PARAMJIT SHARMA Fundamentals
PARAMJIT SHARMA
Fundamentals
PARAMJIT SHARMA
FinancialAccounting
CostAccounting
ManagementAccounting
The art of Recording, Classifying,And summarizing in terms of money ,transactions and eventswhich are of financial Nature,and interpreting the resultsthereof
Accounting
PARAMJIT SHARMA
What Would Be The Role Of Financial Accounting ?What Would Be The role Of Cost Accounting ?What Would Be Role Of Management Accounting ?
Manufacturing & Marketing Cars
PARAMJIT SHARMA
Reducing Cost of the car by INR 10,000
Manufacturing & Marketing Cars
PARAMJIT SHARMA
FundamentalsFinancial Accounting-meaning & limitations
FA is concerned with
RECORDING,CLASSIFYING ANDSUMMARISING
financial transactions in accordancewith the generally accepted Accounting Principles
Journal
Ledger
Trial Balance
Final Statements
PARAMJIT SHARMA
FundamentalsFinancial Statements
PROFIT & LOSSACCOUNT
BALANCE-SHEET
STATEMENT OFSOURCES &
APPLICATIONS OFFUNDS
PARAMJIT SHARMA
FundamentalsFinancial Accounting- limitations
HISTORICALHISTORICAL ONLY NET RESULTSONLY NET RESULTS
NO CONTROL ON COST
NO CONTROL ON COST
NO DISTINCTIONDirect & Indirect
NO DISTINCTIONDirect & Indirect
Inadequate InformationFor
PRICE FIXATION
Inadequate InformationFor
PRICE FIXATIONNO COMPARISON OF
COSTS
NO COMPARISON OFCOSTS
NO STANDARDS TOAssess Performance
NO STANDARDS TOAssess Performance
PARAMJIT SHARMA
Management Accounting
PARAMJIT SHARMA
Management Accounting• A field of accounting that provides
economic and financial information for managers and other internal users.
PARAMJIT SHARMA
Activities include:• Explaining manufacturing and non
manufacturing costs and how they are reported in the financial statements
• Computing the cost of providing a service or manufacturing a product
• Determining the behavior of costs and expenses as activity levels change
• Analyzing cost-volume profit relationships within a company
MANAGEMENT ACCOUNTING BASICS
PARAMJIT SHARMA
Activities include (continued):
• Assisting management in profit planning and budgeting
• Providing a basis for controlling costs and expenses by comparing actual results with planned
objectives and standard costs• Accumulating and presenting relevant data for
management decision making
MANAGEMENT ACCOUNTING BASICS
PARAMJIT SHARMA
COMPARING MANAGEMENT
AND FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
External Users;Stockholders, CreditorsRegulators
Financial StatementsQuarterly & Annually
General Purpose
Pertains to Business as WholeLimited to Double Entry Acct,Cost DataGAAP/IAS
Audit By CA
Primary usersOf Reports
Types & FrequencyOf Reports
Purpose of Reports
Contents of Reports
Verification Process
MANAGEMENT ACCOUNTING
Internal Users: ManagersDirectors
Internal Reports As Frequently Required
Special Purpose for Specific Decisions
Pertains To some sub unit of BusinessVery DetailedExtend beyond DE AccountingStandard is relevance to Decision
No independent Audits
PARAMJIT SHARMA
FundamentalsFew Terms - clarification
COST ACCOUNTANCYCOSTING COST ACCOUNTING
PARAMJIT SHARMA
FundamentalsFew Terms - clarification
COST ACCOUNTANCY
It is the application of Costing and Cost Accounting Principles, Methods and Techniques to the science,art and practice of Cost Control and the ascertainment of profitability. It includes the presentation of information derived there from for the purpose of Managerial Decision Making
It is the application of Costing and Cost Accounting Principles, Methods and Techniques to the science,art and practice of Cost Control and the ascertainment of profitability. It includes the presentation of information derived there from for the purpose of Managerial Decision Making
PARAMJIT SHARMA
FundamentalsCOST ACCOUNTING- introduction
The Process of accounting for costs from thePoint at which expenditure is incurred orcommitted to the establishment of its ultimaterelationship with cost centers and cost units
BooksOf Cost Accounts
Cost Centers
PARAMJIT SHARMA
FundamentalsFew Terms - clarification
COSTING •Technique and process of ascertaining costs
•Classifying, recording and appropriate allocation of Expenditure for determination of costs of products ( Watch, TV, Computers) or services (Electricity, telephone, Transport Etc)
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Costing Objectives
SettingPrice
Ascertainingcost
CostReview
CostControl
OperatingDecisions
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Fundamentalsdecision making
PRICEPROFIT
MAKE ORBUY
CAPACITY
EXPORTPRICE
OPERATEOR
SHUT
SALESVOLUME
NEWMODEL
PARAMJIT SHARMA
FundamentalsCost Accounting- principles
1. A cost is related to cause- rent of factory charged to factory
2. A cost is charged after it has been Incurred-no selling cost to unsold stock
3. Abnormal costs are excluded – loss due to fire accident
4. Conservatism Concept ignored in Cost Accounting- stock valued at cost only
5 Principle of Double entry applied to cost accounting too
PARAMJIT SHARMA
FundamentalsCost/Financial Accounting- differences
Need
Purpose
Recording
ProfitAnalysis
Contents
Compulsory Obligatory
Final Results to stakeHolders
Subjective Recording
Total Profit/Loss
External Transactions
Cost Information
Objective Recording
Product wise
Internal
FA CAFactor
PARAMJIT SHARMA
FundamentalsCost/Financial Accounting- differences
Periodicity
Control
Nature
Valuation
Once/twice Daily/weekly/monthly
Inadequate
Historical
Cost or market
System at Place
Historical/Predetermined
Cost Price
FA CAFactor
PARAMJIT SHARMA
FundamentalsManagement/Cost Accounting- differences
Derivation Of Data
Information Provided
Emphasis
Purpose
Planning
Techniques
Installation
•Cost/Financial Acct
•Cost/Fin. Information CVP/Fin Ratios•Decision Making
•Planning, Decision M & Control•Short/Long Term
•RA,FF, C Flow
•Not possible without CA system
Data From CA
Only Cost Inf.
Cost Ascertainment & ControlReporting Cost
Short Term
Variable Costing, Budgetary Control etc
Can Be Installed Without CA
factor MA CA
PARAMJIT SHARMA
FundamentalsCost Accounting- advantages
Supplies Detailed Cost InformationHelps in Price FixationReveals UN (Profitable) ActivitiesReveals idle capacityAssist in Controlling CostsHelps in decision MakingFacilitates Cost ComparisonHelps in Inventory Control
PARAMJIT SHARMA
FundamentalsCost Accounting- Objections
It is UnnecessaryIt is InapplicableIt is a failureMere matter of Forms and RulingIt is Expensive
PARAMJIT SHARMA
Price …..Quality ….StrategiesPrice
Pro
du
ct Q
ual
ity
High Med low
H
M
L
1PremiumStrategy
2High value
strategy
3Super value
strategy
4Overcharging
strategy
5Medium
Value Stg.
6Good value
Strategy
7Rip off
Strategy
8False Econ.
Strategy
9EconomyStrategy
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FundamentalsCosting Methods
Job CostingBatch CostingContract CostingProcess CostingUnit CostingOperation CostingOperating CostingMultiple Costing
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FundamentalsCosting Techniques
Historical CostingStandard CostingMarginal CostingAbsorption CostingDirect CostingUniform Costing
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FundamentalsInstallation Of Costing System
•Nature Of Business•Structure of Organization•Objectives and Expectations•Cooperation and support Of staff•Standardization of Forms•Prompt Reporting•Flexibility•Reconciliation of FA & CA•Current Practices•Simplicity
PARAMJIT SHARMA
FundamentalsInstallation Of Costing System-difficulties
•Lack Of Management Support•Resistance Of Staff•Non Cooperation From Other Levels•Shortage Of Trained Staff•Heavy Cost Of Operating The System
PARAMJIT SHARMA
Fundamentals
Time for Questions