Management accounting PDF

Preview

Summary

This is the lecture notes for management accounting for the academic year 2018-19...

Description

Biyani's Think Tank Concept based notes

Management Accounting I MBA

Varsha Sharma Dept. of Commerce & Management Biyani Institute of Science and Management

Published by :

Think Tanks Biyani Group of Colleges

Concept & Copyright :

Biyani Shikshan Samiti Sector-3, Vidhyadhar Nagar, Jaipur-302 023 (Rajasthan) Ph : 0141-2338371, 2338591-95 Fax : 0141-2338007 E-mail : [email protected] Website :www.gurukpo.com; www.biyanicolleges.org

Edition : 20 12 Price: Rs 120

While every effort is taken to avoid errors or omissions in this Publication, any mistake or omission that may have crept in is not intentional. It may be taken note of that neither the publisher nor the author will be responsible for a ny damage or loss of any kind arising to anyone in any manner on account of such errors and omissions.

Leaser Type Setted by : Biyani College Printing Department

For free study notes log on :- www.gurukpo.com

Preface

I

am glad to present this book, especially designed to serve the needs of the

students. The book has been written keeping in mind the general weakness in understandi ng the fundamental concepts of the topics. The book is self-explanatory and adopts the “Teach Yourself” style. It is based on question-answer pattern. The language of book is quite easy and understandable based on scientific approach. Any further improvement i n the contents of the book by making corrections, omission and inclusion is keen to be achieved based on suggestions from the readers for which the author shall be obliged. I acknowledge special thanks to Mr. Rajeev Bi yani, Chairman & Dr. Sanjay Biyani, Director (Acad.) Biyani Group of Colleges, who are the backbones and main concept provider and also have been constant source of motivation throughout this endeavour. They played an active role in coordi nating the various stages of this endeavour and spearheaded the publishing work. I look forward to receivi ng valuable suggestions from professors of various educational institutions, other faculty members and students for improvement of the quality of the book. The reader may feel free to send in their comme nts and suggestions to the under mentioned address. Varsha

For free study notes log on :- www.gurukpo.com

Contents S.No. Chapter Name 1

Introduction of Management Accounting

2

Introduction Accounting

3

Preparation of Final Accounts

4

Ratio Analysis

5

Cash Flow Analysis

6

Fund Flow Analysis

7

Basic Cost Concepts

8

Marginal Costing, Cost volume & Profit Analysis

9

Corporate Governance

10

Budgetary Control

11

Activity Based Costing

12

Unsolved University Papers

of

Management

Accounting

:

For free study notes log on :- www.gurukpo.com

Basic

Financial

Chapter-1

Introduction of Management Accounting Q.1

Explain the meaning of „Management Accounting‟? State its main characteristics and Nature. Ans. Management accounting is a systematic approach to planning and control functions of management. It generates information for establishing plans & controls and provide information for a systems of setting standards plans or targets and reporting variances between plans and actual performance for corrective actions. In this way that part of accounting system which facilities the Management process of decision making is called Management Accounting. Management Accounting includes every accounting technique which may be useful to management in discharging its function Planning Organizing directing coordinating communicating & controlling thus Management Accounting is the accounting Services to management is of accounting of management point of view that why is called Management oriented accounting or Accounting for Management. Nature Or Characteristics of management Accounting

Q.2

Distinguish between the Financial Accounting & the Management accounting? Comparison between Financial Accounting & Management Accounting.

Ans .

For free study notes log on :- www.gurukpo.com

6 Comparison Basis Nature

Financial Accounting Management Accounting Concerned with the Its deals in projection of data Historical Records

Accounting Principals

Governed by generally accepted accounting principles & conventions Subject Matter Prepared for the business whole Period Usually for a period of 12 Months Compulsion Compulsory Or Statutory Reporting Provides information regarding the financial soundness & earning capacity of the firm Scope Not vast Publication & Audit Financial Statement like profit & Loss and balance Sheet are published for the use of general public. They are audited by CA Objective Financial accounting is Recording business transaction in a systematic way & assess the business result and financial position of a concern

Q.3 Ans.

Not bound to follow such accounting principles & conventions Prepared for the each unit/department/ division. Regular Intervals Voluntary Basis Provides information to the management for efficient operation of business. More wide The publication and audit of management accounting reports is neither feasible nor mandatory.

Is to provide necessary information to the management for the efficient execution of its function

What are the tools and techniques used in management Accounting? Following tools and techniques are used in management accounting:Financial planning Analysis of Financial Statement Historical Cost Accounting. Responsibility Accounting. Control Accounting Revaluation Accounting Decision Accounting Statistical Methods For free study notes log on :- www.gurukpo.com

Management Accounting I

Management Information System Mathematical Techniques Taxation

For free study notes log on :- www.gurukpo.com

7

Chapter-2

Introduction of Management Accounting: Basic Financial Accounting Q.1 Ans.

What is the meaning of accounting and discuss its objective &functions in light of Morden business world? Accounting is the art of recording, Classifying and Summarizing in a significant manner and in terms of money, transaction and events in which are, in pert or least of a financial character and interpretation the result thereof Accounting may be described as an art of recording presenting interpretation and communicating the business transaction of financial nature in a systematic and orderly manner. Objectives of Accounting a. To maintain the systematic Records of the organisation b. c. d. e.

To Analysis the profit & Loss To Examine the financial position of the business To Provide the Decision making To provide information to other groups for example (Management , owners , Investors, creditors, banks)

Activities or Function of Accounting

Q.2 Discuss the management accounting concepts? Ans. Accounting Concept: (1) Entity Concept: according this concept business is treated as a Separate Entity it is different from its owners, creditors, managers. Owners are also treated as creditors of the organization. (2) Dual Aspect Concept: Every Transaction has a two sides (a) Debit side(B) Credit side (3) Going Concern Concept: this concept assume that business will continue to exist for the long run. (4) Accounting Period Concept: Financial year (I April to 31 March)

For free study notes log on :- www.gurukpo.com

Management Accounting I

9

(5) Money Measurement Concept: In Management Accounting only those transaction & events are included which are capable of being expressed in the terms of money. (6) Cost Concept: value of assets is calculated on the basis of acquisition cost. (7) Matching Concept: the determination of profit of a particulars accounting period is essentially a process of matching the revenue recognised during the period and the cost to be allocated to the period to obtain the revenue. (8) Accrual Concept: this concept is concerned with the period in which the revenues and expenses are to be related. (9) Verifiable & objective: this concept means all the transaction that are recorded in the books of accounts should be proved true or genuine. Q.3

“Every business transaction has two fold aspects”. Explain this statement and discuss the principle on which these aspects are recorded in the books of accounts?

Ans. Classification of Accounts

Personal Accounts: Related to individual, Firm, Company, or an institution.(Ram, Mohan ,Capital a/c, Debtors, creditors a/c) (A) Natural personal a/c : means Accounts of human being (B) Artificial a/c: these do not have physical existence but they work as personal account. (C) Representative a/c : when account represent a particular person or group of person . Real Account: These account related to those entire thing whose value can be measured in the terms of money and those are the properties of the business. These account also divided into the two parts (tangible) & (intangible) (Cash a/c, furniture account, goodwill a/c) Nominal Account: These accounts related to income and expenses.( rent paid, For free study notes log on :- www.gurukpo.com

10

salary paid , bad debts) EBIT & CREDIT RULES Account name Personal Account Real Account Nominal Account

Debit receiver What comes in The expenses& looses

Credit giver What goes out Incomes &gains

Q4

Discuss the accounting cycle and name the important books of original entry? Ans. Accounting Cycle

Journal : It is a book of original entry and all transaction are listed in the chronological order day to day. Journal Performa Date

Particulars

Types and sub Division of journal Cash Book Purchase day book Sales Day Book Return out ward book Return inward book Bills receivable book Bills payable book Journal Proper

L.F.

Debit amount

Credit Amount

It records cash receipt and Payments It records credit purchase of goods It records credit sales of goods It records goods return to the supplier It records goods return by the customer It records bills accepted by the customer It records bills raised by the suppliers It records all residual transaction

For free study notes log on :- www.gurukpo.com

Management Accounting I

11

Ledger: ledger is a summary statement of all the transaction related to the particular person ,assets, expenses ,income or gain. Ledger Performa: Dr. Date Particulars J.F

Rs.

Date

Cr. Particulars J.F

Rs.

Trial Balance: A trial Balance may be defined as a statement of debit and credit tools or balances extracted from the various accounts in the ledger with a view to testing the arithmetic accuracy of the books. Trial Balance S.No

Particulars

L.F

Amount (DR)

Amount (CR)

Final Account: After recording all the transaction in the books of journal, Ledger, and the trial balance the proprietor prepare the income statement or Trading and profit & loss account to show the net the result of the business. and Balance sheet shows the actual Financial position of the business. all these accounts are called the final accounts.

For free study notes log on :- www.gurukpo.com

Multiple Choice Questions Q1

...................is a summary statement of all the transaction related to the particular person, assets, expenses, income or gain. (A) Ledger (B) trial balance (C) Journal (D) Final Accounts

Q2

Book of original entry is known as (A)Ledger (B) trial balance (C) Journal (D) Final Accounts

Q3

Which account is related to income and expenses? (A) Personal (B) real (C) Nominal (D) all of the above

Q4

Which account do not have physical existence but they work as personal account. (A) Natural account (B) artificial account (C) representative account (d) none of the above

Q5

Which concept assumes that business will continue to exist for the long run. (A) Dual concept (B) going concern (C) business entity concept (D) Matching concept

Q6

Goodwill is the example of (A) Personal (B) real (C) Nominal (D) all of the above

Q7

Rent paid is the example of (A) Personal (B) real (C) Nominal (D) all of the above

Q8

When account represents a particular person or group of person is called (A) Natural account (B) artificial account (C) representative account (d) none of the above

Q9

Which book carries the record goods return to the supplier? (A)Cash book (b) Purchase return book (C) Sales return book (D) none of the above

Q10

................ concept is concerned with the period in which the revenues and expenses are to be related. (A) Accrual concept (B) going concern (C) business entity concept (D) Matching concept

For free study notes log on :- www.gurukpo.com

Case Study

Enter the following transaction in various subsidiary books and post them into the ledger accounts and prepare a trial balance as at 31.8.2010 2010 Aug 1 Aug3

Mr Pankaj started business with cash Bought furniture from Modi furniture Mart Bought goods for cash Purchased goods from Baby & Co for the trade discount @20% Deposited into the bank Sold goods for cash Purchased stationery from Bhagat stationery Mart Sold goods to Amir Goods returned by Amir payment to baby & company by cheque Goods purchased on credit from Veera & co Goods returned to veera &co Paid electricity Charges Cash Sales Withdraw from bank for private purpose

65000 6000 9000 15000 15000 21000 600 12000 2000 5000 10000 1000 150 10000 1000

For free study notes log on :- www.gurukpo.com

Chapter-3

Preparation of Final Account Q1 What do you mean by final account? Ans. After recording all the transaction in the books of journal, Ledger, and the trial balance the proprietor prepare the income statement or Trading and profit & loss account to show the net the result of the business. and Balance sheet shows the actual Financial position of the business. all these accounts are called the final accounts.

Q2

Which adjustment entries are required to made at the time of preparing the final account? Adjustments:

Ans

S.No. Items Of Adjustment

Adjustment entry

1

Closing Stock

Closing Stock To Trading

2

Outstanding Expenses

3

Prepaid Expenses

4

Accrued Income

Respective Expenses a/c To Outstanding expenses Prepaid Expenses To Respective Expenses Accrued income To Respective Income

5

Unearned Income

Treatment in trading & P&L Account Shown in the Credit Side of the Trading A/c

Added to the respective expenses on the debit side Deducted From the respective expenses on the debit side Added to the respective income in the credit side Respective Deducted from account the respective To unearned income on the

For free study notes log on :- www.gurukpo.com

Treatment in balance Sheet Shown on the Assets side as A current assets Shown on the liability side as a current liability Shown on the assets side as a current assets Shown on the assets side as a current assets Shown on the liability side as current

Management Accounting I

6

Depreciation

7

Additional bad Debts

8

9

10

11

15 Income Depreciation To Respective income

credit side Shown on the debit side as a separate item

liability Shown on the assets side by way of deduction on the value concerned

Bad Debts A/c Shown in Dr. of Shown on the TO Sundry the P&L assets side by Debtors account way of deduction from the amount of sundry debtors. Provision of Doubt full P&L A/c Shown on the Shown on the debts TO Provision of debit side as a assets side by doubtful debts separate item way of deduction from the amount of sundry debtors( net of additional bad debts Provision of discount on P&L Shown on the Shown on the debtors To provision for debit side as assets side by discount on separate item way of Debtors deduction from the amount of Sundry debtors Reserve for Discount on Reserve for Shown on the Shown on the the Creditors Discount on credit side as liability side Creditors Separate Item by way of To P&L A/c deduction from the amount of sundry creditors Interest on capital Interest on Shown on the Shown on the capital/c Debit side as a liability side To capital separate item by way of addition to the Capital

For free study notes log on :- www.gurukpo.com

16 12

13

Q3 Ans

Interest on Drawing

Capital A/c Shown on the Shown on the To Interest on Credit Side as a liability side Drawing spate item by way of deduction from the capital Manager Commission on Manager Shown on the Shown on the profit Commission Debit side as a liability side as To Out separate item a current Standing liability Commission

What are the components of the final account? After recording all the transaction in the books of journal, Ledger, and the trial balance the proprietor prepare the income statement or Trading and profit & loss account to show the net the result of the business. And Balance sheet shows the actual financial position of the business. All these accounts are called the final accounts.

Trading Account Trading account is shows the result of buying and selling of goods during the given period of time and its prepared for calculating the gross profit and gross losses. Trading Account For the year ended………………….. Particulars Amount Particulars Amount To opening Stock By Sales To Purchase Less: Sales Return Less: Purchase By closing Stock By Gross Loss c/d return Less goods otherwise given away To Direct Expenses To wages To carriage inward To wages To manufacturing Expenses To power TO Factory Lighting To coal water & Gas To Fuel &power For free study notes log on :- www.gurukpo.com

Management Accounting I

17

To Import Duty To Factory Rent To Productive Expenses To Excise Duty To warehousing Expenses To Wages & Salary TO Octroi To Custom Duty TO Dock Charges To Royalty To Consumables Stores To Railway Freight To Gross Profit C/d

Profit & Loss Account P&L account calculate the net profit or net loss of an undertaking of a certain period .In the beginning gross profit is recorded in the Cr. Side

and Gross losses in the Dr. of the P&L account. Then all the income and expenses are recorded Profit and losses account Particulars Amount TO Gross losses b/d To Management Expenses To rent & Taxes To lighting Charges To printing & Stationary To Postage and Telephone charges To Legal Expenses To general Expenses To Insurance Premium To Maintenance Expenses To Depreciation

Particulars Amount By Gross Profit By Other income By Discount received By Commission Received By Non Trading Income By Interest Received By Rent Received Dividend By Interest on Debenture Received By Apprentice Premium By Abnormal gain By Profit on sale of assets By Net Losses

For free study notes log on :- www.gurukpo.c...