Ppt fa

FINANCIAL ACCOUNTING

Accounts is a language of business…….

WARREN BUFFETT

Plan Budget

Action Do Book keeping

Check Financial Reports

P&L BS CF

Management Accounting

FINANCE

Money resource ,Pool of funds, Raising of funds, Capital….. Science of managing money.…Fund Management Commercial activity of providing funds and capital….finance for Home Includes Lending and Saving money. Funds the Assets in form of money. It is a Scare Resource. Involves Time, Money, and Risk and how they are Interrelated. Stepping stone to grab the Opportunities. It is a way for Development. Essential for Sustainability.

ACCOUNTING

Systematic record of all transactions, classification, summarization and interpretation…book keeping is concerned with record keeping.

Helps to take an important countless decisions and make right decision at right time.

It is pervasive in nature as it provide information to every person regarding particular organization, like….

Owners can know whether they have made profitable investment. The cost accountant can know how to control the cost of production. Accounts is applicable in various fields….

a. Trading concerns like….sole, partnership, joint, co.

b. Non – trading concerns like…..clubs, societies, associations.

c. Agriculture farming d. Households e. employers and employees.

f. Government….helps in budgeting and planning. It is a art and science. It is financial in nature.

SCOPE OF FINANCE AND ACCOUNTING

FINANCE In modern business, scope of finance is not so narrow. It not only raise funds

but also provides the answers after the funds are collected. It helps in taking various decisions….. Acquisition of assets. Specific forms of assets where money is to be invested. The composition of its liabilities are covered under the scope of finance

functions and thus affects 3 major decisions:

1.Investment 2. Financing 3. Dividend

ACCOUNTING Management and cost accounting Financial accounting Financial management Auditing

FINANCIAL ACCOUNTING

Financial Accounting intention is to prepare the statements revealing the income and financial position of the business on the basis of events which have happened in the period being reckoned.

The process leading to presentation of the accounts to shareholders is known as Financial Accounting.

Financial accounting also means Shareholders Reporting or Stewardship Accounting (accountable to the true owners for the conduct of the business affairs). Shareholders reporting, as they are owners of the business in a corporate form of organization.

“The branch of accounting that is concerned with the recording of transactions using GAAP for a business and other economic unit and with a periodic preparation of various statements from such records.”

It is concerned with external reporting .

All the stake holders have interest in the financial accounts to know the performance of the company from the view point for their respective stakes.

(Shareholders, Directors, SEBI/RBI, Bankers and Lending Inst., Employees, Customers, Government, Vendors).

NATURE OF FINANCIAL ACCOUNTING

FA follows GAAP and is not used for internal decision making.

FA report is based strictly on historical, past financial performance, i.e look backward to analyze the performance.

FA information is used by different people outside the organization.

Required to represent true and fair view. It is prepared once a year.

FUNCTION AND ROLE OF FINANCIAL ACCOUNTING

FUNCTIONS The functions of FA is to prepare reliable report on a business financial

statement at any given time. It reports objective financial information in a specific format for the viewer

to interpret, it does not interpret or provide advice on the financial health of a company.

ROLE Help managers to manage the business more efficiently by preparing

regular financial information. Record financial transactions. Provide other stakeholders with legal/ vital information.

ACCOUNTING EQUATIONS

Balance Sheet Equation: Assets = liabilities + Capital

Income Statement or Profit And Loss Account Equation: Profit = Income – Expenses

M/S ARYAN TRADERS LIMITED

S.N. Transection Assets

Amt (`) Liabilities

Amt (`) Capital

Amt (`)

1Owner brings in equity share capital `10 lacs Cash 10

Equity share capital 10

2Preference share capital of ` 2 lacs is raised Cash 2

Preference share capital 2

Total Assets 12 Total Liabilites 0 Owners Fund 12

3

M/s Aryan Traders Ltd borrowed on a long term basis from ICICI `4 lacs @ 12% per annum. Cash 4

Long term borrowings ( ICICI) 4

Equity share capital Preference share capital

10

2


4

Purchased land, builing , plant machinery for cash for `10 lacs

Fixed Assets Cash

106

Long term borrowings ( ICICI) 4


10

2


5

Purchased furniture and fixtures `2 lac on credit from M/s Z

Fixed Assets Current Assets Cash

12

6

Long term borrowings ( ICICI) Other Creditors ( M/s Z )

4

2


10

2


6

Purchased stock of 10,000 bottles of tables @ ` 10 per bottle on credit M/s P

Fixed Assets Current Assets CashStock

12

61

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P)

4

2

1


10

2


7

Purchased 5000 bottles of tablets @ ` 10 per bottle for cash

Fixed Assets Current Assets Cash ( 6 - 0.50)Stock (1 + 0.50)

12

5.501.50

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilities Accounts Payable (M/s P)

4

2

1


10

2


8Return to M/s P 1000 bottle @ ` 10 per bottle

Fixed Assets Current Assets Cash ( 6 - 0.50)Stock (1.50 - 0.10)

12

5.501.40

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10)

4

2

0.90


10

2

Total Assets 18.90 Total Liabilites 6.90 Owners Fund 12.00

9Sold for credit 6,000 bottles @ ` 20 per bottle

Fixed Assets Current Assets Cash ( 6 - 0.50)Stock (1.40 - 0.60)Debtors

12

5.500.801.20


4

2

0.90

Equity share capital Preference share capital Reserves (Profit)

10

2

0.60


10Sold for Cash 4,000 bottles @ `20 per bottle

Fixed Assets Current Assets Cash ( 5.50 + 0.80)Stock (0.80 -0.40)Debtors

12

6.300.401.20

Long term borrowings ( ICICI)

Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10)

4

2

0.90

Equity share capital Preference share capital Reserves (Profit) (0.60 + 0.40)

10

2

1


11Rent expences incurred and paid ` 50,000

Fixed Assets Current Assets Cash ( 6.30- 0.50)Stock (0.80 -0.40)Debtors

12

5.80

0.401.20


Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10)

4

2

0.90

Equity share capital Preference share capital Reserves (Profit) (1 - 0.50)

10

2

.50

12

Paid insurance for 2 years ` 50,000 (` 26,000 relates to 2001)

Fixed Assets Current Assets Cash ( 5.80- 0.50)Stock (0.80 -0.40)Debtors prepaid insurance

12

5.30

.40

1.20

.26


4

2

0.90

Equity share capital Preference share capital Reserves (Profit) (.50 - .24)

10

2

.26


13Commission income received in cash` 25,000

Fixed Assets Current Assets Cash ( 5.30 + 0.25)Stock (0.80 -0.40)Debtors prepaid insurance

12

5.55

.40

1.20

.26


4

2

0.90

Equity share capital Preference share capital Reserves (Profit) (.26 + .25)

10

2

.51


14Advance received from customers ` 1 lac

Fixed Assets Current Assets Cash ( 5.55 + 1)Stock (0.80 -0.40)Debtors prepaid insurance

12

6.55.40

1.20

.26

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance

4

2

.90

1


10

2

.51


15Tax paid in advance ` 25,000

Fixed Assets Current Assets Cash ( 6.55 - .25)Stock (0.80 -0.40)Debtors prepaid insurance Advance Tax

12

6.30.40

1.20.26

.25

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance

4

2

.90

1


10

2

.51


16Rent expenses incurred but not paid for ` 1 lac

Fixed Assets Current Assets Cash ( 6.55 - .25)Stock (0.80 -0.40)Debtors prepaid insurance Advance Tax Miscellaneous assets loss

12

6.30.40

1.20.26.25

.49

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expenses

4

2

.90

1

1

Equity share capital

Preference share capital Reserves (Profit) (.51 - 1)

10

2

NIL Total Assets 20.90 Total Liabilities 8.90 Owners Fund 12.00

17Sold 3,000 bottles for cash `1 lac

Fixed Assets Current Assets Cash ( 6.30 + 1)Stock (0.40 -0.30)

Debtors prepaid insurance

Advance Tax

12

7.30.10

1.20.26

.25

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expenses

4

2

.90

1

1

Equity share capital

Preference share capital Reserves (Profit) (-.49 + .7)

10

2

.21 Total Assets 21.11 Total Liabilities 8.90 Owners Fund 12.21

18Depreciation on fixed assets @20% p.a.

Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1)Stock (0.40 -0.30)Debtors prepaid insurance Advance Tax Micellaneous Assets loss

122.409.60

7.30

.101.20.26

.25

2.19

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expences

4

2

.90

1

1

Equity share capital Preference share capital Reserves (Profit) (.21 - 2.4)

10

2

NIL


19Commission income earned ` 5 lac

Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1)Stock (0.40 -0.30)Debtors prepaid insurance Advance Tax Accrued Income

122.409.60

7.30

.101.20.26

.25 5

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expences

4

2

.90

1

1


(5 - 2.19)

10

2

2.81


20

Interest expenses incurred @12% per annum on ICICI loan ` 4 lac

Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1)Stock (0.40 -0.30)Debtors prepaid insurance Advance Tax Accrued Income

122.409.60

7.30

.101.20.26

.25 5

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Income received in advance Outstanding rent expences outstanding interest expenses

4

2

.90

1

1

.48


(2.81 - .48)

10

2

2.33


21

Advertising expenditure incurred ` .5 lac and ` .25 lac has to be deferred.(assume credit transaction)

Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1)Stock (0.40 -0.30)Debtors prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.)

122.409.60

7.30.10

1.20.26

.255

.25


Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses

4

2

.90

.50

1

1

.48

Equity share capital Preference share capital Reserves (Profit) (2.33 - .25)

10

2

2.08


22

One customer Mr. X will not be able to pay ` 20,000 and management want a prvision for doubtful debt @10%

Fixed Assets Less: Dep Net fixed assets Current Assets Cash ( 6.30 + 1)Stock (0.40 -0.30)Debtors1.20-.30 less: baddebt less: prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.)

122.409.60

7.30.10

.90(.20)(.10).26

.255

.25

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses

4

2

.90

.50

1

1

.48


(2.08 - .30)

10

2

1.78


23

Purchsed 10,000 bottles for ` 1 lac and earned a cash discount of 10%

Fixed Assets Less: Dep Net fixed assets Current Assets Cash (7.30 +.90)Stock (0.10 + 1)Debtors1.20-.30 less: baddebt less: prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.)

122.409.60

6.401.10.90

(.20)(.10).26

.255

.25


4

2

.90

.50

1

1

.48


(1.78 + .10)

10

2

1.88


24

Sold 10,000 bottles for ` 2 lac and received ` 1.8 lac in full satisfaction

Fixed Assets Less: Dep Net fixed assets Current Assets Cash (6.40 +1.80)Stock (1.10 - 1)Debtors1.20-.30 less: baddebt less: prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.)

122.409.60

8.20.10.90

(.20)(.10).26

.255

.25


4

2

.90

.50

1

1

.48


(1.88 + .8)

10

2

2.68


25Provision for income tax @30%

Fixed Assets Less: Dep Net fixed assets Current Assets Cash (6.40 +1.80)Stock (1.10 - 1)Debtors1.20-.30 less: baddebt less: prov. prepaid insurance Advance Tax Accrued Income Miscellaneous Assets (deferred Ad exp.)

122.409.60

8.20.10.90

(.20)(.10).26

.255

.25

Long term borrowings ( ICICI) Other Creditors ( M/s Z ) Current liabilitiesAccounts Payable (M/s P) ( 1- 0.10) Accounts Payable (advertising) Income received in advance Outstanding rent expences outstanding interest expenses Provision for income tax

4

2

.90

.50

1

1

.48

.80


(2.68 - .8)

10

2

1.88


Ppt fa

Economy & Finance

Transcript of Ppt fa