FINANCIAL A N D

MANAGERIAL
ACCOUNTING

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 Course
Chapter 1:CIntroduction/
o n t e n t sC o n t e x t of
Accounting

C h a p t e r 2: T h e A c c o u n t i n g Cyc le

C h a p t e r 3: Fin a n c ia l S t a t e m e n t

Analysis
C h a p t e r 4 :In trodu ction t o
Managerial Accounting

C h a p t e r 5: Cost-Volu me-P rofi t

(CVP) Relationships

C h a p te r 6 : R e le v a n t
In fo rm a tio n
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for D e cis io n 2
 Text B o o k a n d Reference
Boo
Text bk
osok
•Williams, Haka and Bettner, (2018). Financial
and Managerial Accounting -the basis for
business decisions; 18 t h edition, Tata McGraw-
Hill Edition
References
•Horngren C. T., S u n d em G.L. & Stratton W.O.,
(2001)."Introduction to Management
Accounting" 11 t h Edition, Prentice Hall, Inc., New
Delhi, India.
•Weygand J. J., Kieso D. E. & Kimmed P.D., (2002).
"Managerial Accounting, Tools for Business
Decision Making", 2 n d Edition, John Wiley &
Sons, Inc., U.S.A.
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 CHAPTER –
1
INTRODUCTIO
C o n t eNn
tWhat
• s is Accounting?
•Objectives of Accounting
•Types of Accounting
Information
•Accounting S y s t e m s
•Basic Functions of 9 /2 4 /2
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 Accounting
•Ac c o u n tDefi
i n g isnthe
edprocess of identifying,
measuring, recording, classifying,
summarizing, interpreting, and
communicating financial information for
internal and external users.

•Ac c o u n t i n g can be defi ned as an

information system that provides reports to
users about the economic activities and
condition of a business.

•Its purpose is to communicate or report the 5

 The
a cco u n ti
ng
process

Accounting
“links”
de ci s i on A cco u n t
E co n o m m a ke r s with
ic in g
activiti
economic informa
es activities oti
a n d with t he n
r e s u l t s of
Actions their
D ecis io
( d e cisio decisions.
n
n 93 /2s
4 /2
) m a ke r 6
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 W h o Uses Accounting
Data
Internal
Users Manageme R evenu
nt e
Human Offi ces Investo
R e s o urc rs
es There are two broad
groups of users of Labor
financial information:
Fin a n c internal users and U n io n
e external users. s

C re d ito
M a r ke t i rs
ng Se c u r it ie
Cu stom e s
co n tro lli E xte rn
rs al
ng
bodies Users
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 Objectives of
Accounting

1 . To reco rd the busines s trans actions

in a s ystem atic manner.
2. To determine the g r o s s profi t and net profi t
earned by a firm during a specific period.
3. To know the fi nancial position of a firm at the
close of the financial year by way of preparing
the balance sheet.
4. To facilitate m a n a g e m e n t control.
5. To assess the taxab l e i nco m e and the s a l e s
tax liability.
6. To provide necessary information to different
parties, i.e., owners, creditors, employees,
management, government, investors, financial
institutions, banks etc.
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 Types of Accounting
Information
❑Financial, Managerial & Tax Accounting, are
the 3 types of Accounting Information used
widely in the business community
1. Financial Ac c o u n t i n g : financial
accounting information appears in financial
statements that are intended for external
use.

➢Describes the financial resources,

obligations,& activities of an economic
entity.
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➢It is designed primarily to assist i n v est or s
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 Types of Accounting
Information
2. Management Acc ou n ti n g :
management accounting information is for
internal use & provides special
information for managers.m ay range
➢ Information managers
from data
use broad, long -
explanations of why actual costs to varied
range planning
from cost estimates. detailed
➢ Management accounting generates
information that managers can use to
make sound decisions such a s fi nancial,
r e s o u r c e allocation, production &
m a r ke t i n g decisions.
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 Types of Accounting
Information
3. Tax Ac c o u n ti n g - preparation of
income tax returns is a specialized
field in accounting.
➢Tax returns are based on financial
accounting information.
➢However, the information is adjusted/
reorganized to conform with i n c o m e
tax reporting requirements .
➢I n c o m e tax p l a n n i n g is the most
challenging task of tax accounting.

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 Accounting Systems
(AS)

❑ Accounting system consists of the

personnel, procedures, devices &
r e c o r d s used by an organization:
▪ to develop accounting information &
▪ to communicate this information to decision
makers .

❑The design & capabilities of these systems

vary greatly from very small business to
large business organizations.

❑But, the basic purpose of accounting system

remains the same to meet the
organization’s
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 Accounting Systems
(AS)
❑ Factors affect the structure of
accounting system in an
organization are:
➢the co.’s n e e d for accounting
information, &
➢the r e s o u r c e s available for the
operation of the system.
D e t e r m i n i n g the I n f o r m a t i o n
Needs
❑ Information needs of an organization
are affected by:
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➢size of the organization,
The Cost of Producing Accounting
Information
❑ Accounting system should be c o s t
eff ective i.e. the value of the
information produced should exceed
the cost of producing it.
❑ Development and installation of
computer based accounting system
have increased greatly the t y p e s
and amount of a c c o u n t i n g
information that can be produced
in a cost effective way.
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 Basic Functions of
Accounting
❑ Recording: Accounting records business
transactions in terms of money. It is essentially
concerned with ensuring that all business
transactions of financial nature are properly
recorded. Recording is done in journal, which is
further subdivided into subsidiary b o o k s from
the point of view of convenience.

❑ Classifying: Accounting also facilitates

classification of all business transactions
recorded in journal. Items of similar nature are
classified under appropriate heads. The work of
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classification is done in a book
3 called the
 Basic Functions of
Accounting
❑S u m m a rizin g :Accounting su m m arizes
clas s ified inform ation. It is done
the
in a m anner,internal
which aisn duseful to
u s e rs the
. Internal external
interested in
inform
use rs ation are the perso ns who this
m anag e External users of information are
business. the
the investors, creditors, tax authorities, labor
unions, trade associations, shareholders, etc.
Interpreting: It implies analyzing and
interpreting
the
❖ financial data embodied
Interpretation of thein final
dataaccounts.
helps
m anag em ent, outsiders and the
sh areholders decision making. in
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 Financial Accounting Information

❑Financial accounting information provides information

about the fi nancial re sou rc e s, o b l i g a t i o n s , &
activities of an enterprise that is intended for use
primarily by external decision m a ke r s i.e.
investors and creditors.
✓ External U s e r s of A c c o u n t i n g I n f o r m a t i o n
▪Investors
▪Creditors
▪Customers
▪Government Agencies
▪Labor Unions
▪Suppliers
▪Trade Associations
▪General Public
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 Objectives of Financial
Reporting

❑To provide information useful in

making investment & credit
decisions.

❑To provide information useful in

assessing a m o u n t , timing, &
uncertainty of future c a s h fl ows.

❑ To provide information about

economic resources, c l a i m s to
resources
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Characteristics of Externally Reported
Information
•Historical in nature: looks back in
time & reports the results of events &
transactions that already h a p p e n e d .
•I n e x a c t & a p p r o x i m a t e m e a s u r e :
have a great look of precision but in
fact much of it is based on estimates,
j u d g m e n t & a s s u m p t i o n s that must
be made about both the past & future.
e.g. allocation of depreciation expenses
•G e n e r a l purpose
assumptions: for
multiple u s e r s
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(“one size fits all”). 20
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 Management Accounting
Information

❑Manageme accounting is the des ig n

&
accounting information us e
system ofto achieve the
nt
orgn’s objectives by s u p p o r t i n g decision
m a ke r s inside th e enterprise.
✓Internal Users of Accounting
In fo r m ati o n
▪ BODs, CEO, CFO

▪ Business unit managers

▪ Plant mangers

▪ Store managers

▪ Line
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 Objectives of Management
Accounting

❑To provide information useful to help

the enterprise achieve its goals,
objectives & mission.
❑To provide information useful in
assessing both the past performance
& future directions of the enterprise &
information from internal & external
about decisio
❑To provide
sources.
making authority, for n
information
s upport, & for decis
& io m akin
ev aluating
decision making n rewarding,
g
performance.
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 Characteristics of Management Accounting
Information
▪Im p o rt a n c e o f tim e lin e s s - g oo
sh ould occur at time d
without delay.
▪Id en t ity o f d e cis io n m a ke rs -for
▪Othos
r ie net edwho
t o w a r d s thav
h e efuture-to
decision making
motivate
authority.
management to make future decisions that are
in the best interest of the enterprise,
consistent with its goals, objectives & missions.
▪M e a s u r e s of effi ciency and
eff ectiven ess of resource utilization.
▪M a n a g e m e n t a c c o u n t i n g i n f o r m a t i o n a
m e a n s - not an end in and of it self.
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 Financial
Accounting V s
Financial A c c o u n t i n g
M a n a g e m e n tM anagerial
Accounting
➢ AItc c odescribes
u n t i n g➢It is used to help
the performance of management record,
the business over a plan and control the
specific period. This activities of a business
specific period and to assist in the
referred to as decision making
“accounting process. It can be
period”. It has one prepared for any period
year long. (for daily, quarterly or
annually).
➢It is required by law to ➢There is no legal
prepare and publish requirement to prepare
financial statements . management reports.
➢The format of ➢There is no pre-
published financial determined format for
statement is managerial accounting.
determined by several It can be a s detailed or
different brief a s management
regulatory bodies: wish.
Company Law,
Accounting standards,
Stock exchange etc.
➢Financial accounting ➢Management
concentrate on the Accounting can focus
business a s a whole on specific areas of a
rather than analyzing business activities.
the component parts of
the business. For example, it can
For example, sales are provide insight into
aggregated to provide a performance of
figure for total sales
➢Financial accounting ➢Managerial accounting
includes information usually include a wide
that can only be variety of financial and
expressed in non-financial information.
monetary terms. Example, number and
productivity of
employees, sales
volumes (units sold) etc.

➢Its focus is on ➢Its focus is on reporting

reporting to external to internal
users of accounting users
information. (Management).

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➢It provides ➢It is not guided by
financial statements Generally Accepted
based on Accounting Principles
Generally (GAAP/IFRS).
Accepted Accounting
Principle (GAAP/IFRS).
➢Financial ➢Managerial
accounting
presents a accounting
historic emphasis
perspective on on the future,
the e.g.,
financial performance sales budget and
of on
the business.
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influencing 27
 The A c c o u n t i n g
Equation

A s s e t =Liabilities + S t o c kh o l d e rs ’
s equit

Economi Claims
c to
Re sourc Economi
es c
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Resourc 28
 A s s et
s
•Economic that hav e
resources future a
benefit
•Examples:
•Cash
•Accounts receivable
•Merchandise
inventory
•Furniture
3
•Land
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 Claims to
•Liabilities Assets
•O w n e r s ’
•D ebts equi ty
payable to •Owners’ claims
outsiders to the assets of
•Examples: the business
•Accounts payable •In a
•Bank loans corporation,
stockholders’
equity

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The Accounting
Equation

A s s e t =Liabilities + S t o c kh o l d e rs ’
s equit

Paid- Retaine
in d
capita earning
l s
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The Accounting
Equation
S t o c kh o l d e rs ’
equity

Paid-in capital Retaine

d
Common earning
+ Net income
stock s

- Dividends
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The Accounting
Equation
Retaine Revenues
d
earning
+ Net income
s
- Expenses
- Dividends

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 En
d
of Chapter
One
Thank you for your
attention

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