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FINANCE AND MANAGEMENT ACCOUNTING

FINANCE AND MANAGEMENT ACCOUNTING

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Published by DR K DHAMODHARAN
VINAYAKA MISSIONS UNIVERSITY-MBA FIRST YEAR NOTES
VINAYAKA MISSIONS UNIVERSITY-MBA FIRST YEAR NOTES

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Published by: DR K DHAMODHARAN on Feb 25, 2011
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02/25/2011

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FINANACEMANAGEMENT &MANAGEMENT ACCOUNTING
MBA(FIRST YEAR-COMMON PAPER)
Dr.K.Dhamodharan
. M.A., B.L.,
M.B.A (H.R) M.M.M., M.Sc (Psy) M.B.A (Fin)M.Phil., Ph.D
DEPARTMENT OF MANAGEMENT STUDIESDISTANCE EDUCATION STUDY CENTRE-NEYVELIVINAYAKA MISSIONS UNIVERSITYSALEM – 636 308
2011
HARI PUBLISHING HOUSE
 
FINANCE AND MANAGEMENTACCOUNTING
1.
Define Accounting
?
The American Institute of Certified PublicAccountants has defined Accounting as, "theart of recording, classifying and summarisingin a significant manner and in terms of moneytransactions and events which in part, at leastof a financial character, and interpreting theresults thereof'. Thus, the Accounting concepthas the following attributes1. Accounting is an art of recording financialtransactions.2. Accounting is an art of making summariesand analyses of the financial transactions.3. Accounting is an art of inter preting andexamining the results of the financialtransactions and communicating the results tothe persons who areinterested in such resultsAccounting is a term used to describe a widerange of techniques and field of study. TheAmerican Institute of Certified PublicAccountants has defined accounting as, "theart of recording, classifying and summarisingin a significant manner and in terms of moneytransactions and events which are, in partatleast, ofa financial character, andinterpreting the results thereof'. This definitionis in keeping with the enlarged scope of accounting in modem business. However, itwould be desirable that, accounting servesmanagement to for in proper judgements andtake sound decisions in the interest business.Smith and Ashburne have kept in view thisaspect of accounting. In their words,"Accounting is the science of recording andclassifying business transactions and events,primarily of a financial character, and the artof making significant summaries, analyses andinterpretations of those transactions and eventsand communicating the results to persons whomust make decisions or form judgment
."
2.
State the importance of Accounting
Accounting is an essential tool used tocommunicate financial information of a,concern to various parties who are interestedin such information. These are the following.The accounting practice provides thefollowing advantages.1. Owners. It provides information to theowners who provide funds for the operationsof a business as to know whether their fundsare being properly utilised or not. Thefinancial statements prepared from time totime satisfy their curiosity and expectations.2. Creditors. It provides information tocreditors (i.e. supplier of goods and serviceson credit, bankers and other lenders of money)who would like to know the financial positionof a concern before giving loans or grantingcredit. The financial statements (Profit andLoss Account and Balance Sheet) help them injudging such position.3. Investors. It provides information toprospective investors, who would like toinvest money in a firm, and would like tomake an analysis of the financial statements of that firm to know how safe the proposedinvestment will be.4. Employees. It provides information toemployees who are interested in the financialposition of a concern where they areemployed, and particularly when payment of bonus depends upon the size of the profitsearned. They would like to know that thebonus being paid to them is correct, so theybecome, interested in the preparation of correct Profit and Loss Account.5. Government. It provides information toCentral and State governments which areinterested in the financial statements becausethey reflect the earnings for a particular periodfor purposes of taxation. These financialstatements are used for compiling statisticsconcerning business which, in turn help incompiling national accounts.6. Research scholars. The financial statements,exhibit the financial position ofa firm, whichare of immense value to the research scholar who wants to make a study into financialoperations of a particular firm.7. Consumers. It provides information toconsumers who are interested in theestablishment of good accounting control sothat cost of production may be reduced withthe resultant reduction of the prices of goodsthey buy.8. Managers. Management is the art of gettingthings done through others. This requires thatthe subordinates are doing work properly.Accounting is an aid in this respect, because itserves a manager in appraising theperformance of the subordinates
3. What are the functions of Accounting
Accounting performs the following functions:(1) It keeps and advances systematic records.Accounting is the vehicle through which mostbusiness events are expressed. Its major function is to keep a systematic record of theseevents. This function has assumed importanceowing to the limitations of human memorywhich cannot possibly keep a record of a verylarge number of daily business transactions.This function embraces recording transactionsin subsidiary books (Journal, Cash Book etc.),

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