAS 35 -Accounting for discontinuing operations IAS 36 -Impairment of Assets

.IAS 37-Provision for Contingent liabilities and assets

IAS 38 -Auditing

IAS 39- Financial Performance Appraisal, Recognition

and Measurement

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