1. ACCOUNTING FOR MANAGERS

2. MODULE:1 THE FOUNDATION

3. CONCEPTUAL FRAMEWORK OF FINANCIAL ACCOUNTING Why Accounting? – ‘’Short pencil is better than a long memory’’ What is Accounting? – The art of recording, classifying and summarizing in terms of money transactions and events of financial character and interpreting the results thereof. Meaning of an Account? – It is a summary of relevant transactions at one place relating to a particular head.

4. Types of Accounting Accounting Financial Accounting Cost Accounting Management Accounting Government Accounting Tax Accounting

5. Business Transactions and Events Recording: Journal Classification: Ledger Trial balance: Summary Interpretation: Balance Sheet;Profit & Loss Account;Cash Flow Statement Information to Users Accounting Process

6. Classification of Accounts Useful in this FY Cash Outflow Expense Useful in next FY also. Cash Outflow Asset Useful in this FY Cash Inflow Revenue Useful in Next FY also Cash Inflow Liability Owners Contribution Cash Inflow Capital

7. Principles of Accounting The rules and guidelines that companies must follow when reporting financial data are Principles. Principles which have logic are called concepts. Principles which we follow anyway are called conventions.

8. PRINCIPLES OF ACCOUNTING Business and Businessmen are two Separate Entities Separate Entity Concept Business Life is Unlimited Going Concern Concept Record only those items which can influence decisions. Materiality Concept Record only those items which can be expressed in money terms Money Measurement Recognize revenue only when it is earned i.e. when economic benefit and Risk is transferred. Principles of Realization

9. PRINCIPLES OF ACCOUNTING Every transaction has a double (or dual) effect on the position of a business as recorded in the accounts Duality Current year’s revenue should match current year’s expense. Matching It is the period for which books are balanced and the financial statements are prepared. Accounting period original monetary value of an economic item Historical Cost Principle “Expected losses are losses but expected gains are not gains". Conservatism

10. CLASSIFICATION OF ACCOUNTS TRADITIONAL APPROACH Personal Accounts Rule: Dr the Receiver & Cr Giver Real Accounts Dr what comes in & Cr what goes out. Nominal Accounts Dr Losses & expenses & Cr revenue & Income. MODERN METHOD Asset/Expenses: Cash Outflow Liability/Revenue: Cash Inflow Capital: Owners Contribution

11. JOURNAL ENTRIES AND LEDGERS What is a Journal Entry??? A journal entry, in accounting, is a logging of transactions into accounting journal items. The journal entry can consist of several items, each of which is either a debit or a credit. The total of the debits must equal the total of the credits or the journal entry is said to be "unbalanced". What is a Ledger The general ledger is the main accounting record of a business which uses double-entry bookkeeping. It will usually include accounts for such items as current assets, fixed assets, liabilities, revenue and expense items, gains and losses. Each General Ledger is divided into debits and credits sections. The left hand side lists debit transactions and the right hand side lists credit transactions. This gives a 'T' shape to each individual general ledger account.

12. Here are a few transactions which show how the entries are made in the Journal and Ledger Started Business with Cash Rs.20000 Building Purchased Rs. 8000 Cash deposited in the Bank Rs.4000 Goods Purchased Rs.2000

13. JOURNAL ENTRY DateParticulars Ledger Folio (LF)Debit (Dr.)Credit (Cr.) Entry: Started business with Cash Rs.20000 01.01.2012Cash A/c Dr.20000 To. Capital A/c20000 Narration: Being Business Started CASH ACOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 01.01.2012To Capital A/c20000 CAPITAL ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 01.01.2012By Cash A/c20000

14. JOURNAL ENTRY DateParticulars Ledger Folio (LF)Debit (Dr.)Credit (Cr.) Entry: Building Purchased Rs.8000 05.01.2012Building A/c Dr.8000 To Cash A/c8000 Narration: Being Building Purchased CASH ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 01.01.2012To Capital A/c2000005.01.2012By Building A/c8000 BUILDING ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 05.01.2012To Cash A/c8000

15. JOURNAL ENTRY DateParticulars Ledger Folio (LF)Debit (Dr.)Credit (Cr.) Entry: Cash Deposited in Bank Rs.4000 05.01.2012Bank A/c Dr.4000 To Cash A/c4000 Narration: Being Cash deposited in Bank BANK ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 05.01.2012To Cash A/c4000 CASH ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 01.01.2012To Capital A/c2000005.01.2012By Building A/c8000 By Bank A/c4000

16. JOURNAL ENTRY DateParticulars Ledger Folio (LF)Debit (Dr.)Credit (Cr.) Entry: Goods Purchased worth Rs. 2000 25.01.2012Purchases A/c Dr.2000 To Cash A/c2000 Narration: Being purchases made PURCHASES ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 05.01.2012To Cash A/c2000 CASH ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 01.01.2012To Capital A/c2000005.01.2012By Building A/c8000 By Bank A/c4000 By Purchases2000

17. LEDGER BALANCING

18. BUILDING ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 05.01.2012To Cash A/c800031.01.2012By BALANCE8000 BANK ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 05.01.2012To Cash A/c400031.01.2012By BALANCE4000 CAPITAL ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 31.01.2010To BALANCE2000001.01.2012By Cash A/c20000 PURCHASES ACCOUNT DEBITCREDIT DateParticulars Amount (Rs)DateParticulars Amount (Rs) 05.01.2012To Cash A/c200031.01.2012By BALANCE2000

19. TRIAL BALANCE Sr. NoParticularsDebitCredit 1CAPITAL A/c 20000 2CASH A/c6000 3BANK A/c4000 4BUILDING A/c8000 5PURCHASES A/c2000 20000 Trial Balance Should always tally