PARAMJIT SHARMA

Fundamentals

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FinancialAccounting

CostAccounting

ManagementAccounting

The art of Recording, Classifying,And summarizing in terms of money ,transactions and eventswhich are of financial Nature,and interpreting the resultsthereof

Accounting

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

Manufacturing & Marketing Cars

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Reducing Cost of the car by INR 10,000

Manufacturing & Marketing Cars

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FundamentalsFinancial Accounting-meaning & limitations

FA is concerned with

RECORDING,CLASSIFYING ANDSUMMARISING

financial transactions in accordancewith the generally accepted Accounting Principles

Journal

Ledger

Trial Balance

Final Statements

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FundamentalsFinancial Statements

PROFIT & LOSSACCOUNT

BALANCE-SHEET

STATEMENT OFSOURCES &

APPLICATIONS OFFUNDS

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FundamentalsFinancial Accounting- limitations

HISTORICALHISTORICAL ONLY NET RESULTSONLY NET RESULTS

NO CONTROL ON COST

NO CONTROL ON COST

NO DISTINCTIONDirect & Indirect

NO DISTINCTIONDirect & Indirect

Inadequate InformationFor

PRICE FIXATION

Inadequate InformationFor

PRICE FIXATIONNO COMPARISON OF

COSTS

NO COMPARISON OFCOSTS

NO STANDARDS TOAssess Performance

NO STANDARDS TOAssess Performance

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Management Accounting

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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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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

MANAGEMENT ACCOUNTING BASICS

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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

MANAGEMENT ACCOUNTING BASICS

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COMPARING MANAGEMENT

AND FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING

External Users;Stockholders, CreditorsRegulators

Financial StatementsQuarterly & Annually

General Purpose

Pertains to Business as WholeLimited to Double Entry Acct,Cost DataGAAP/IAS

Audit By CA

Primary usersOf Reports

Types & FrequencyOf Reports

Purpose of Reports

Contents of Reports

Verification Process

MANAGEMENT ACCOUNTING

Internal Users: ManagersDirectors

Internal Reports As Frequently Required

Special Purpose for Specific Decisions

Pertains To some sub unit of BusinessVery DetailedExtend beyond DE AccountingStandard is relevance to Decision

No independent Audits

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FundamentalsFew Terms - clarification

COST ACCOUNTANCYCOSTING COST ACCOUNTING

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FundamentalsFew Terms - clarification

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

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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FundamentalsCOST ACCOUNTING- introduction

The Process of accounting for costs from thePoint at which expenditure is incurred orcommitted to the establishment of its ultimaterelationship with cost centers and cost units

BooksOf Cost Accounts

Cost Centers

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FundamentalsFew Terms - clarification

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

SettingPrice

Ascertainingcost

CostReview

CostControl

OperatingDecisions

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Fundamentalsdecision making

PRICEPROFIT

MAKE ORBUY

CAPACITY

EXPORTPRICE

OPERATEOR

SHUT

SALESVOLUME

NEWMODEL

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FundamentalsCost Accounting- principles

1. A cost is related to cause- rent of factory charged to factory

2. A cost is charged after it has been Incurred-no selling cost to unsold stock

3. Abnormal costs are excluded – loss due to fire accident

4. 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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FundamentalsCost/Financial Accounting- differences

Need

Purpose

Recording

ProfitAnalysis

Contents

Compulsory Obligatory

Final Results to stakeHolders

Subjective Recording

Total Profit/Loss

External Transactions

Cost Information

Objective Recording

Product wise

Internal

FA CAFactor

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FundamentalsCost/Financial Accounting- differences

Periodicity

Control

Nature

Valuation

Once/twice Daily/weekly/monthly

Inadequate

Historical

Cost or market

System at Place

Historical/Predetermined

Cost Price

FA CAFactor

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FundamentalsManagement/Cost Accounting- differences

Derivation Of Data

Information Provided

Emphasis

Purpose

Planning

Techniques

Installation

•Cost/Financial Acct

•Cost/Fin. Information CVP/Fin Ratios•Decision Making

•Planning, Decision M & Control•Short/Long Term

•RA,FF, C Flow

•Not possible without CA system

Data From CA

Only Cost Inf.

Cost Ascertainment & ControlReporting Cost

Short Term

Variable Costing, Budgetary Control etc

Can Be Installed Without CA

factor MA CA

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FundamentalsCost Accounting- advantages

Supplies Detailed Cost InformationHelps in Price FixationReveals UN (Profitable) ActivitiesReveals idle capacityAssist in Controlling CostsHelps in decision MakingFacilitates Cost ComparisonHelps in Inventory Control

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FundamentalsCost Accounting- Objections

It is UnnecessaryIt is InapplicableIt is a failureMere matter of Forms and RulingIt is Expensive

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Price …..Quality ….StrategiesPrice

Pro

du

ct Q

ual

ity

High Med low

H

M

L

1PremiumStrategy

2High value

strategy

3Super value

strategy

4Overcharging

strategy

5Medium

Value Stg.

6Good value

Strategy

7Rip off

Strategy

8False Econ.

Strategy

9EconomyStrategy

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FundamentalsCosting Methods

Job CostingBatch CostingContract CostingProcess CostingUnit CostingOperation CostingOperating CostingMultiple Costing

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FundamentalsCosting Techniques

Historical CostingStandard CostingMarginal CostingAbsorption CostingDirect CostingUniform Costing

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FundamentalsInstallation Of Costing System

•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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FundamentalsInstallation Of Costing System-difficulties

•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