UNIT – IBook Keeping: - Book keeping involves chronological recording of financial

transactions in a set of books in a systematic manner. The objective of Book keeping

is to prepare original books of accounts. It is restricted to journal, subsidiary books &

ledger accounts only. In Book keeping it is not possible to know the final result of the

business every year.

Accounting: - Accounting begins where Book keeping ends. The main objective of

accounting is to record, analyse and interpret the business transactions. Accounting

gives the net results of the business every year. Accountancy means the compilation

of accounts in such a way that one is in a position to know the state of affairs of the

business.

Definition: - “Accounting is a means of measuring & reporting the results of

economic activities” – Smith & Ashburne.

Objectives: -

1. To maintain records of the business.

2. To calculate profit or loss.

3. To ascertain financial position.

4. To communicate financial information.

Advantages: -

1. Provides financial information about the business.

2. Provides assistance to management.

3. Helps in comparison of financial results.

4. Helps in decision making.

5. Accounting information can be used as evidence in legal matters.

 Disadvantages: -

1. Accounting ignores non monetary transactions.

2. Accounting information is sometimes based on estimates which may be unrealistic.

3. Window dressing may lead to faulty results.

4. Accounting information can be manipulated and thus can no be considered as the

true test of performance.

Differences between Book Keeping & Accountancy

Book Keeping Accountancy

1. The objective is to prepare original

books of accounts.

1. The objective is to record, analyse and

interpret the business transactions.

2. Restricted to level of work, clerical

work is mainly involved in it.

2. Accountancy is concerned with all

levels of management.

3. Accounting concepts will be followed

by all without any difference.

3. Various firms follow various methods

of reporting & interpretation in

accounting.

4. It is not possible to know the final

result of business every year.

4. Accounting gives the net results of the

business every year.

Generally Accepted Accounting Principles: - Accounting has been evolved over a

period of several centuries ago. During this period certain rules and conventions have

been adopted. They serve as guide lines in identifying the events and transactions.

They help in measuring, recording and summarising the business transactions.

These guidelines are called as “Generally Accepted Accounting Principles” (GAAP).

These principles are divided in to two categories. They are,

I. Concepts: -

1. Business Entity Concept: - This concept implies that the business is distinct from

the person who owns it. If the owner takes any cash or goods from the business, it is

treated as personal account i.e. drawings accounts and the cash / goods are credited. Otherwise

the personal and business transactions will get mixed up and the accounting statements become

confused. This concept also helps to develop the theory of,

Assets = Liabilities + capital 2. Dual Aspect Concept: - This concept throws light on the point that each cash

transaction has two fold effects.

a. The receiver of benefit.

b. The giver of benefit.

Receiving aspect is turned as debit and the giving aspect is credit.

3. Money Measurement Concept: - While recording the business transactions we

do not record them in terms of kilograms, meters, litres, quintals etc. We record them

in common denomination so as to see that they become homogeneous and

meaningful. Hence recording is done in terms of currency of the country.

4. Going Concern Concept: - It is assumed that business will continue for a long

time. With this assumption fixed assets are recorded in the books of their original

cost. Keeping this assumption in view prepaid expenses or not treated as expenses

of the year in which they are incurred.

5. Objective Evidence Concept: - According to this concept all accounting

transactions should be evidenced and supported by objective documents. The

documents include invoices receipts, cash memos etc. Accounting records are

unbiased, they are not affected by personal judgements in recording these events.

6. Cost Concept: - Usually all the transactions will be recorded at cost in the books.

However at the end of the every year the accountant shows the reduced value of the

assets after providing for depreciation.

7. Accounting Period Concept: - Accounting period is the period following the

business concerns to maintaining accounts to known profits or loss usually one year,

it will be the accounting period starting from the 1st April and ending at 31st March

every year.

8. Accrual Concept: - The accrual system use a method where by revenues and

expenses are identified with specific period of time like a month, quarter year, half

year or year. It implies recording of revenues and expenses of the particular

accounting period. The excess of revenues over expenses is income and the excess

of expenses over revenues is loss.

9. Matching Cost Concept: - According to these principles the expenses incurred in

an accounting period should be matched with the revenues recognised in that period.

10. Historical Record Concept: - The accountant shows only the transactions which

have actually taken place and not those which may take place in future. All

transactions in accounting are to be recorded in the books of chronological order, this

means the preparation of a historical record for all transactions. Hence this concept is

called as historical record concept.

II. Conventions: -

1. Fully Disclosure Concept: - This concept deals with the convention that all

information which is of material importance should be disclosed in the accounting

statements. The accounting reports should disclose fully and fair information to the

Proprietors, Creditors, investors and others.

2. Materiality Concept: - Under this concept the trader records important facts about

commercial activities in the form of financial statements if any unimportant

information is to be given for the sake of clarity.

3. Consistency Concept: - The method of principles followed in the preparation of

various accounts should be followed in the years to come. It means that there should

be consistency in the methods or principles followed.

4. Conservatism Concept: - This concept fairly applied for some important things

followed by an accountant or manager that is making provisions for doubtful debts

and discount on debtors and valuing of stock in trade at cost or market price

whichever is less.

Types of Accounting: -

1. Financial Accounting: - It is mainly concerned with recording the business

transactions in the books of accounts for the purpose of presenting final accounts to

management, share holders, tax authorities etc. It is defined as the art of recording,

classifying and summarising in a significant manner and in terms of money. Here

transactions and events which are impart at least of a financial character and

interpreting the results thereof.

The information applied by Financial Accounting is summarised in the following two

statements at the end of the accounting period generally one year.

a. Profit & Loss A/c.

b. Balance Sheet.

Objective: - The objective of Financial Accounting is to present a true or fair view of

(financial) company’s income and financial position at regular intervals of one year.

2. Cost Accounting: - It is the process of accounting for cost from the point at which

expenditure is incurred or committed to the establishment of its ultimate relationship

with cost centres and cost units. It shows classification and analysis of costs on the

basis of functions, processes, products, centres etc. It also deals with cost

computation , costs saving, cost reduction etc.

Objectives: -

a. Ascertainment of cash.

b. Control of cost.

c. Guide to business policy.

d. Determination of selling price.

e. Measuring & improving the performance.

3. Management Accounting: - It is the process of identification, measurement,

accumulation, analysis, preparation and communication of financial information used

by management to plan, evaluate and control within the organization and to assure

appropriate use and accountability for is resources. It is concerned with accounting

information that is useful to management.

Objectives: -

a. Planning.

b. Decision making.

c. Coordinating.

d. Controlling.

e. Communicating.

f. Interpreting.

UNIT – IIDouble Entry System: - It is a scientific way of presenting A/c’s. As such all the

business concerns feel it convenient to prepare the accounts under double entry

system. The taxation authorities also compel the businessmen to prepare the A/c’s

under Double Entry System. Every business transaction has got two A/c’s, one is

debited and the other one is credited. The principle of double entry is based on the

fact that there can be no giving without receiving nor can there be receiving without

something giving. The receiving A/c is debited on the debited side of A/c and the

giving is credited on the credit side of A/c.

Advantages: -

1. Scientific system.

2. Full information.

3. Assessment of P&L.

4. Knowledge of debtors.

5. Knowledge of creditors.

6. Arithmetical accuracy.

7. Assessment of financial position.

8. Comparison of results.

9. Maintenance according to tax rules.

10. Detection of frauds.

Limitations: -

1. Errors of Omission If entire transaction is not recorded in banks of A/c’s the

mistake cannot be detected by accounting.

2. Errors of Principle Not able to detect the mistakes.

3. Compensating errors If Rahim’s A/c debited Rs 50 lesser & Mohan’s A/c

credited Rs 50 lesser trial balance will tally but mistake will remain in A/c’s.

Classification of A/c’s: -

Rules: -

1. Personal A/c’s – Debit the receiver / Credit the giver.

2. Real A/c’s – Debit what comes in / Credit what goes out.

3. Nominal A/c’s – Debit all expenses / Credit all incomes and gains.

Journal: - The word Journal is derived from the Latin word ‘Journ’ which means a

day. Therefore journal means a day book where in day to day business transactions

are recorded. Journal is treated as the book of original entry or first entry or prime

entry. The process of recording transactions in the journal is called journalising. The

entries made in the book are called journal entries.

Rules: -

1. Date.

2. Particulars.

3. Narration.

4. Ledger folio.

5. Debit.

6. Credit.

Importance: -

1. Availability of full information.

2. Posting becomes easy.

3. Explanation of the transaction.

4. Location of the errors easy.

Ledger: - It contains the final & permanent record of all the transactions in duly

classified form. A ledger is a book which contains various accounts. The process of

transferring the entries from the journal in to the ledger is called posting.

Features: -

1. It contains all the accounts – personal, real & nominal.

2. It is permanent record of business transactions.

3. It provides a means of easy reference.

4. It provides final balance of the accounts.

5. Easy to know how much amount is due from others.

6. Easy to know how much amount is owed to others.

7. Easy to know total sales to an individual customer & total purchases of him.

Differences between Journal & Ledger

Journal Ledger

BUS 1.5 ACCOUNTING FOR MANAGERS

Unit I: - General Management: Management concept, Managerial roles, Managerial

skills, Brief treatment of managerial functions, Scientific Principles of management,

Administrative Principles of Management.

Forms of Business Organisation: Salient features of sole proprietorship,

Partnership, Joint Stock Company, private limited and public limited companies.

Unit II: - Financial Management: Objectives of Financial Management, Concept of

interest, Simple interest, Compound interest, equivalent cash flow diagram.

Economic Evaluation of Alternatives: Basic methods, the annual equivalent

method, present worth method, future worth method.

Depreciation: Purpose, types of depreciation, common methods of depreciation. The

Straight line method, Declining balance method, the sum of the years digits method.

Unit III:- Human Resource Management: Functions of Human Resource

Management – Job Analysis, Human Resources Planning, Brief treatment of

Recruitment, Selection, Placement, Induction & Orientation, Training & Development,

Performance Appraisal, Job Evaluation, Career Planning & Development, Stress

Management, Compensation.

Directing: - Motivation and Leadership, Theories of motivation and styles of

Leadership.

Unit IV: - Materials Management: Functions of Materials Management, Material

Requirement Planning, Purchasing, objective of Purchasing, source selection,

Procurement methods, Vendor Rating, Inventory Management – EOQ, EPQ, ABC

Analysis. FSN Analysis, VED Analysis.

Marketing Management: Functions of Marketing, Marketing Mix, Product Life Cycle,

Channels of distribution, Marketing Segmentation, Advertising & Sales promotion,

Market Research.

Text Books: -

1. KK Ahuja, Industrial Management, Vol. I & II, Dhanpat Rai, 1978.

2. E.Paul Degarmo, John R Chanda, William G Sullivan, Engineering Economy, Mac

Millan Publishing Co, 1979.

P.SIDDHARDHA M.B.A., M.PHIL

ACCOUNTING FOR MANAGERS