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
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
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
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
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)
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
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
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
