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Fundamental Concepts

What is accounting:
The language of business. A means to communicate financial information. A way to convey information about a business to users.

Who uses accounting information:


Managers Owners Investors (including potential) -Analysts on their behalf Creditors (including potential) Government (tax assessment) Regulators Customers

Branches of Accounting

Branches of Accounting

Financial Accounting

Cost Management Accounting Accounting

Cost Accounting

Tax Tax Accounting Accounting

Auditing

Financial accounting concerned with the preparation of financial statements for decision makers. It involves the basic accounting processes of recording, classifying, and summarizing transactions. Assets=Owners Capital+Liability

Financial Accounting
to evaluate the profitability and solvency of a business.

Management Accounting
The process of identification, measurement, accumulation, analysis, preparation, interpretation & communication of information used by management to plan, evaluate & control within an entity & to assure use of & accountability for its resources.

Purpose of Management Accounting

is

to

communicate

the

relevant

information

periodically to the management of the business to enable it to take suitable decisions.

Managerial v/s Financial Accounting


Management Accounting Purpose: Provide information -planning and controlling business operations& making decisions. Financial Accounting Purpose: Provide information financial position and operating results of a business entity.

Types of Reports: needs of management

Types of Reports: Financial statements,

Managerial v/s Financial Accounting


Management Accounting Standards for Presentation: No specific rules Reporting Entity: A subdivision of the business. Time Periods Covered: Any period year, focus on estimates of results expected in future. Financial Accounting

Standards for Presentation: GAAP


Reporting Entity: The company viewed as a whole. Time Periods Covered: Usually a year, quarter or month. Most reports focus on completed periods.

Contrast of Financial & Management Accounting

Cost accounting
is to determine the cost of goods manufactured or produced by the business. It helps the management of the business in controlling the costs by indicating avoidable losses and wastage

Tax Accounting
Tax accounting is the branch relating of accounting to the

preparation and filing of


tax forms with the

government agencies.

Auditing

Auditing is the branch of


accounting involved in reviewing & evaluating documents, records, & control systems.