FA Lecture 1

7/29/2019 FA Lecture 1

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The lady replied I am sorry. But I already havesomeone who does this for me

The boy dialed a number and said Good morningmadam. I want to offer my services to mow yourlawn.

One day a shopkeeper came across a young boywho had come to his shop to make a phone call.

The boy said. Madam, I can mow lawns better thananybody else in this whole village. Please give me achance to mow your lawns


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The lady replied I am really sorry son; but I am veryhappy with the boy who mows my lawn and I do not

want to change

The boy still insisted, Madam I will charge you halfof the price you are currently paying

The lady patiently replied, No son. Thank you. I amhappy with the boy who mows my lawn

The boy put down the phone with a sweet satisfiedsmile.


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But the boy smiled and said, No. Thank you. Ialready have a job.

The shopkeeper was perplexed seeing him smileand thought that he was putting on a brave face.

I was checking on myself! That was my employer I

was calling!

MEASURING HIS PERFORMANCE

He felt sorry for the young boy and offered him a job

at the shop.


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The dictionary meaning of Measure is to find outthe size, amount or degree of something by

comparing it with a standard; its an indication of theextent or quality of something; its like a rank thatyou give a performance

What does the word measure bring to your mind

When you want to check performance you measure.

What you cannot measure , you cannot control!


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What are the things that you normally measure

How much marks has he got as compared to me

The basis of comparing and understanding abusiness is by understanding accounting

How are you going to manage this month?For a business man..

How much pocket money is left?

What is the profit this month?

Can I invest in another machine in my factory?

Will the bank give me a loan?


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FINANCIAL ACCOUNTING


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FiguresMoney

Income

Reports

Control

AccountsExpenses

The term financial accounting brings to mind


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Chanakya in his book ARTHSHASTRA mentions theneed for proper audit and accounting!

Accounting is an ancient art, as old as money itselfthough in a very rudimentary form

The modern system of accounting however owes its

origin to Pacioli, an Italian in the 15th century

Genesis of Accounting


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Hard work Commitmentto learning

Cheerful

disposition

Attendance &Punctuality

REQUIREMENTS


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What is accounting

Accounting is defined as the process of identifying,measuring and communicating economicinformation to enable decision making.

According to AICPA, Accounting is the art ofrecording, classifying and summarizing in asignificant manner and in terms of money,

transactions and events which are of financial natureand interpreting the results thereof.

This accounting process continues as financialstatements and reports that are provided to users.

Accounting is the language of business


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He would also like to know periodically the statusor position of his business

A business man would be interested in knowingwhether he has earned a profit or loss in business

The important functions of management; decisionmaking, planning & controlling cannot be executed

without correct and timely information.

What is the need for financial accounting?

So, whats the relationship between Accounting andinformation?


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He buys office building space for Rs. 50,000 and furniture ofRs. 25,000 in cash on 20th November

Mr. A starts a Company called M/s. Jyoti & Company with acash investment of Rs. 1,00,000 on 15th November

He purchase 1000 pens for Rs. 10,000 on 25th November andsells the pens for Rs. 15,000 on 29th November

Solve this?

He pays salary to staff of Rs. 2000 on 30th November

He pays for advertising expenses Rs. 1900 and buys officestationery for Rs. 1000 on 22nd November

He pays for water Rs.500 and Rs.600 for electricity on 30thNovember

What is the value of his business on 30th November

What is the profit as on 30th November


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The purpose of accounting is to provide all requiredinformation on financial transactions by maintainingcertain records, books of account and preparingcertain statements.

Volume and complexities of business calls for afoolproof and sophisticated system which canprovide the required information

Once you record events, ie. Measure it, you canmanage it!

Need for financial accountingcontd.

Accounting is the basis of recording the events thathappen in day to day business.


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Classifying is required to get information on

different transactions individually which is notavailable in the original book of entry where it isrecorded. The book of account used forclassification is called is called Ledger

Recording of financial transactions

Summarizing - Once classified information isavailable in the ledger, it is used to make summariesin the form of Income Statement & Balance Sheet. ie.Financial result and financial position

Accounting Cycle


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The three branches of accounting are:

Branches of Accounting

Management AccountingCost Accounting

Financial Accounting

Financial Accounting refers to accounting for

revenues, expenses, assets & liabilities. It involvesbasic accounting processes of recording, classifyingand summarizing transactions. It deals with pastevents.


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Auditing refers to reviewing and evaluatingdocuments , records and controls systems

Branches & Systems of Accounting.contd

Management Accounting refers to providinginformation to various management levels as a basisfor management decisions.

Cost Accounting refers to recording classifyingallocating and reporting current and prospective costs.The main purpose is to help control operations.


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The two systems of accounting are:

Cash basis

Systems of Accounting

Accrual basis

Cash basis A financial transaction is recorded in the books ofaccount only when it is settled in cash. There is no place forcredit transactions under this system of accounting. This ismostly followed by non profit service organizations like schools,colleges etc.

Accrual basis A financial transaction is recorded in the booksof account without considering whether it has been settled incash or not. This is followed by business organizations.


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Partnership firms business run by 2 or more

persons. Capital is brought in by the partners basedon an agreement

Sole Proprietorship - one person owns the business

Corporations or Companies

Forms of business organization

Largest form of business organization; capitalprovided by the public (shareholders)


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Users of financial reports

Shareholders

Creditors

Government

Board of Directors

Employees

Bankers


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Recap


Sole Proprietorship, Partnership & Company

Branches of accounting

Recording, classifying & summarizing transactions

Financial, cost & management accounting

Systems of accounting

Cash system & Accrual system

What is accounting & accounting cycle?


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The two systems of accounting are:

The three branches of accounting are:

Cash basis

Recap

Management AccountingCost Accounting

Financial Accounting

Accrual basis


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Accounting is the language of business and it is used tocommunicate financial information.

Accounting Concepts & Standards

In order for that information to make sense, accounting isbased on 11 fundamental concepts.

These fundamental concepts form the basis for all of theGenerally Accepted Accounting Principles (GAAP).

People who rely on financial information have a right tobe assured that the data are free from bias andinconsistency, whether deliberate or not.


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Accounting Period Concept

Money-Measurement

Cost Concept

MatchingPrinciple

Going Concern

Eleven GAAP


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Business Entity Concept

Realization Concept

Eleven GAAP

Conservatism

Materiality Concept

Consistency

Dual Aspect Concept


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This can be best understood by understanding therole of the finance department in an organization

To ensure

efficient management of cash flow

Role of Financial Accounting in business

maintenance of accurate accountsmaking and reviewing policies & procedures,

byproviding accurate and timely information for decisionmaking in order to maximize profitability

control income and expensesguide all departments


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Recap

What is accounting & need for the same

Accounting cycle

Role of finance dept in an organizationUsers of financial reports


Branches of accountingSystems of accounting

11 GAAP


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Thank you!


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'Yesterday the person who has been hinderingyour growth in this company passed away. We

invite you to join the funeral in the roomthat has been prepared in the gym'.

In the beginning, they were all sad about the death ofone of their colleagues, but after a while they startedgetting curious.


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The excitement in the gym was such that securityagents were ordered to control the crowd within theroom.

The more people reached the coffin, the more the

excitement heated up.Everyone thought: 'Who is this guy who washindering my progress? Well, at least he died!'

They wanted to know who was that man whohindered their growth of his colleagues and thecompany itself.


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Because, there was a mirror inside the coffin:everyone who looked inside it could see himself.

They stood nearby the coffin, shocked and insilence, as if someone had touched the deepest partof their soul.

One by one the employees got closer to the coffin.

There was also a sign next to the mirror that said:

When they looked inside it, they suddenly becamespeechless.


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'There is only one person, who is capable to set limits toyour growth: IT IS YOU.

You are the ONLY person who can revolutionize your lifeinfluence your happiness and your success.

You are the ONLY person who can help YOURSELF.


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Your life changes when YOU change, when you gobeyond your limited beliefs, when you realize thatyou are the ONLY one responsible for your life.

Examine yourself. Watch yourself. Work hard.

Don't be afraid of difficulties, impossibilities andlosses.

Be a WINNER, Build Yourself and SUCCESS will beyours.

LEARNINGS..


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Thank you!

FA Lecture 1

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Transcript of FA Lecture 1