Description
need for accounting, various accounting activities, various users of accounting information, usefulness of accounting, limitations of accounting, principles of accounting, basic accounting concepts, conventions used in accounting.
ACCOUNTING FOR MANAGEMENT
The Need for Accounting Managers, investors, and other internal groups want the answers to two important questions: How well did the organization perform?
Where does the organization stand?
The Need for Accounting
Accountants answer these questions with two major financial statements:
Income Statement Balance Sheet
Confused?
What is Accounting?
is a Accounting
system that Identifies
Records information Relevant Reliable Comparable to help users make better decisions. that is Communicates
Accounting Activities
? Identifying
Business Activities
? Recording
Business Activities
?Communicating
Business Activities
ACCOUNTING
Accounting is a process of Identifying, Measuring, Recording, Classifying, Summarizing, Analyzing, Interpreting and Communication the economic information of an organization to its users.
Accounting is also called the language of business
Activities Under Accounting Identifying Measuring Recording Classifying Summarizing
Transactions Events Analyzing Interpreting Communication User
User of Accounting Information
External Users
Internal Users
•Lenders •Shareholders •Governments
•Consumer Groups •External Auditors •Customers
•Managers •Officers
•Sales Staff •Budget Officers
•Internal Auditors •Controllers
User of Accounting Information
Internal Users
External Users
Financial accounting provides external users with financial statements.
Managerial accounting provides information needs for internal decision makers.
Usefulness of Accounting
? Facilitates to replace memory ? Facilitates to comply with legal requirement ? Facilitates to ascertain net result of operations ? Facilitates to ascertain financial position ? Facilitates the users to take decisions ? Facilitates a comparative study ? Assists the management ? Facilitates control over assets ? Facilitates the settlement of tax liability ? Facilitates the ascertainment of value of business ? Facilitates raising loans
Accounting Limitations
? Ignores the qualitative elements ? Not free from bias ? Estimated position and not real position ? In some cases ignores the price level changes ? Window Dressing
Generally Accepted Accounting Principles
Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).
Relevant Information Affects the decision of its users.
Reliable Information
Is trusted by users.
Is helpful in contrasting organizations.
Comparable Information
Accounting is based on a set of principles on which there is general agreement, not on rules that can be “proved.”
Accounting Principles
Accounting Concepts
Accounting Conventions
Concept includes those basic assumptions or Conditions upon which the science of Accounting is based
Conventions includes those customs or traditions Which guide the accountant while preparing Accounting statements
Basic Accounting Concepts
Business Entity Concept
Money Measurement Concept
Going concern Concept
Accounting Period Concept
Historical Cost Concept Matching Concept Revenue Recognition Concept Dual Aspect Concept
Separate Entity Concept
The activities of the entity are to be kept separate and distinct from the activities of the owner and all other economic entities.
MONEY MEASUREMENT ASSUMPTION
Only transaction data that can be expressed in terms of money be included in the accounting records.
Hiring an employee
Do not record
Paying an employee Record
GOING CONCERN ASSUMPTION
The enterprise will continue in operation long enough to carry out its existing objectives.
NOW
FUTURE
Accounting Period Assumption
The economic life of a business can be divided into artificial time periods
2008
QTR 1 QTR 2 QTR 3 QTR 4 JAN APR JUL OCT
2009
FEB MAY AUG NOV MAR JUN SEPT DEC
2010
COST ASSUMPTION
Requires assets to be recorded at cost.
COST
is relevant because it represents:
COST
is reliable because it is:
PRICE PAID or ASSETS SACRIFICED or COMMITMENT MADE
OBJECTIVELY MEASURABLE and FACTUAL and VERIFIABLE
MATCHING CONCEPT
Expenses are matched with revenues in the period in which efforts are made to generate revenues.
REVENUE RECOGNITION CONCEPT
Revenue should be recognized in the accounting period in which it is earned. When a sale is involved, revenue is recognized at the point of sale.
Dual Aspect Concept
This is one of the fundamental concept of Accounting. It may be stated as “for every Debit there is a credit”. Every business transaction has a dual effect and the entry Made for the transaction is recorded on the debit and as well as on the credit side It may be expressed in the form of equation
Assets = Liabilities + Equity
ACCOUNTING CONVENTIONS
CONSERVATISM CONSISTENCY
FULL DISCLOSURE MATERIALITY
CONSERVATISM
According to this convention, the Accountants should follow the Rule “Anticipate no profits but provide for all probable losses”. The convention requires That PROFIT should neither be overstated nor anticipated
• When in doubt, choose method least likely to overstate assets and income • Do not intentionally understate!
CONSISTENCY
CONSISTENT INFORMATION
• Companies should use the same accounting principles from year to year. • Changes in accounting principles must be justifiable.
2000 2001
2002
FULL DISCLOUSRE
It requires that the financial statements should reveal all the relevant and reliable Information fully & fairly. This convention become more relevant in the companies Form of organization where management & ownership are in separate hands
Section 211 of the companies Act 1956 requires that the Income statement & Balance Sheet of a company must give true & fair value of statement of affairs of the Company& also prescribe the forms in which these statements are to be prepared
Materiality
• Will it influence the decision? – MATERIAL • No impact on decision? – IMMATERIAL
© PhotoDisc/Getty Images
© PhotoDisc/Getty Images
doc_846697647.pptx
need for accounting, various accounting activities, various users of accounting information, usefulness of accounting, limitations of accounting, principles of accounting, basic accounting concepts, conventions used in accounting.
ACCOUNTING FOR MANAGEMENT
The Need for Accounting Managers, investors, and other internal groups want the answers to two important questions: How well did the organization perform?
Where does the organization stand?
The Need for Accounting
Accountants answer these questions with two major financial statements:
Income Statement Balance Sheet
Confused?
What is Accounting?
is a Accounting
system that Identifies
Records information Relevant Reliable Comparable to help users make better decisions. that is Communicates
Accounting Activities
? Identifying
Business Activities
? Recording
Business Activities
?Communicating
Business Activities
ACCOUNTING
Accounting is a process of Identifying, Measuring, Recording, Classifying, Summarizing, Analyzing, Interpreting and Communication the economic information of an organization to its users.
Accounting is also called the language of business
Activities Under Accounting Identifying Measuring Recording Classifying Summarizing
Transactions Events Analyzing Interpreting Communication User
User of Accounting Information
External Users
Internal Users
•Lenders •Shareholders •Governments
•Consumer Groups •External Auditors •Customers
•Managers •Officers
•Sales Staff •Budget Officers
•Internal Auditors •Controllers
User of Accounting Information
Internal Users
External Users
Financial accounting provides external users with financial statements.
Managerial accounting provides information needs for internal decision makers.
Usefulness of Accounting
? Facilitates to replace memory ? Facilitates to comply with legal requirement ? Facilitates to ascertain net result of operations ? Facilitates to ascertain financial position ? Facilitates the users to take decisions ? Facilitates a comparative study ? Assists the management ? Facilitates control over assets ? Facilitates the settlement of tax liability ? Facilitates the ascertainment of value of business ? Facilitates raising loans
Accounting Limitations
? Ignores the qualitative elements ? Not free from bias ? Estimated position and not real position ? In some cases ignores the price level changes ? Window Dressing
Generally Accepted Accounting Principles
Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).
Relevant Information Affects the decision of its users.
Reliable Information
Is trusted by users.
Is helpful in contrasting organizations.
Comparable Information
Accounting is based on a set of principles on which there is general agreement, not on rules that can be “proved.”
Accounting Principles
Accounting Concepts
Accounting Conventions
Concept includes those basic assumptions or Conditions upon which the science of Accounting is based
Conventions includes those customs or traditions Which guide the accountant while preparing Accounting statements
Basic Accounting Concepts
Business Entity Concept
Money Measurement Concept
Going concern Concept
Accounting Period Concept
Historical Cost Concept Matching Concept Revenue Recognition Concept Dual Aspect Concept
Separate Entity Concept
The activities of the entity are to be kept separate and distinct from the activities of the owner and all other economic entities.
MONEY MEASUREMENT ASSUMPTION
Only transaction data that can be expressed in terms of money be included in the accounting records.
Hiring an employee
Do not record
Paying an employee Record
GOING CONCERN ASSUMPTION
The enterprise will continue in operation long enough to carry out its existing objectives.
NOW
FUTURE
Accounting Period Assumption
The economic life of a business can be divided into artificial time periods
2008
QTR 1 QTR 2 QTR 3 QTR 4 JAN APR JUL OCT
2009
FEB MAY AUG NOV MAR JUN SEPT DEC
2010
COST ASSUMPTION
Requires assets to be recorded at cost.
COST
is relevant because it represents:
COST
is reliable because it is:
PRICE PAID or ASSETS SACRIFICED or COMMITMENT MADE
OBJECTIVELY MEASURABLE and FACTUAL and VERIFIABLE
MATCHING CONCEPT
Expenses are matched with revenues in the period in which efforts are made to generate revenues.
REVENUE RECOGNITION CONCEPT
Revenue should be recognized in the accounting period in which it is earned. When a sale is involved, revenue is recognized at the point of sale.
Dual Aspect Concept
This is one of the fundamental concept of Accounting. It may be stated as “for every Debit there is a credit”. Every business transaction has a dual effect and the entry Made for the transaction is recorded on the debit and as well as on the credit side It may be expressed in the form of equation
Assets = Liabilities + Equity
ACCOUNTING CONVENTIONS
CONSERVATISM CONSISTENCY
FULL DISCLOSURE MATERIALITY
CONSERVATISM
According to this convention, the Accountants should follow the Rule “Anticipate no profits but provide for all probable losses”. The convention requires That PROFIT should neither be overstated nor anticipated
• When in doubt, choose method least likely to overstate assets and income • Do not intentionally understate!
CONSISTENCY
CONSISTENT INFORMATION
• Companies should use the same accounting principles from year to year. • Changes in accounting principles must be justifiable.
2000 2001
2002
FULL DISCLOUSRE
It requires that the financial statements should reveal all the relevant and reliable Information fully & fairly. This convention become more relevant in the companies Form of organization where management & ownership are in separate hands
Section 211 of the companies Act 1956 requires that the Income statement & Balance Sheet of a company must give true & fair value of statement of affairs of the Company& also prescribe the forms in which these statements are to be prepared
Materiality
• Will it influence the decision? – MATERIAL • No impact on decision? – IMMATERIAL
© PhotoDisc/Getty Images
© PhotoDisc/Getty Images
doc_846697647.pptx