Fundamentals

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 The art of Recording, Classifying,
And summarizing in terms
of money ,transactions and events
Accounting which are of financial Nature,
and interpreting the results
thereof

Cost Management
Financial
Accounting Accounting
Accounting

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 Manufacturing & Marketing Cars

What Would Be The Role Of Financial Accounting ?

What Would Be The role Of Cost Accounting ?
What Would Be Role Of Management Accounting ?

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 Manufacturing & Marketing Cars

Reducing Cost of the car by INR 10,000

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Financial Accounting- Fundamentals
meaning & limitations

FA is concerned with Journal

RECORDING,
CLASSIFYING AND
SUMMARISING Ledger

financial transactions in accordance Trial Balance

with the generally accepted
Accounting Principles
Final Statements
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Financial Statements Fundamentals

PROFIT & LOSS

BALANCE-SHEET
ACCOUNT

STATEMENT OF
SOURCES &
APPLICATIONS OF
FUNDS

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Financial Accounting- limitations Fundamentals

HISTORICAL ONLY NET RESULTS

NO CONTROL NO DISTINCTION
ON COST Direct & Indirect

Inadequate Information
NO COMPARISON OF
For
PRICE FIXATION COSTS

NO STANDARDS TO
Assess Performance
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Man age me nt
Acc ou nting

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Management Accounting
• A field of accounting that provides
economic and financial information for
managers and other internal users.

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MAN AGEM EN T ACC OUNTI NG
BASICS
Activities include:
• Explaining manufacturing and non
manufacturing costs and how they are reported
in the financial statements
• Computing the cost of providing a service or
manufacturing a product
• Determining the behavior of costs and expenses
as activity levels change
• Analyzing cost-volume profit relationships
within a company

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 MANAGEMENT ACCOUNTING
BASICS
Activities include (continued):
• Assisting management in profit planning and
budgeting
• Providing a basis for controlling costs and
expenses by comparing actual results with planned
objectives and standard costs
• Accumulating and presenting relevant data for
management decision making

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 COMPARING MANAGEMENT
AND FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

Internal Users: Managers

External Users; Directors
Stockholders, Creditors Primary users
Regulators Of Reports

Financial Statements Types & Frequency Internal Reports

Quarterly & Annually As Frequently Required
Of Reports
General Purpose
Purpose of Reports Special Purpose for
Specific Decisions
Pertains to Business as Whole
Limited to Double Entry Acct, Contents of Reports Pertains To some sub unit of
Cost Data Business
GAAP/IAS Very Detailed
Extend beyond DE Accounting
Standard is relevance to Decision
Audit By CA
Verification Process No independent Audits

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Few Terms - clarification Fundamentals

COST ACCOUNTANCY
COSTING
COST ACCOUNTING

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 Few Terms - clarification Fundamentals

COST ACCOUNTANCY

It is the application of Costing and Cost Accounting

Principles, Methods and Techniques to the science,
art and practice of Cost Control and the ascertainment
of profitability. It includes the presentation of information
derived there from for the purpose of Managerial
Decision Making

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COST ACCOUNTING- introduction Fundamentals

The Process of accounting for costs from the

Point at which expenditure is incurred or
committed to the establishment of its ultimate
relationship with cost centers and cost units

Books Cost Centers

Of Cost Accounts

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 Few Terms - clarification Fundamentals

COSTING
•Technique and process of ascertaining costs

•Classifying, recording and appropriate allocation of Expenditure

for determination of costs of products ( Watch, TV, Computers)
or services (Electricity, telephone, Transport Etc)

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Costing Objectives

Ascertaining Setting Cost Cost

cost Price Control Review

Operating
Decisions

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decision making Fundamentals

MAKE OR
BUY SALES
CAPACITY VOLUME

PROFIT
PRICE

OPERATE
EXPORT
NEW OR
PRICE
MODEL SHUT
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Cost Accounting- principles Fundamentals

• A cost is related to cause- rent of factory charged to factory

• A cost is charged after it has been Incurred-no selling cost to unsold

stock

• Abnormal costs are excluded – loss due to fire accident

• Conservatism Concept ignored in Cost Accounting- stock

valued at cost only

5 Principle of Double entry applied to cost accounting too

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Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Need Compulsory Obligatory

Final Results to stake

Purpose Holders Cost Information

Recording Subjective Recording Objective Recording

Profit Product wise

Analysis
Total Profit/Loss

Contents External Transactions Internal

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Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Periodicity Once/twice Daily/weekly/monthly

Control Inadequate System at Place

Nature Historical Historical/Predetermined

Valuation Cost or market Cost Price

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Management/Cost Accounting- differences Fundamentals

factor MA CA
Derivation Of Data •Cost/Financial Acct Data From CA

Information Provided •Cost/Fin. Information Only Cost Inf.

CVP/Fin Ratios
Emphasis •Decision Making Cost Ascertainment
& Control
•Planning, Decision M Reporting Cost
Purpose
& Control
•Short/Long Term Short Term
Planning
Variable Costing,
•RA,FF, C Flow Budgetary Control etc
Techniques
•Not possible without Can Be Installed
Installation CA system Without CA

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Cost Accounting- advantages Fundamentals

Supplies Detailed Cost Information

Helps in Price Fixation
Reveals UN (Profitable) Activities
Reveals idle capacity
Assist in Controlling Costs
Helps in decision Making
Facilitates Cost Comparison
Helps in Inventory Control
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Cost Accounting- Objections Fundamentals

It is Unnecessary
It is Inapplicable
It is a failure
Mere matter of
Forms and Ruling
It is Expensive

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 Price …..Quality ….Strategies
Price
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
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 Fundamentals
Costing Methods

Job Costing
Batch Costing
Contract Costing
Process Costing
Unit Costing
Operation Costing
Operating Costing
Multiple Costing
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Costing Techniques Fundamentals

Historical Costing
Standard Costing
Marginal Costing
Absorption Costing
Direct Costing
Uniform Costing

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Installation Of Costing System Fundamentals

•Nature Of Business
•Structure of Organization
•Objectives and Expectations
•Cooperation and support Of staff
•Standardization of Forms
•Prompt Reporting
•Flexibility
•Reconciliation of FA & CA
•Current Practices
•Simplicity

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Installation Of Costing System-difficulties Fundamentals

•Lack Of Management Support

•Resistance Of Staff
•Non Cooperation From Other Levels
•Shortage Of Trained Staff
•Heavy Cost Of Operating The System

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 Fundamentals

Time for Questions

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