Accounting and financial management
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Transcript of Accounting and financial management
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M. Anil Kumar, Department of Humanities, Social Sciences and Management,National Institute of Technology-Karnataka
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ACCOUNTING AND FINANCIAL MANAGEMENT
This course is designed to introduce students to the principles, concepts, and applications of financial accounting and management
This course presents the underlying framework and concepts of Financial Accounting in the context of how accounting fits into the overall business environment of contemporary society.
Financial accounting is the basic means of recording and reporting financial information in a business.
You will learn how accounting functions as an information development and communication system that supports economic decision making and provides value to entities and society.
You will discover the uses and limitations of financial statements and related information and apply analytical tools in making both business and financial decisions.
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In Financial Management students are introduced to concepts and tools that enable them to think critically about the financial opportunities and challenges faced by an organization.
They learn how to use financial statements such as balance sheets, income statements, and statements of cash flow.
They prepare budgets, analyze investment options, and determine the best means offinancing business endeavors.
They discover ways of assessing both the return and the risk involved in a firm's financial decisions.
The focus of this course is on solving practical business problems similar to those encountered in the workplace.
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-Elements of management accounting-I.M. Pandey, Vikas publishing house
-Financial Management-Khan & Jain, TMH Publications
- Financial Management-Prasanna Chandra, TMH Publications
- Financial Management policy- Van Horne James C., Prentice Hall of India
- Management Accounting 4th edition-Anthony & Alkinson, Robert S. Kalpan & S. Mark Young, Ther Robert Kalpan Series in Management Accounting
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The Need for Accounting
A transaction is any event that affects the financial position of an
organization and requires recording.
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Introduction• Accounting - a process of identifying, recording,
summarizing, and reporting economic information to decision makers in the form of financial statements
• Financial accounting - focuses on the specific needs of decision makers external to the organization, such as stockholders, suppliers, banks, and government agencies
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ACCOUNTING
Accounting is the language of business. The affairs and the results of the business are communicated to others through accounting information, which has to be systematically recorded and presented.
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In 1494, the first book on double entry. The author was an Italian friar, Luca Pacioli. His impact on accounting was so great that five centuries later, accountants from around the world gathered in the Italian village of San Sepulcro to celebrate the anniversary of the book's publication.
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IdentifiesIdentifies
RecordsRecords
CommunicatesCommunicatesRelevantRelevant
ReliableReliable
ComparableComparable
Importance of Accounting
AccountingAccountingis a
system that
information
that is
to help users make better decisions.
to help users make better decisions.
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Identifying Business Activities
Recording Business Activities Communicating
Business Activities
Accounting Activities
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Why Accounting• Informational requirement of a number of stakeholders in the business
– Internal Stakeholder• Owners• Management• Employees
– External Stakeholders• Government/ Tax department• Investors• Banks/Lenders• Suppliers/Creditors• NGOs/ Industry associations• Researchers
• Accounting is the tool for providing financial information to various stakeholders
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Users of Accounting Information
External Users
•Lenders
•Shareholders
•Governments
•Consumer Groups
•External Auditors
•Customers
Internal Users
•Managers
•Officers
•Internal Auditors
•Sales Staff
•Budget Officers
•Controllers
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Users of Accounting Information
External Users
Financial accounting provides external users with financial
statements.
Internal Users
Managerial accounting provides information needs for internal
decision makers.
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Business Activities
Involving
Accounting• Financing activities provide necessary funds to start
a business and expand it after it begins operating.
• Investing activities provide valuable assets required to run a business.
• Operating activities focus on selling goods and services, but they also consider expenses as important elements of sound financial management.
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Financial and Management Accounting
• The major distinction between financial and management accounting is the users of the information.– Financial accounting serves external users.– Management accounting serves internal users,
such as top executives, management, and administrators within
organizations.
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Opportunities in Accounting
FinancialFinancial
•Preparation•Analysis•Auditing•Regulatory•Consulting•Planning•Criminal investigation
•Preparation•Analysis•Auditing•Regulatory•Consulting•Planning•Criminal investigation
ManagerialManagerial•General accounting •Cost accounting•Budgeting•Internal auditing•Consulting•Controller•Treasurer•Strategy
•General accounting •Cost accounting•Budgeting•Internal auditing•Consulting•Controller•Treasurer•Strategy
TaxationTaxation•Preparation•Planning•Regulatory•Investigations•Consulting•Enforcement•Legal services•Estate plans
•Preparation•Planning•Regulatory•Investigations•Consulting•Enforcement•Legal services•Estate plans
Accounting-relatedAccounting-related
•Lenders•Consultants•Analysts•Traders•Directors•Underwriters•Planners•Appraisers
•Lenders•Consultants•Analysts•Traders•Directors•Underwriters•Planners•Appraisers
•CBI investigators•Market researchers•Systems designers•Merger services•Business valuation•Entrepreneurs
•CBI investigators•Market researchers•Systems designers•Merger services•Business valuation•Entrepreneurs
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Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).
Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).
Generally Accepted Accounting Principles
Relevant InformationRelevant Information Affects the decision of its users.
Affects the decision of its users.
Reliable InformationReliable Information Is trusted by users.Is trusted by users.
Comparable Information
Comparable Information
Used in comparisons across years & companies.
Used in comparisons across years & companies.
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Business Entity Forms
Sole Proprietorship
Sole Proprietorship
PartnershipPartnership CorporationCorporation
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AssetsLiabilities &
Equity
Accounting Equation
LiabilitiesLiabilities EquityEquityAssetsAssets = +
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LandLand
EquipmentEquipment
BuildingsBuildings
CashCash
VehiclesVehicles
Store SuppliesStore
Supplies
Notes Receivable
Notes Receivable
Accounts ReceivableAccounts
Receivable
Resources owned or
controlled by a company
Resources owned or
controlled by a company
Assets
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Taxes PayableTaxes
PayableWages
PayableWages
Payable
Notes PayableNotes
PayableAccounts Payable
Accounts Payable
Creditors’ claims on
assets
Creditors’ claims on
assets
Liabilities
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Owner’sclaim on
assets
Owner’sclaim on
assets
DividendsDividends
Contributed Capital
Contributed Capital
Retained Earnings
Retained Earnings
Equity
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LiabilitiesLiabilities EquityEquityAssetsAssets = +
Expanded Accounting Equation
RevenuesRevenues ExpensesExpensesCommon
StockCommon
StockDividendsDividends__ ++ __
Retained Earnings
LiabilitiesLiabilities EquityEquityAssetsAssets = +
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable
Common Stock
(1) 20,000$ 20,000$
20,000$ -$ -$ -$ -$ 20,000$
20,000$ = 20,000$
Manu invests $ 20,000 cash to start the business in return for stock.
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Transaction Analysis
Purchased supplies paying $1,000 cash.
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable
Common Stock
(1) 20,000$ 20,000$ (2) (1,000) 1,000$
19,000$ 1,000$ -$ -$ -$ 20,000$
20,000$ = 20,000$
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable
Common Stock
(1) 20,000$ 20,000$ (2) (1,000) 1,000$ (3) (15,000) 15,000$
4,000$ 1,000$ 15,000$ -$ -$ 20,000$
20,000$ = 20,000$
Purchased equipment for $15,000 cash.
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Transaction Analysis
Assets = Liabilities + Equity
Cash Supplies EquipmentAccounts Payable
Notes Payable
Common Stock
(1) 20,000$ 20,000$ (2) (1,000) 1,000$ (3) (15,000) 15,000$ (4) 200 1,000 1,200$
4,000$ 1,200$ 16,000$ 1,200$ -$ 20,000$
21,200$ = 21,200$
Purchased Supplies of $200 and Equipment of $1,000 on account.
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M. Anil Kumar, Contact: 9916028219e-mail: [email protected]