Accounting and Finance for Non - Finance Managers
ISBN: 9789357461115
1152 pages
Description
Designed for management students from a non-finance background, Accounting and Finance for Non-Finance Managers introduces the basic concepts of accounting and finance in an easy-to-understand manner while acknowledging the recent advancements in financial and managerial accounting. It comprehensively covers the fundamental concepts of financial accounting, cost accounting, management accounting and financial management, and presents international accounting standards including US GAAP and IFRS.
Preface
Acknowledgements
About the Author
Part A: Financial Accounting
1. Overview of Business and Accounting
1.1 Types of Business
1.2 Selection of Appropriate Form of Business
1.3 Forms of Business Organisations
1.4 Structuring of Cross-border Business
1.5 Bookkeeping Introduction
1.6 Origin and Growth of Accounting
1.7 Meaning of Accounting
1.8 Functions of Accounting
1.9 Users of Accounting Information
1.10 Branches of Accounting
1.11 Approaches of Accounting
1.12 Systems of Accounting
1.13 Methods of Accounting
1.14 Process of Accounting
1.15 Limitations of Financial Accounting
2. Basic Terminology and Source Documents of Accounting
2.1 Transactions
2.2 Ownership of the Business
2.3 Capital
2.4 Assets
2.5 Liabilities
2.6 Drawings
2.7 Debtors
2.8 Creditors
2.9 Bills Receivable
2.10 Bills Payable
2.11 Purchases
2.12 Purchase Returns or Returns Outward
2.13 Sales
2.14 Sales Returns or Returns Inward
2.15 Trade Discount
2.16 Cash Discount
2.17 Stock
2.18 Income
2.19 Invoice
2.20 Receipt
2.21 Source Documents
3. Conceptual Framework for Financial Reporting
3.1 Financial Reporting Conceptual Framework
3.2 Characteristics of Accounting Information
3.3 Characteristics of Accounting Principles
3.4 Classification of Accounting Principles
4. Theory Base of Financial Reporting: Accounting Standards
4.1 Accounting Standards
4.2 Development of Accounting Standards
4.3 Accounting Standards in India
4.4 The International Financial Reporting Standards
4.5 US Generally Accepted Accounting Principles
4.6 Extensible Business Reporting Language
5. Scope of Accounting and Its Relationship with Other Disciplines
5.1 Role of Ethics in Accounting Profession
5.2 Corporate Governance
5.3 Corporate Social Responsibility (CSR)
5.4 Relationship of Accounting with Other Disciplines
5.5 Direct Taxes
5.6 Indirect Taxation
5.7 Accounting in Financial Management
6. Primary Books of Accounts
6.1 Journal
6.2 Classification of Entries
6.3 Ledger
6.4 Journal versus Ledger
6.5 Account
6.6 Balancing an Account
7. Subsidiary Books of Accounts
7.1 Advantages of Subsidiary Books
7.2 Types of Subsidiary Books
7.3 Introduction of Cash Book
7.4 Goods Book
7.5 Bills Book
7.6 Journal Proper
8. Depreciation Accounting
8.1 Meaning of Depreciation
8.2 Causes of Depreciation
8.3 Depreciation and Accounting Concepts
8.4 Appreciation in the Value of Fixed Asset
8.5 Consequence of Wrong Depreciation
8.6 Importance of Charging Depreciation
8.7 Recording Methods of Depreciation in the Books of Accounts
8.8 Methods of Calculation of Depreciation
8.9 Change in the Method of Depreciation
8.10 Depreciation of Assets Under The Companies Act, 2013
9. Inventory Valuation
9.1 Classification of Inventory
9.2 Need for Inventory
9.3 Objectives of Inventory Valuation
9.4 Components of Inventory Valuation
9.5 Receipt and Issue of Materials—Documentation
9.6 Records in Stores
9.7 Method for Valuing Issues
9.8 Valuation of Inventory
9.9 Methods of Pricing Material Issues
9.10 Inventory Systems
9.11 Valuation of Inventory for Balance Sheet Purposes
10. Trial Balance, Errors’ Rectification, Bank Reconciliation, and Reserves and Provisions
10.1 Preparation of a Trial Balance
10.2 Limitations of Trial Balance
10.3 Accounting Errors
10.4 Rectification of Errors
10.5 Bank Reconciliation Statement
10.6 Provisions
10.7 Reserves
10.8 Difference Between Provisions and Reserves
10.9 Revenue Reserve and Capital Reserve
11. Preparation of Financial Statements of a Sole Trader
11.1 Objectives of Financial Statements
11.2 The Trading Account
11.3 The Profit and Loss Account
11.4 Operating Profit (EBIT)
11.5 The Balance Sheet
11.6 Final Accounts with Adjustments
12. Understanding Financial Statements of a Company
12.1 Final Accounts of Company
12.2 Form and Content of Balance Sheet
12.3 Preparation of Final Accounts as per Revised Schedule
12.4 Features of Schedule III
12.5 Shareholders’ Fund
12.6 Borrowings
12.7 Non-current Liabilities
12.8 Current Liabilities
12.9 Non-Current Assets
12.10 Current Assets
12.11 Contingent Liabilities
12.12 Commitments
12.13 Profit and Loss Statement
12.14 Form and Content of Statement of Profit and Loss
12.15 Some Specific Adjustments in Preparation of Financial Statements
12.16 Dividend
12.17 Reserve and Surplus
12.18 Managerial Remuneration
12.19 Provision for Taxation
12.20 Books of Accounts of a Company
12.21 Statutory Books of Account
12.22 Statistical Books
12.23 Compulsory Maintenance of Books
12.24 Prescribed Books of Accounts in Section 44AA
12.25 Auditing
12.26 Other New Provisions Under the 2013 Act
Part B: Cost And Management Accounting
13. Cost Accounting: An Overview—Concept, Classification and Analysis
13.1 Limitations of Financial Accounting from a Cost Accounting Perspective
13.2 Origin and Development of Cost Accounting
13.3 Meaning of Cost Accounting
13.4 Cost
13.5 Costing
13.6 Definition of Cost Accounting
13.7 Cost Accountancy
13.8 Scope of Cost Accounting
13.9 Installation of Cost Accounting System
13.10 Characteristics of a Good System of Cost Accounting
13.11 Limitations of Cost Accounting
13.12 Methods of Costing
13.13 Techniques of Costing
13.14 Cost Classification
13.15 Cost Classification to Meet Changing Circumstances
13.16 Cost Coding
13.17 Components of Total Cost
13.18 Expenses Excluded from Cost Accounts
13.19 Incomes Excluded from Cost Accounts
13.20 Cost Selection and Reporting
13.21 Cost Accounting Standards
13.22 Cost Audit
13.23 Role of Cost Accountant
14. Cost Elements: Material, Labour and Overheads
14.1 Scope of Inventory Control
14.2 Techniques of Inventory Control
14.3 Introduction of Labour
14.4 Idle Time
14.5 Overtime
14.6 Labour Turnover
14.7 System of Wage Payment and Incentive Schemes
14.8 Time and Piece-rate System
14.9 Deductions from Gross Remuneration of Employee
14.10 Labour Performance Ratios
14.11 Overheads
14.12 Allocation vs. Apportionment
14.13 Basis of Apportionment
14.14 Reapportionment/Secondary Distribution
14.15 Methods of Reapportionment or Secondary Distribution
15. Management Accounting: An Overview
Introduction
15.1 Definition of Management Accounting
15.2 Emergence of Management Accounting
15.3 Systems of Management Accounting
15.4 Characteristics of Management Accounting
15.5 Objectives of Management Accounting
15.6 Difference Between Management Accounting and Cost Accounting
15.7 Difference Between Management Accounting and Financial Accounting
15.8 Functions of Management Accounting
15.9 Scope of Management Accounting
15.10 Limitations of Management Accounting
15.11 The Management Accountant
15.12 Responsibility Accounting
15.13 Responsibility Centres
15.14 Divisional Performance
15.15 Financial Methods for Evaluation of Divisional Performance
15.16 Cost Control and Cost Reduction
15.17 Activity-based Costing (ABC)
15.18 Backflush Costing
15.19 Target Costing
15.20 Life Cycle Costing
15.21 Kaizen Costing
15.22 Business Process Re-engineering (BPR)
15.23 Total Quality Management
15.24 Total Cost Management
15.25 Social Accounting and Audit
16. Budgeting and Budgetary Control
16.1 Concept of Budgeting
16.2 Concept of Budgetary Control
16.3 Budgeting and Forecasting
16.4 Budget Manual
16.5 Budget Period
16.6 Advantages of Budgetary Control
16.7 Limitations of Budgetary Control
16.8 Classification of Budgets
16.9 Planning, Programming and Budgeting System
17. Standard Costing and Variance Analysis
Introduction
17.1 Characteristics of Standard Costing
17.2 Standard Costs
17.3 Standard Costing System
17.4 Advantages of a Standard Costing System
17.5 Standard Costing Process
17.6 Variance Analysis
17.7 Limitations of Standard Costing and Variance Analysis
17.8 Standard Costing System and Budgetary Control
17.9 Types of Variances
17.10 Reporting of Variances
18. Marginal Costing Analysis and Decision-making
18.1 Absorption Costing
18.2 Marginal Costing
18.3 Direct Costing
18.4 Differential Cost
18.5 Incremental Cost
18.6 Contribution
18.7 Key Factor
18.8 Difference Between Marginal Costing and Absorption Costing
18.9 Difference between Direct Costing and Marginal Costing
18.10 Difference between Differential Costing and Marginal Costing
18.11 Cost–Volume Profit Analysis
18.12 Assumption of CVP Analysis
18.13 Impact of Various Changes on Profit
18.14 Marginal Cost Equation
18.15 Profit–Volume Ratio
18.16 Break-even Analysis
18.17 Cash Break-even Point
18.18 Margin of Safety
18.19 Cost Indifference Point
18.21 Graphical Representation of a Break-even Chart
18.22 Contribution Break-even Chart
18.23 Profit–Volume Chart
18.24 Decision-making
18.25 Costs for Decision-making
18.26 Decision-making and Marginal Costing
Part C: Financial Management
19. Financial Management: An Overview
19.1 Meaning of Finance
19.2 Types of Finance
19.3 Scope of Finance
19.4 Objectives of Financial Management
19.5 Functions of Financial Management
19.6 Profit Maximisation
19.7 Wealth Maximisation
19.8 Financial Planning
19.9 Role of a Finance Manager
19.10 Time Value of Money
19.11 Cost of Capital
19.12 Capital Structure
19.13 Capital Structure and Financial Structure
19.14 Patterns of Capital Structure
19.15 Factors Affecting Capital Structure
19.16 Capitalisation
19.17 Overcapitalisation
19.18 Undercapitalisation
19.19 Point of Indifference
19.20 Degree of Operating Leverage
19.21 Degree of Financial Leverage
19.22 Degree of Total Leverage
19.23 Liquidity and Capital Structure
20. Sources of Business Finance
20.1 Loans from Commercial Banks
20.2 Trade Credit
20.3 Lease
20.4 Credit Card
20.5 Customer’s Advances
20.6 Public Deposits
20.7 Depreciation Fund
20.8 Money Market
20.9 Commercial Bill Market
20.10 Commercial Paper
20.11 Certificate of Deposits
20.12 Sources of Long-term Finance
20.13 Capital Market
20.14 Issue of Shares
20.15 Equity Share Capital
20.16 Preference Share Capital
20.17 Bonus Shares
20.18 Right Shares
20.19 Preferential Allotment of Shares
20.20 Private Placement
20.21 Sweat Equity
20.22 Debentures
20.23 Mutual Funds
20.24 Leasing
20.25 Term Loans from Banks
20.26 Loans from Financial Institutions
20.27 Other Financial Institutions
20.28 Retained Profits
20.29 Foreign Sources
20.30 Mode of Investment in India by a Foreign Company
21. Working Capital Management
21.1 Objectives of Working Capital Management
21.2 Concept of Working Capital
21.3 Structure of Working Capital
21.4 Factors Affecting Working Capital Requirements
21.5 Operating Cycle
21.6 Forecasting of Working Capital
21.7 Classification of Working Capital
21.8 Policies of Working Capital and Their Impact
21.9 Concept of Zero Working Capital
21.10 Inventory Management
21.11 Optimum Inventory Policy
21.12 Techniques of Inventory Control
21.13 Receivables Management
21.14 Credit Policy
21.15 Credit Period
21.16 Cash Discount
21.17 Optimum Size of Receivables
21.18 Determinants of Credit Policy
21.19 Factoring
21.20 Invoice Discounting
21.21 Cash Management
21.22 Motives of Cash Management
21.23 Determining Optimal Level of Cash Holding
22. Investment Analysis
Introduction of Capital Budgeting
22.1 Meaning of Capital Budgeting
22.2 Definition of Capital Budgeting
22.3 Objectives of Capital Budgeting
22.4 Importance of Capital Budgeting
22.5 Principles of Capital Budgeting Decisions
22.6 Process of Capital Budgeting
22.7 Operating Expenditures versus Capital Expenditures
22.8 Incremental Revenue and Cost Estimates
22.9 Types of Capital Expenditure
22.10 Capital Rationing
22.11 Types of Capital Budgeting Proposals
22.12 Methods of Evaluating Capital Investment Proposals
22.13 Traditional Methods
22.14 Discounted Cash Flow Methods
22.15 Capital Budgeting Techniques under Uncertainty
23. Analysis of Financial Statements
Introduction
23.1 Meaning of Analysis and Interpretation of Financial Statements
23.2 Objectives of Financial Analysis
23.3 Sources of Financial Analysis
23.4 Limitations of Financial Statements
23.5 Methods of Analysis
23.6 Tools of Financial Analysis
23.6.1 Comparative Financial Statements
23.6.2 Common Size Financial Statements
23.6.3 Trend Analysis
23.6.4 Ratio Analysis
23.6.5 Fund Flow Analysis
23.6.6 Cash Flow Analysis
23.7 Classification of Ratios
23.8 Yield
23.9 Cash Conversion Cycle
23.10 Current Ratio versus the Cash Conversion Cycle
23.11 Z-score
23.12 Enterprise Value Multiple
23.13 Price/Sales Ratio
23.14 Price/Earnings to Growth Ratio
23.15 DuPont Ratio Analysis
24. Cash Flow and Fund Flow Analysis
24.1 Applicable Guidance
24.2 Presenting Cash Flow Statement
24.3 Cash Flow from Operating Activities
24.4 Common Adjustments to Net Income Needed to Convert to a Cash Basis
24.5 Cash from Investing Activities
24.6 Cash from Financing Activities
24.7 Advantages of Cash Flow Statement
24.8 Limitations of Cash Flow Statements
24.9 Introduction of Fund Flow Analysis
24.10 Definition of Funds
24.11 Meaning of Flow of Funds
24.12 Meaning of Fund Flow Statement
24.13 Objectives of Fund Flow Statement
24.14 Procedure for Preparing a Fund Flow Statement
24.15 Schedule of Changes in Working Capital
24.16 Statement of Sources and Application of Funds
24.17 Sources of Funds
24.18 Application of Funds
24.19 Distinction between Fund Flow Statement and Cash Flow Statement
Solved Illustrations
Summary
Key Terms
Suggested Answers
Apply Your Knowledge
Problem-solving, Evaluation and Decision-making
Project Work
Appendices
Appendix A: Compound Sum of ` 1
Appendix B: Compound Sum of an Annuity of ` 1
Appendix C: Present Value of ` 1
Appendix D: Present Value of an Annuity of ` 1
FDI Policy
Rates of Depreciation
References and Further Readings
Index