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Session I

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According to American Institute of Certified Public

Accountants (AICPA)

Accounting is the art of recording, classifying &

summarizing in a significant manner & in terms of

money, transactions & events which are, in part,

at least of financial character & interpreting the

results thereof .

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Summarising

PROCESS

OF

ACCOUNTING

Recording

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EXTERNAL USERS

Financial AccountingFinancial Accounting

` investors

` creditors

` regulators

` customers` competitors

Users of Accounting InformationUsers of Accounting Information


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EXTERNAL USERS

Financial AccountingFinancial Accounting

investors

creditors

regulators

customers

competitors

owners

managers

employees

INTERNAL USERS

ManagementManagement AccountingAccounting



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Stakeholder Would be interested due to

Government & its agencies Income tax & other tax liabilities

Top Managers, Workers, Unions Potential for pay hikes, bonus, and incentivesPublic Ethical and environmental activities

Long-term Lenders, Present &

Potential Shareholders

Whether the firm has a long-term future

Fund managers & Analysts Profitability & share performance

Customer Ability to take a bigger order, etc

Supplier & Other Creditors Whether to offer the firm credit and if so,

terms

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` For internal users such as president, marketing

manager and production manager.

` Used for three functions ofmanagers: Planning.

Implementation.

Control.

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Acc to ICMA London management accounting is ,

the application of professional knowledge & skill

in the preparation of accounting information in

such a manner as to assist management information of policies, & in the planning & control

of the operations of the undertaking.

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` It helps in future planning.

` It is an integral part of management.

` It uses certain techniques for making the

accounting more useful.

` Analyses cause & effect relationship.

` It is selective in nature.

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It includes:

` Financial accounting

` Cost accounting

` Budgeting & forecasting` Reporting

` Inventory control

` Tax accounting

` Internal audit` Performance evaluation of management.

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Basis FA MA

Objective

Legal

requirement

Time

orientation

Report

entity

Provide information of the

final results.

MandatoryAs per

companies act 1956 &

income tax act 1961

historic

Overall organisation

Provide information for

decision making.

Voluntary as per

requirements of the

management.

Futuristic

Responsibility centers

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Basis FA MA

Report

frequency

quarterly & annual Varies with purpose,

monthly or weekly

Access to

accounts

Outsiders have access. Outsiders do not have

access.

Type of

information.

Only monetary

information is recorded.

Monetary & non

monetary information

is recorded.

Interested

parties

Whole world is

interested in information.

Only internal

management is

interested.

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` The amount of expenditure attributable to specifiedthing or activity.

` Cost is the value of economic resources used as a

result of producing or doing a thing.

` ICWA defines cost as measurement , inmonetary terms, of the amount of resources

used for the purpose of production of goods orrendering services.

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` Expense is that portion ofcost that has been

consumed during the accounting period &

contributed to the revenue. It is also called

expired cost. E.g. depreciation` Loss is that portion ofcost that has been

consumed during the accounting period & has

not contributed to the revenue. E.g. Loss due to

fire.

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` Acost unit is a unit of product, service or time in

terms of whichcosts are ascertained or

expressed.

` Acost centre is a location, person or item ofequipment for whichcosts are ascertained & used

for the purpose ofcost control.

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` To ascertain cost.

` To control cost.

` To provide information for decision making.

` To determine selling price.` To ascertain costing profit.

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Basis FA CA

Objective

Analysis of

profit

Legal

requirement

Stock

valuation

Provide information of the

final results.

Reveals results of thebusiness as a whole.

MandatoryAs per

companies act 1956 &

income tax act 1961

Based on historical data.

Stocks are valued at cost

or market price whichever

is lower.

Provide information for

decision making.

Shows profit made oneach product,job or

process.

Voluntary & made as

per requirements of the

management.Based on present &

future data.

Stocks are valued at

cost.

Data used

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Basis FA CA

Responsibility

fixation

Does not fix

responsibility

Fixes responsibility

Access to

accounts

Outsiders have access. Outsiders do not have

access.

Type of

information.

Only monetary

information is recorded.

Monetary & non

monetary information

is recorded.

Interested

parties

Whole world is

interested in information.

Only internal

management is

interested.

Emphasis On reporting On control

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` Advantages to management- Ascertains cost.

controls cost.

Helps in inventory control.

Helps in cost reduction

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Basis CA MAPurpose Deals withcost

ascertainment, costallocation & cost control.

Provides information

for managerial decisionmaking.

Scope Narrow wider

Techniques

used

Standard costing,

budgetary control, CVP

analysis, inventory

control.

All techniques ofcost

accounting & Funds

flow & cash flow

analysis, ratio analysis.

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Basis CA MA

Organisational

status

Used at middle or lower

levels in the organization.

Used at higher levels in

the organization.

Data base Information is derived fromfinancial accounting

records.

Information is derivedfrom financial

accounting, cost

accounting records &

other sources as well..

Dependency Cost accounting system

can be installed without

management accounting

system.

Management

accounting system

cannot be installed

without cost accounting

system.

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