ACCOUNTING FOR MANAGER

BOOK KEEPING

Recording of business transactions which take place during Accounting Period Accounting Period-Commences on 1st April and Ends on 31st March every year unless otherwise specifically mentioned Guiding and controlling the business activities To analyze and interpret the financial results to the management,

so that management can understand what is happening to the

business and what is going to happen in future What must happen in the interest of the business concern

 Accounting to furnish information to the needy that is to the management, investors, government agencies etc Accounting consists of financial accounting, cost accounting managerial accounting

Financial accounting provides information to external users

External parties are investors, prospective investors, creditors bankers, government agencies etc

 Accounting is basically an information system It is involved in the process of converting inputs into outputs

It processes business transactions (inputs) to produce the desired

reports, statements etc (outputs) Business transaction- dealing between two or more parties that is seller and buyer Transaction means business transaction expressed in monetary terms or capable of expressing in monetary terms Internal users means proprietor or partners or board of directors

 Functional Managers such as Purchase Manager Production Manager Marketing Manager or Sales Manager Finance Manager/Financial controller External parties are two types 1. Users with direct financial stake or interest 2. Users with indirect financial stake or interest

1. users with direct financial stake or interest are:

Shareholders present or prospective Debenture holders present or prospective Suppliers of input Lending financial institutions Employees 2. Users with indirect financial stake or interest: Customers and consumer groups

Tax authorities
Regulatory bodies

 Financial analysts and advisors Brokers and other financial intermediaries Trade unions Press General public Above persons/institutions/tax authorities/regulatory bodies need accounting information from their business concerns for various

reasons and purposes

Basically they need information to take appropriate decisions both individual and institutional investors consists of shareholders

 debenture holders etc need information

1. To asses the risk involved and return expected in relation to their investment
2. Whether they should continue to invest in the business or dispose of or 3. Invest in financial instruments which promise higher return with lower risk 4. Whether the business is capable of paying dividends/interest regularly 5. Whether there is any scope of capital appreciation The above said groups needs detailed information such as 1) Rate of growth in sales, volumes, etc 2) Profit-gross profit margin, operating profit, net profit, contribution, divisible

profits etc
3) Investment amount of capital invested, cost price of assets owned

4) return on investment (ROI)

5) Earnings per share 6) Market price of the equity (Ordinary shares ) 7) Financial institution (which lend money to the business organizations (banks and other institutions) require information from the borrowing organization to know -whether it is capable of paying the interest regularly - whether it is capable of paying installment principal regularly

So they need relevant accounting information to know liquidity position

of the borrowing unit that is short term liquidity and long term liquidity

 Suppliers of the different inputs who supply inputs on credit information from buying organization to evaluate short term liquidity of the organization so that the business is able to pay their dues when it falls dues Employees and trade unions require information from their organization to evaluate the stability and continuing profitability of the organization interested in assessing the ability of the employer organization pay them periodically (like salaries, bonus, etc promotional prospects capable of maintaining pension fund and retirement benefits Government is providing number of facilities to the business units (such as subsidy concessions of power, water, etc), hence it is the responsibility of the government to protest the interest of all sections of the society Government wants to know whether business enterprises are remitting various taxes duties etc to the exchequer For the above said reasons government and its agencies require accounting information GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Accounting principles are in the form of guidelines and or rules which are used as standards for recording business transactions in the books of accounts and their fair presentation in the Financial statements.

 Financial Statement means: 1. Trading and Profit and Loss Account for the accounting period ended on (in case of trading organizations buying and selling Manufacturing and profit and loss account (in case of manufacturing units 2. Balance Sheet as at 31/03/2011 3. Cash flow statements for the period 4. Accounting policies 5. Accounting Standards 6. Notes forming part of accounts ACCOUNTING ASSUMPTIONS

1. Money Measurement : Record of transaction is made only those events which can be measured and expressed in terms of money . Transactions are recorded value of money (at the time the transactions are recorded) 2. Going Concern : Going concern concept means that a business concern that a business concern will continue to operate for a fairly long period, from this point of view its business transactions are recorded in the books of accounts

3. : The Business Entity: Every business undertaking whether it is a sole trading concern or a partnership firm or a limited company is considered as different entity from the person who owns it , hence all the transactions are recorded in the business concerns and not in the books of owners.

ACCOUNTING CONCEPTS

1. Accounting Period Concept: According to going concern assumption a business concern likely to continue for an indefinitely long period of time, for the purpose of reporting to outsiders like creditors, investors, banks, financial institutions, etc financial performance and financial position is required to be ascertained yearly. 2. Objectivity Concept: This concept specifies that all entries of business transactions which take place during accounting period should be supported by the evidences such as invoices (for sales), bills/invoices (for purchases), documents, deeds, vouchers, which are objective and subject to verification. 3. Dual-Aspect Concept: For each transactions there are two effects one Debit the other is credit. Evert business transaction involves dual or double aspects of equal value for example if an asset is increased corresponding increase in liability or capital

In the books of any business concern at any moment of time , the following equation holds good ASSETS=LIABILITIES+CAPITAL OR ASSETS-CAPITAL=LIABILITIES

ACCOUNTING PRINCIPLES
1. Cost Principle : An asset acquired by a business concern is recorded in the books of accounts at cost(Historical Cost) that is the value actually paid for acquiring the asset. 2. Accrual Principle: The accrual principle suggests that when a transaction has been entered into its consequences will certainly follow. So all transactions must be recorded in the books of accounts whether paid or not. It implies that revenues accrue in that year in which they are earned, and not in the year in which year they are actually received. Similarly expenses will accrue in the year in which they are incurred and not in the year in which they are actually paid.

3. Matching Principle: Matching principle has been evolved to help a concern to know its net profit or net loss and the details of all revenues and