1. PARAMJIT SHARMA
Fundamentals

2. PARAMJIT SHARMA
Financial
Accounting
Cost
Accounting
Management
Accounting
The art of Recording, Classifying,
And summarizing in terms
of money ,transactions and events
which are of financial Nature,
and interpreting the results
thereof
Accounting

3. 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

4. PARAMJIT SHARMA
Reducing Cost of the car by INR 10,000
Manufacturing & Marketing Cars

5. PARAMJIT SHARMA
Fundamentals
Financial Accounting-
meaning & limitations
FA is concerned with
RECORDING,
CLASSIFYING AND
SUMMARISING
financial transactions in accordance
with the generally accepted
Accounting Principles
Journal
Ledger
Trial Balance
Final Statements

6. PARAMJIT SHARMA
FundamentalsFinancial Statements
PROFIT & LOSS
ACCOUNT
BALANCE-SHEET
STATEMENT OF
SOURCES &
APPLICATIONS OF
FUNDS

7. PARAMJIT SHARMA
FundamentalsFinancial Accounting- limitations
HISTORICALHISTORICAL ONLY NET RESULTSONLY NET RESULTS
NO CONTROL
ON COST
NO CONTROL
ON COST
NO DISTINCTION
Direct & Indirect
NO DISTINCTION
Direct & Indirect
Inadequate Information
For
PRICE FIXATION
Inadequate Information
For
PRICE FIXATION
NO COMPARISON OF
COSTS
NO COMPARISON OF
COSTS
NO STANDARDS TO
Assess Performance
NO STANDARDS TO
Assess Performance

8. PARAMJIT SHARMA
Management
Accounting

9. PARAMJIT SHARMA
Management Accounting
• A field of accounting that provides
economic and financial information for
managers and other internal users.

10. 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

11. 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

12. PARAMJIT SHARMA
COMPARING MANAGEMENT
AND FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
External Users;
Stockholders, Creditors
Regulators
Financial Statements
Quarterly & Annually
General Purpose
Pertains to Business as Whole
Limited to Double Entry Acct,
Cost Data
GAAP/IAS
Audit By CA
Primary users
Of Reports
Types & Frequency
Of Reports
Purpose of Reports
Contents of Reports
Verification Process
MANAGEMENT ACCOUNTING
Internal Users: Managers
Directors
Internal Reports
As Frequently Required
Special Purpose for
Specific Decisions
Pertains To some sub unit of
Business
Very Detailed
Extend beyond DE Accounting
Standard is relevance to Decision
No independent Audits

13. PARAMJIT SHARMA
FundamentalsFew Terms - clarification
COST ACCOUNTANCY
COSTING
COST ACCOUNTING

14. 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

15. PARAMJIT SHARMA
FundamentalsCOST ACCOUNTING- introduction
The Process of accounting for costs from the
Point at which expenditure is incurred or
committed to the establishment of its ultimate
relationship with cost centers and cost units
Books
Of Cost Accounts
Cost Centers

16. 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)

17. PARAMJIT SHARMA
Costing Objectives
Setting
Price
Ascertaining
cost
Cost
Review
Cost
Control
Operating
Decisions

18. PARAMJIT SHARMA
Fundamentalsdecision making
PRICE
PROFIT
MAKE OR
BUY
CAPACITY
EXPORT
PRICE
OPERATE
OR
SHUT
SALES
VOLUME
NEW
MODEL

19. 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

20. PARAMJIT SHARMA
FundamentalsCost/Financial Accounting- differences
Need
Purpose
Recording
Profit
Analysis
Contents
Compulsory Obligatory
Final Results to stake
Holders
Subjective Recording
Total Profit/Loss
External Transactions
Cost Information
Objective Recording
Product wise
Internal
FA CAFactor

21. 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

22. 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
& Control
Reporting Cost
Short Term
Variable Costing,
Budgetary Control etc
Can Be Installed
Without CA
factor MA CA

23. PARAMJIT SHARMA
FundamentalsCost Accounting- advantages
Supplies Detailed Cost Information
Helps in Price Fixation
Reveals UN (Profitable) Activities
Reveals idle capacity
Assist in Controlling Costs
Helps in decision Making
Facilitates Cost Comparison
Helps in Inventory Control

24. PARAMJIT SHARMA
FundamentalsCost Accounting- Objections
It is Unnecessary
It is Inapplicable
It is a failure
Mere matter of
Forms and Ruling
It is Expensive

25. PARAMJIT SHARMA
Price …..Quality ….Strategies
Price
ProductQuality
High Med low
H
M
L
1
Premium
Strategy
2
High value
strategy
3
Super value
strategy
4
Overcharging
strategy
5
Medium
Value Stg.
6
Good value
Strategy
7
Rip off
Strategy
8
False Econ.
Strategy
9
Economy
Strategy

26. PARAMJIT SHARMA
Fundamentals
Costing Methods
Job Costing
Batch Costing
Contract Costing
Process Costing
Unit Costing
Operation Costing
Operating Costing
Multiple Costing

27. PARAMJIT SHARMA
FundamentalsCosting Techniques
Historical Costing
Standard Costing
Marginal Costing
Absorption Costing
Direct Costing
Uniform Costing

28. PARAMJIT SHARMA
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

29. 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

30. PARAMJIT SHARMA
Fundamentals
Time for Questions