Chapter - One

BOOK KEEPING AND ACCOUNTING

BRANCH OF ACCOUNTING
 BRANCH OF ACCOUNTING

FINANCIAL MANAGERIAL COST

ACCOUNTING ACCOUNTING ACCOUNTING
 a) FINANCIAL ACCOUNTING
• a branch of accounting that relates to classifying and
recording business transactions, presenting and preparing
financial statements to communicate the financial results to
both external and internal users.

• concerned with the preparation of periodic financial

statements by using historical data of a business organizations
to provide useful and timely information about the financial
position and operating results to the different users etc.
• focuses company's financial status and tax liability.
• prepares the following financial statements:
▪ Statement of financial position,
▪ Statement of profit or loss,
▪ Statement of other comprehensive income
▪ Statement of changes in equity
▪ Statement of cash flows
▪ Notes to financial statements,.
 Characteristics of financial accounting

• It is monetary value related.

• It is mandatory accounting used to prepare and disclose financial
accounting information.
• It is historical in nature.
• It is regulated by accounting rules and regulations.
• It reports on the performance of the entire organization.
• It is more useful to external users.
• It shows a true and fair view of the company's financial status.
 b) MANAGERIAL ACCOUNTING
• Managerial accounting is also known as management accounting.
• a branch of accounting that is normally involved with providing financial
and non-financial information that enables managers to plan the
activities in better way.
• Management accounting uses historical as well as forecasted data to
generate useful reports, formulate more accurate plan, policy, strategy
and programmes and supply the information to internal management for
decision making purpose.
• After generating the monthly or quarterly reports of the business,
management team uses them to make decisions for business operation.
 Characteristics of management accounting

• It is futuristic POSDCORB
• Based on qualitative and quantitative information
• Related to decision making
• It is reference to the needs of managers
• Used in internal management of the company
• Subjective nature
 c) COST ACCOUNTING

• a branch of accounting, which refers to the process of collecting,

summarizing, determining, evaluating and analyzing cost data to take the
decision regarding various alternative courses of action.
• It deals with determination of the cost of production and evaluating the
cost of products and services offered.
• It analyses the various cost by classifying the costs into various headings.
• So, it is more useful to analysts, managers, owners and accountants to
determine and know the products cost.
 Characteristics of cost accounting

• Is not based on accounting standards and rules of debit and credit.

• It is futuristic in nature
• It is both non-monetary and monetary
• It is not compulsory for preparation and disclosure of cost information
• It is more useful to internal users of financial information
• It does not require auditing
• It is more based on estimates
OTHER NEW TRENDS IN ACCOUNTING

• Tax accounting
• Project accounting
• Non-profit accounting
• Government accounting
• Environment accounting
• Social accounting
• Forensic accounting
• Human resources accounting
• Auditing
BUSINESS ACTIVITIES
 BUSINESS ACTIVITIES

Operating Investing Financing

Activities Activities Activities
 a) OPERATING ACTIVITIES

• Activities relating to day to day operation for earning

revenues like: purchase and sale of goods and services
including marketing and administration.
• Purchasing, manufacturing, distributing, marketing, and
selling.
• Daily activities of a company relating to production and sales
of product, generating revenues, operation of administrative
and maintenance activities.
 Examples of cash flows from operating activities are:

• Cash receipts from the sale of goods and services

• Cash receipts from the collection of receivables
• Cash receipts from the settlement of insurance claims and
supplier refunds
• Cash payments to suppliers
• Cash payments to employees and other operating expenses
• Cash payments of interest and taxes
• Cash refunds to customers
 b) INVESTING ACTIVITIES
• Business activities which are purchase and sale of long-term
assets and investments, within a specific reporting period.

• Investing activities relate to the long-term use of cash, such

as buying or selling fixed assets and investments.

Some examples of investing activities are:

• Purchase of fixed assets and long term investment
• Sales of fixed assets and sales of long term investment.
 FINANCING ACTIVITIES
• Business activities relating to movement of funds between the
company and its investors, owners for long term growth and
economic goals.
• They have effect on the equity and debt liabilities presented on the
balance sheet.
• Financing activities include sources of cash from investors or banks,
and the uses of cash paid to shareholders like: payment of
dividends and redemption.
• Relating to issuing of shares and debenture, borrowing and
repayment of loan, paying cash dividends.
 Some examples of financing activities are:

• Issuing shares and debentures

• Sale of treasury stock
• Borrowing of long term loan from bank and a financial institution
• Borrowing of short term loan and overdraft
• Repayment of existing loans
• Payment of cash dividend to shareholders
• Purchase of treasury stock
• Redemption of preferred stock and debenture.
ETHICS IN ACCOUNTING
 ETHICS IN ACCOUNTING

• Ethics is also called a code of conduct or set of beliefs that helps to

advocate about right or wrong, fair or unfair.

• The accounting profession is also based on morals and ethics.

• Accounting ethics is a part of business ethics and human ethics.

• Ethics require accounting professionals to comply the laws and

regulations in accounting works.
• Ethics and ethical behaviour refer to general principles such as honesty,
integrity and morals.
 ETHICS IN ACCOUNTING

• The ethical principles helps in maintaining complete and true records

and providing accurate and unbiased information.
• Professional ethics in accounting are as follows:
a. Integrity:
• Integrity is not a set of rules or a course of action, but it is a state of
truthfulness and honesty.
• It is straightforwardness and commitment in accounting work by
following principle instead of personal gain.
• Accountants should maintain integrity in accounting work.
 ETHICS IN ACCOUNTING

b. Objectivity
• Objectivity is a state of independence and neutrality in accounting
works.

• Accountants shouldn't be influenced by the interests or perspectives of

the owners and should be free from personal biases or interests.

• Figures and results should be taken at face value and should draw the
conclusions and make decisions on accounting issues.
 ETHICS IN ACCOUNTING
c. Professional competence and technical standards
• Professional competence in accounting is the capability to perform the
accounting duties of the accountants generally to perform a particular
professional task, with skill of an acceptable quality.
• It is the habitual and careful use of communication, knowledge, technical
skills, clinical reasoning, emotions, values, and reflection in daily
accounting practices for the benefit of the concerned stakeholders.
• It includes a combination of accounting knowledge, skills and behaviour
and technical standards in accounting works.
 ETHICS IN ACCOUNTING

d. Professional Behaviour

• An accountant should maintain his/her accounting works and fulfil

responsibilities with the highest degree of personal and professional
standards.

• He/she should complete the tasks thoroughly and on time and maintain
his/her commitments on accounting works.
 ETHICS IN ACCOUNTING

e. Confidentiality

• Confidentiality is the protection of accounting information, not telling

others including co-workers, friends, family, etc.
• A professional accountant should maintain his/her professional
confidentiality.
• He/she should keep information secret and not disclose any such
information to third parties without proper and specific authority.