Financial and

Management
Accounting
By
BITS Pilani Hema N C
Work Integrated Learning
Programmes Division hema.nc@wilp.bits-pilani.ac.in
 BITS Pilani
Work Integrated Learning
Programmes Division

Introduction to Accounting
Nature and Purpose of Accounting

Understanding the working of Business Organisation

• Business Organisation brings together: material, technology,
people and money.
• Typically converts inputs into outputs by applying processes.
• Business organisations are cash generating-cum-dispensing
machines

Sources of Cash receipts for the Company

1. For sales made in the past collected in current period
2. For sales made in the current period
3. For sales to be made in the future for which it receives advance
payments
4. This is a continuous process

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Example of a Conglomerate

Tata group is a global enterprise, headquartered in India, comprising 30 companies

across ten verticals The group operates in more than 100 countries across six
continents.

In 2021-22, the revenue of Tata companies, taken together, was $128 billion (INR 9.6
trillion).

These companies collectively employ over 9.35 lakh people.

Companies include Tata Consultancy Services, Tata Motors Tata Steel, Tata

Chemicals, Tata Consumer Products, Titan, Tata Capital, Tata Power, Indian Hotels, Tata
Communications, Tata Digital, and Tata Electronics

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 The Business Organisation as a
Cash Machine
Cash Receipt
from
Customers
Past Sales
Cash Cash Receipt
Payments to from
Government, Customers
Owners Current Sales

TATA
Cash GROUP Cash Receipt
from
Payments
Customers
to Lenders
Future Sales

Cash
Cash Payments
Payments towards
to Suppliers Operational
expenses

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Forms of Business
Organisation
Forms of Ownership Decision-making Government Regulation Suitability
Organisation

Sole • Small • Completely • Nominal • Small business

Proprietorship • Single owner flexible • Deficiency in the and not
• Unlimited business to be borne expected to
liabilities by the owner grow much
• Law treats owner
and business as one
and the same
Partnership • Small to medium • Largely flexible • Minimum • Small, medium
• Minimum 2; but partners may • Indian Partnership business
maximum 100 disagree among Act • Professional
• Partners share themselves • Partnership practices of
profits and/or agreement is oral or lawyers, CAs,
losses equally or written Architects etc
in the agreed • Deficiency in the
ratio business to be borne
• Each partner has by the partners
unlimited liability • Insolvency of a
partner ends the
partnership

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Illustration Cases –
Sole Proprietorship
Sole Proprietorship
Case 1: Anita started a proprietorship business with an
investment of Rs. 10.00 lakhs. After one year, the business
has Rs. 20.00 lakhs in cash and owes Rs. 3.00 lakhs in
unpaid bills. Anita has no personal cash or debt

Case 2: Raksha started a proprietorship business with an

investment of Rs.1,00,000/-. After one year, the business
has Rs. 1,50,000/- in cash and owes Rs. 2,00,000/- in
unpaid bill. Raksha has personal cash of Rs. 8,00,000/-
and no personal debt.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Illustration Cases -
Partnership
Partnership
Case 1:A and B started an equal partnership with an
investment of Rs. 5,00,000 each. After two years, the
business has Rs. 20,00,000 in cash and Rs. 18,00,000 in
unpaid bills. Neither A nor B has personal cash or debt.

Case 2: M and N started an equal partnership with an

investment of Rs. 1,00,000 each. After three years, the
business has Rs. 5,00,000 in cash and Rs. 3,00,000 in
unpaid bills. M and N have personal cash of Rs. 2,00,000
each and have no personal debt.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Forms of Business
Organisation - Corporate
Forms of Ownership Decision-making Government Regulation Suitability
Organisation
Limited Company • Small to medium • Largely flexible • Companies Act applies • Small to
A. Private • Minimum 2 but directors may • Auditing of financial medium
shareholders; disagree statements by CAs businesses
maximum 200 • If co. fall short of its • Eg. FANUC
liabilities, the India Pvt.
shareholders have no Ltd.
legal obligation to make
good the deficiency
• Share holder is different
from the company
Limited Company • Minimum 7 • Very rigid • Companies Act • Medium to
B. Public shareholders; no • Decisions are • Extensive large scale
(i) Not Listed maximum limit taken by BOD documentation
• Auditing by CAs

08/08/2022
Introduction to Accounting BITS Pilani, WILPD
 Forms of Business
Organisation
Forms of Ownership Decision-making Government Suitability
Organisation Regulation
Limited • Minimum 7 shareholders; • Very rigid • Companies Act • Large to very
Company no maximum limit • Managed by BOD • Extensive large scale
B. Public • Institutional participation • Independent documentations businesses
(ii) Listed as shareholders is high directors • Quarterly reporting
• Nominee directors • Listed on Stock
appointed by the exchanges
Investors
Limited • Hybrid between a • Managed by • LLP Act 2008 • Suitable for
Liability Company and Partnership Designated partners professional
Partnership • Individuals or Corporate appointed by the firms like
bodies can be partners partners Accounting
• Minimum 2 partners and and Law to
no upper limit compete
• Flexibility of Partnership with
with limited liability international
firms

Main advantages of Company form of business over sole proprietorship and partnership are
• Perpetual succession
• Limited liability
• Free transferability of shares
• Professional management
• Ease of raising capital

08/08/2022
Introduction to Accounting BITS Pilani, WILPD
Illustration Cases – Company

Company
Case 1:Daksh and Deepak started a company with an agreed
share capital of Rs. 1,00,000/- each. They contributed Rs. 80,000/-
each. After one year, the company as Rs. 2,50,000/- in cash and
Rs. 1,80,000/- in unpaid bills. Neither Daksh nor Deepak has
personal cash or debt.

Case 2:Hemant and Vishal started a company with an agreed share

capital of Rs. 10,00,000/- each. They contributed Rs. 10,00,000/-
each. After two year, the company has Rs. 25,00,000/- in cash and
Rs. 30,00,000/- in unpaid bills. Hemant and Vishal have personal
cash of Rs. 500,000/- each and have no personal debt.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

The Corporate Organisation
Structure
Shareholders External
Auditor

Internal Board of Audit

Auditor Directors Committee

CEO

Legal &
Head - Head - Head -
Company Marketing Operations Head - HR
Finance
Secretarial

Preparation of Financial
Statements, Budgets and Cash / Treasury
returns Management

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Why Study Accounting?

Accounting is the Language of Business

• For timely financial information

• Presents the firms’ economic activities
• Financial statements which affects the stock prices
• Helps to value firm
• Helps to evaluate financial health of a business
• Decision making: for investors and stakeholders
• For start-up entrepreneurs
• For top-management
• Useful for making valuable decisions that affect the income / wealth of individuals / organizations

“ Accounting is an information, development and communication function that supports economic

decision-making”

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Need for Information to the
Business Organisation
The accounting information system produces -
financial statements and reports for
• investors,
• Lenders
• Managers, and others

by processing transactions and events applying accounting principles and

standards and legal requirements.

Three main statements are

• Balance sheet
• Income statement or Profit and Loss Statement
• Cashflow Statement

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Accounting Information
System

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Accounting Information -
Types
Types of
Information

Non-quantitative Quantitative
Information Information

Accounting Non-accounting
Information Information
(Monetary) (Non monetary)

Operating Financial Management

Tax Accounting
Information Information Accounting

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Accounting Information
1. Accounting is an information system
2. Is one of the several types of quantitative information
3. Usually expressed in monetary terms
4. Often non monetary information is included in the accounting reports to
give a clear picture to the users for ex. Sales report
5. Accounting is based on rules that include assumptions, principles,
standards and conventions.
6. Accounting records transactions and events.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Types of Information

1. Operating Information:
• Required to conduct an organisation’s day-to-day activities.
• Eg. Information pertaining to day to day operations, stock information,
employees salary records, standard deductions, amounts owed by
company’s customers, amounts company owes to others, bank account
details, etc.
• Constitutes the major part of the accounting information
• Provides basic data for management accounting, financial accounting and
tax accounting.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Types of Information

2. Financial Accounting Information:

• Is concerned with recording financial transactions and events, summarising
and interpreting them in the form of financial statements.
• Eg. Balance sheet, Income statements
• Required to take important decisions like Investments, expansion of
business etc
• Intended both for managers and the external stakeholders i.e. shareholders,
bankers, creditors, government agencies, auditors, advisers, and the
general public.
• Must follow uniform accounting standards and concepts to facilitate
comparison, understanding and analysis.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Types of Information

3. Management Accounting Information

• It’s a summary of the financial accounting information to the Managers of a
Business Unit
• Generates Accounting information relating to funds, costs profits etc.
required to take important decisions and management responsibilities
Eg. Balance sheet, Income statements
• Intended for middle and top level management
• Management accounting information has use in several areas including
cost control,
product costing,
capital investment appraisal,
profitability analysis,
corporate planning,
budgeting,
pricing policies, and
cash flow and liquidity management

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Management Accounting
Information

Planning – May be
for the organisation Control – Accounting
as a whole or for a information is used in
segment in the Proper Implementation
the control process
organization. of the Plans is vital to
as a means of
achieve the goals
Important communication &
component of motivation
planning is Budgeting

Appropriate Feedback
Plan Revision Action

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Types of Information
4. Tax Accounting Information
• Required for tax purpose
• As per the tax accounting rules
• Corporate Tax
• Personal tax
• Result in the generation of a taxable income
• Concentrate on two items
• Current year – recognition of a tax liability or tax asset, based on the estimated
amount of income taxes payable or refundable for the current year
• Future years - recognition of a deferred tax liability or tax asset, based on the
estimated effects in future years of carry forwards and temporary differences.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Users of Accounting
Information
Users Examples
Investors, Analysts, Retail investors, mutual funds, private equity funds, hedge
Advisers funds, equity and bond analysts, investment banks,
shareholders activists, proxy advisory firms
Lenders Banks, bank depositors, debenture holders, leasing companies
Managers CEO, CFO, COO, Functional Heads
Employees, trade unions Factory and office workers, trade union, trade union
federations
Suppliers, trade Suppliers of materials, services and utilities, short-term
financiers financiers
Customers Present, past and prospective customers
Government, regulatory Income tax, GST, Excise duty, Ministry of Finance, Ministry of
authorities Corporate Affairs, SEBI, RBI, CCI, Stock Exchanges, IRDA
The Public Local community, political parties, public affairs groups,
consumer groups, environmental activists.

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 The Accounting Information
System

INPUTS PROCESSING OUTPUT USERS

• Business transactions • Accounting principles • Statement of profit and • Shareholders

• External events and standards loss • Equity and
• Management • Statement of retained credit analysts
assumptions and earnings • Banks
estimates • Balance sheet • Managers
• Laws and regulations • Cash flow statement • Suppliers
• Transaction processing • Statement of changes in • Customers
conventions equity • Government
• Explanatory notes • Regulators
• Management
commentary
• Tax returns
• Regulatory filings

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

What is Accounting?

Definition of Accounting

“Accounting is a systematic process of identifying, recording,

measuring, classifying, verifying, summarizing, interpreting and
communicating financial information.”
It reveals profit or loss for a given period, and the value and nature of a
organization’s assets, liabilities and owners’ equity.

Accounting Cycle

Is a step-by-step process of Accounting. Starts with identifying the

transactions and end with preparation of financial statements / closure
of books of accounts

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Accounting Cycle

Identify
Transactions

Record
Close Books of
Journal
Account
Entries

Ledger
Posting of
Financial Entries
Statements

Adjusted Trial Unadjusted

Balance Trial Balance

Adjusted
Entries

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 Annual Accounting
Statements
Accounting statement is a periodic summary of account activity of the
firm with a beginning date and an ending date.

Three basic Accounting/Financial Statements

1. Balance Sheet – gives the status as on a given date
2. Income Statement – prepared for a period ex: financial year
3. Cash Flow Statement gives an insight into how the cash was
generated and expended during the period under consideration

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

Annual Accounting
Statements
1. Balance Sheet
• Two sides : Assets and Liabilities
• Assets are the Resources
• Liabilities are the Obligations
• Other source of fund is Owner’s Equity
• A = L + OE …….. Called Dual-Aspect Concept

2. Income Statement
• Two items: Income and Expenses
• The basic income statement equation is:
Revenue – Expenses = Net Income
3. Cash Flow Statement
• Cash receipt (Sources) and Cash payments (Uses)
• The difference is called Net Cash Flow that is reflected in the Balance sheet

08/08/2022 Introduction to Accounting BITS Pilani, WILPD

 BITS Pilani
Work Integrated Learning
Programmes Division

THANK YOU!!!!