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Semester 1: Accounting for Managers
Financial Accounting – Meaning - Objectives - functions. Branches of Accounting: Financial, Cost and Management Accounting - Accounting Concepts and conventions. Journal – Ledger – Trial Balance – Preparation of Final Accounts: Trading, Profit and Loss Account and Balance Sheet (problems); International Accounting Standards - IFRS
Financial Accounting
Financial accounting is the process of recording, summarizing, and reporting financial transactions of an organization. It provides information through financial statements that are useful to external users in making economic decisions.
To provide information about the financial position, performance, and changes in financial position of an entity.
To assist in decision-making by providing relevant financial data.
To ensure accountability and transparency in financial reporting.
To facilitate comparisons between different organizations.
Recording: Systematic recording of financial transactions.
Classifying: Sorting recorded transactions into meaningful categories.
Summarizing: Preparing financial statements to provide a clear overview of financial performance.
Reporting: Communicating financial results to stakeholders.
Focuses on reporting financial information to external parties.
Concerned with capturing and analyzing costs associated with production and operations.
Involves creating internal reports for management decision-making.
Going Concern: Assumes that the entity will continue its operations in the foreseeable future.
Accrual Basis: Revenues and expenses are recognized when they are incurred, not necessarily when cash is received or paid.
Consistency: Financial statements should be prepared using the same accounting policies from one period to the next.
The initial record of all transactions, organized chronologically as they occur.
A collection of accounts that summarizes all transactions related to each account.
A statement that lists all ledger accounts and their balances to ensure that total debits equal total credits.
Calculates gross profit or loss by comparing revenue from sales against direct costs.
Shows the net profit or loss by including operating revenues and expenses.
A snapshot of the entity's financial position at a specific point in time, detailing assets, liabilities, and equity.
International Financial Reporting Standards are standards developed to provide a global framework for how publicly listed companies prepare and disclose their financial statements.
Financial Statement Analysis - Objectives - Techniques of Financial Statement Analysis: Common Size and Comparative Financial Statements, Trend analysis, Ratio Analysis. Fund Flow Statement - Statement of Changes in Working Capital - Preparation of Fund Flow Statement - Cash Flow Statement Analysis- Distinction between Fund Flow and Cash Flow Statement – problem.
Financial Statement Analysis
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Understanding the purpose of financial statement analysis including evaluating financial health, assessing performance, and aiding in decision-making.
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Analyzing financial statements by expressing each line item as a percentage of a base amount. Commonly used for comparing companies of different sizes.
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Analyzing financial statements over multiple periods to assess performance and trends.
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Identifying patterns in financial data over time to forecast future performance.
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Using various financial ratios to evaluate a company's performance and financial position.
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Understanding and preparing a fund flow statement to analyze the sources and uses of funds in a business.
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Analyzing the changes in working capital to understand a company's operational efficiency.
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Examining the cash flow statement to determine the liquidity and financial viability of a company.
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Understanding the key differences between fund flow statements and cash flow statements, including their purpose, components, and the information they convey.
Marginal Costing - Definition - distinction between marginal costing and absorption costing - Break even point Analysis - Contribution, p/v Ratio, margin of safety - Decision making under marginal costing system-key factor analysis, make or buy decisions, export decision, sales mix decision- Problems.
Accounting for Managers
M.B.A.
Core
1
Periyar University
Accounting for Managers
Marginal Costing
Definition
Marginal costing is a cost accounting technique that focuses on the variable costs associated with production. It emphasizes the contribution margin, which is the difference between sales and variable costs.
Distinction between Marginal Costing and Absorption Costing
1. Marginal costing includes only variable costs in product cost, while absorption costing includes both variable and fixed costs. 2. Profit reporting differs; marginal costing reports profit based on contribution, whereas absorption costing assigns fixed manufacturing costs to the units produced.
Break-even Point Analysis
The break-even point is the level of sales at which total revenues equal total costs. It is calculated by dividing fixed costs by the contribution per unit. Understanding this point helps businesses to determine the minimum sales required to avoid losses.
Contribution, P/V Ratio, Margin of Safety
Contribution is the selling price minus variable costs. P/V ratio (profit-volume ratio) indicates how much profit is generated per unit of sales. Margin of safety measures the difference between actual sales and break-even sales, thus indicating the risk level.
Decision Making under Marginal Costing System
Marginal costing aids in various decision-making scenarios: 1. Key Factor Analysis: Identifying limiting factors in production. 2. Make or Buy Decisions: Determining whether to produce in-house or purchase externally based on cost comparisons. 3. Export Decision: Analyzing whether to enter foreign markets based on marginal costs and pricing. 4. Sales Mix Decision: Optimizing the combination of products sold for maximum contribution.
Problems
Common problems in marginal costing include: 1. Difficulty in accurately distinguishing between variable and fixed costs. 2. Challenges in applying the concept consistently across different departments. 3. Managing inventory levels as marginal costing may impact the absorption of fixed costs.
Budget, Budgeting, and Budgeting Control - Types of Budgets - Preparation of Flexible and fixed Budgets, master budget and Cash Budget - Problems - Zero Base Budgeting.
Budget, Budgeting, and Budgeting Control
Types of Budgets
Budgets can be classified into various types based on their purpose and flexibility. Common types include fixed budgets, flexible budgets, cash budgets, and master budgets. Each serves a unique function in financial planning and performance monitoring.
Preparation of Flexible and Fixed Budgets
A fixed budget is set for a specific level of activity and remains unchanged, while a flexible budget adjusts according to the actual level of activity. Preparation of these budgets involves collecting historical data, analyzing variable and fixed costs, and projecting future revenues.
Master Budget
A master budget is an integrated financial plan that consolidates all individual budgets across different departments within an organization. It serves as a comprehensive overview of an organization's financial goals and strategies.
Cash Budget
A cash budget estimates cash inflows and outflows over a specific period. It helps businesses manage liquidity and ensure they have sufficient cash to meet obligations.
Problems in Budgeting
Budgeting can face several challenges such as inaccurate forecasts, resistance to change, and insufficient resources. These problems can hinder effective financial management and necessitate ongoing monitoring and adjustments.
Zero Base Budgeting
Zero base budgeting requires that all expenses must be justified for each new period, starting from a 'zero base.' This approach helps prioritize expenditures based on necessity and can lead to more efficient resource allocation.
Cost Accounting : meaning – Objectives - Elements of Cost – Cost Sheet (Problems) – classification of cost – Cost Unit and Cost Centre – Methods of Costing – Techniques of Costing. Standard costing and variance analysis Reporting to Management – Uses of Accounting information in Managerial decision-making. Reporting-Accounting Standards and Accounting Disclosure practices in India; Exposure to Practical Knowledge of using Accounting software- Open Source.
Cost Accounting
Meaning
Cost accounting is the process of tracking, recording, and analyzing costs associated with the production of goods and services. It helps organizations determine the cost of their operations and facilitate budgeting and financial management.
Objectives
The main objectives of cost accounting include aiding managerial decision-making, controlling costs, improving efficiency, preparing budgets, and determining the profitability of products and services.
Elements of Cost
The elements of cost are categorized into three main types: materials, labor, and overhead. These elements encompass all costs incurred in the production process.
Cost Sheet
A cost sheet is a statement that outlines the various components of costs for a product or service. It includes direct materials cost, direct labor cost, and manufacturing overhead.
Classification of Cost
Costs can be classified based on various criteria including nature (fixed, variable), function (production, administrative), behavior (direct, indirect), and controllability (controllable, uncontrollable).
Cost Unit and Cost Centre
A cost unit is a specific measurement of costs attributed to a product or service. A cost center is a department or function within the organization for which costs are measured and controlled.
Methods of Costing
Common methods of costing include job costing, process costing, and activity-based costing. Each method serves different types of industries and business scenarios.
Techniques of Costing
Various techniques such as standard costing, marginal costing, and absorption costing are used to determine and control costs effectively.
Standard Costing and Variance Analysis
Standard costing involves assigning expected costs to products. Variance analysis assesses the differences between standard costs and actual costs to identify inefficiencies.
Reporting to Management
Cost accounting provides management with relevant information for decision-making, performance evaluation, and financial reporting.
Uses of Accounting Information in Managerial Decision-Making
Accounting information aids managerial decision-making by providing insights into costs, profitability, and financial positioning of the organization.
Reporting-Accounting Standards and Accounting Disclosure Practices in India
In India, cost accounting practices must comply with relevant accounting standards ensuring transparency and consistency in financial reporting.
Exposure to Practical Knowledge of Using Accounting Software
Familiarity with accounting software, especially open-source options, is essential for modern cost accounting practices and data management.
