Fundamentals of
Managerial Accounting
Module 1
Dr. Varadraj Bapat
Chartered Accountant
Cost Accountant
Ph.D., IIT B, Powai, Mumbai Contact Information:
LEARNING OBJECTIVES
Need to Know About Accounting
Managerial Accounting
Financial Statements - Balance Sheet, Income Statement
Need to Know About Accounting
Need to Know About Accounting and Finance
“Why do I need to learn about finance … I am very good in my
own area of specialization”
How would you react to the above statement?
The job content
Functional Expertise
Management
& Finance Expertise As
you mo ve up . .
About Managerial Accounting
What is Accounting?
Financial Accounting, Cost Accounting and Management Accounting
Financial Accounting and Financial Management
Finance and complexity of organisation
Accountin g
Language of Business
Performance is reported and evaluated in financial terms
Knowledge is useful for personal investment and tax planning as well
It is not necessary to become accountant
But its very useful if every one understands the accounting and financial concepts and terminology properly
Accounting
Need to Learn Accounting
It assists in management
Will help in planning, organisation and control of business
Leads to increase in efficiency of business
Profit maximization
Streams of Accounting
Financial Accounting, Cost Accounting and Management Accounting
Let us understand the similarities and difference in these three streams of accounting
Financial Accounting
Recording of Financial Transactions
Reporting of Financial Results
Preparation of Financial Statements
Targeted to External Users
Cost
Accounting
Recording of Costs
Analysis of Costs
Preparation of Cost Statements
Targeted to Internal Users
Management Accounting
Recording of Financial & other data
Analysis of Financial and other information
Preparation of Statements for Managerial Decisions
Management Accounting
Targeted to Internal Users - All levels of Management
This is a broader concept encompasses Financial and Cost Accounting
Meaning of Management Accounting
Any form of accounting which enables a business to be conducted more efficiently can be regarded as Management Accounting. (Institute of Chartered Accountants of India- ICAI)
application of professional knowledge and skill in the preparation of accounting information in such a way as to assist management in the formation of policies and in the planning and control of operations of undertaking.
(International Capital Market
Financial
Management
Financial Accounting, Managerial Accounting and Financial Management: Relationship
Financial Management deals with raising and utilization of funds
Raising of funds may include Cost of Capital, Capital Structure
Financial
Management
decisions, Capital Markets, IPOs and so on
Financial Management deals with raising and utilization of funds
Utilization of funds may include Capital Budgeting, Portfolio Management, Working Capital
Managerial V/s Financial Accounting
Accounting System (accumulates all accounting data) Accounting System
(accumulates all accounting data)
Managerial Accounting Information for decision
making, and control of an organization’s
operations.
Managerial Accounting Information for decision
making, and control of an organization’s
operations.
Financial Accounting Published financial statements and other
financial reports.
Financial Accounting Published financial statements and other
financial reports.
Complexity of Organisation
Finance and complexity of organisation
As the organizations grow, they become complex
Ownership and Management are separated
Complexity of Organisation
Ownership is widespread
This increases the importance of Finance function
About this course
Managerial Accounting Course
The course will cover Financial Accounting, Cost Accounting and Management Accounting
Financial Management is dealt in a different course
Financial Statements
What are they?
Which are important Financial Statements?
What purposes do they serve?
Company or Organisation
These two are always equal
RESOURCES FOR
BUSINESS PROVIDERS
OF MONEY
The Basic Business Model
Billing
Money
Procurement
Consumption
Delivery Collection
The Money
Cycle Value Addition
Cycle
Infrastructure
People
To be profitable, our revenue should be more than our cost ! This would make the organisation stronger,
Infrastructure
Billing
Money
Procurement Consumption Delivery
Collection Costs
Revenue
Balance Sheet Profit & Loss Account Liabilities
Capital
Borrowings from Banks / FIs Current
Liabilities
Assets
Fixed Assets Current Assets or Working Capital
Human Assets
Outstanding
Infrastructure
People
Procurement
& Inventory Consumption
& WIP Delivery &
Billing Collection
Money
Revenue
Costs
Profit/ Loss
Balance Sheet shows the financial position of
Balance Sheet shows the cumulative position of resources (assets) and sources of funds (liabilities) at the end of the year. Profit & Loss Account shows
‘Revenue & Cost’ performance during a quarter/ year.
Balance Sheet Profit & Loss Account Liabilities
Capital
Borrowings (eg.from Banks)
Current Liabilities
Assets
Fixed Assets Current Assets or
Working Capital
Human Assets
Outstanding
Infrastructure
People
Procurement
& Inventory Consumption
& WIP Delivery &
Billing Collection
Money
Revenue
Costs
Profit
Profits build up reserves & enable an
enterprise to acquire new assets without
Reserves
Balance Sheet Profit & Loss Account Liabilities
Capital
Borrowings (eg.from Banks)
Current Liabilities
Assets
Fixed Assets Current Assets or
Working Capital
Human Assets
Outstanding
Infrastructure
People
Procurement
& Inventory Consumption
& WIP Delivery &
Billing Collection
Money
Revenue
Costs
Profit
Profits build up reserves & enable an enterprise to acquire new assets without borrowing money. Exactly the way we Reserves
Balance sheet may be prepared at any time showing the position as on that date.
Profit and loss account may be prepared for any particular period.
Balance Sheet
Owners Funds
Non Current liabilities
Current liabilities
Fixed Assets
Non Current Investments
Other non
current assets
Current Assets
The Annual Report Usually Contains ...
financial statements which consist of
Balance sheet, Profit & Loss A/c
Cash Flow Statements
notes to the financial statements
disclosure of accounting policies
The Annual Report Usually Contains ...
Chairman’s Statement
Board of Directors & Committees
Directors Report
Directors Responsibility Statement
Auditors Report
Report on Corporate Governance
The Annual Report Usually Contains ...
Disclosure regarding Employee Stock options Schemes
List of employees receiving remuneration exceeding Rs. 60 Lakhs
Conservation of Energy Reports
The Annual Report Usually Contains ...
Consolidated Financial Statements
Subsidiaries Financial Statements
Management Discussion and Analysis
Annual General Meeting Notice
