Shri Krishna University, Chhatarpur,

Madhya Pradesh

Department of Management
Course- Masters in Business Administration
Session-2020-22
Assignment Report

Subject- Accounting for managers

Submitted To Submitted By

.......................................... Name: Sachi Jain

Head, Roll no.

Department of Management Enrolment no.

Contact No.

INTRODUCTION TO ACCOUNTING
Meaning of Accounting: Accounting is a systematic process of identifying, measuring,
recording, classifying, summarizing, interpreting and communicating financial information.

It shows the profit earned or loss incurred during the accounting period, value and nature of
assets, liabilities and owners’ equity, i.e., capital.

Definition of Accounting

According to AICPA: “Accounting is the art of recording, classifying and summarizing in a

significant manner and in terms of money; transactions and events which are, in part at least, of a
financial character, and interpreting the results thereof.”

Objectives of accounting

1. To keep systematic records: Accounting is done to keep a systematic record of financial

transactions. In the absence of accounting there would have been terrific burden on human
memory which in most cases would have been impossible to bear.

2. To protect business properties: Accounting provides protection to business properties from

unjustified and unwarranted use.

3. To ascertain the operational profit or loss: Accounting helps in ascertaining the net profit
earned or loss suffered on account of carrying the business. This is done by keeping a proper
record of revenues and expense of a particular period. The Profit and Loss Account is prepared at
the end of a period and if the amount of revenue for the period is more than the expenditure
incurred in earning that revenue, there is said to be a profit

4. To ascertain the financial position of the business: The Profit and Loss Account gives the
amount of profit or loss made by the business during a particular period. However, it is not
enough.

5. To facilitate rational decision making: Accounting these days has taken upon itself the task
of collection, analysis and reporting of information at the required points of time to the required
levels of authority in order to facilitate rational decision-making. The American Accounting
Association has also stressed this point while defining the term accounting when it says that
accounting is the process of identifying, measuring and communicating economic information to
permit informed judgments and decisions by users of the information.

6. Information System: Accounting functions as an information system for collecting and

communicating economic information about the business enterprise. This information helps the
management in taking appropriate decisions. This function, as stated, is gaining tremendous
importance these days.

Nature of Accounting:
1. Accounting as a service activity: Accounting is a service activity. Its function is to provide
quantitative information, primarily financial in nature, about economic entities that is intended to
be useful in making economic decisions, in making reasoned choices among alternative courses
of action.

2. Accounting as a profession: Accounting is very much a profession. A profession is a career

that involves the acquiring of a specialized formal education before rendering any service.
Accounting is a systematized body of knowledge developed with the development of trade and
business over the past century.

3. Accounting as a social force: In early days, accounting was only to serve the interest of the
owners. Under the changing business environment the discipline of accounting and the
accountant both have to watch and protect the interests of other people who are directly or
indirectly linked with the operation of modern business.

4. Accounting as a language: Accounting is rightly referred the "language of business". It is

one means of reporting and communicating information about a business. As one has to learn a
new language to converse and communicate, so also accounting is to be learned and practiced to
communicate business events.

5. Accounting as science or art: Science is a systematized body of knowledge. It establishes a

relationship of cause and effect in the various related phenomenon. It is also based on some
fundamental principles. Accounting has its own principles e.g. the double entry system, which
explains that every transaction has two fold aspects i.e. debit and credit.

Advantages of Accounting

1. Maintain Business Record

Financial accounting records each and every transaction of business organization. It
systematically maintains a proper book of accounts of all monetary transactions.

2. Prevention and Detection of Fraud

Avoidance and detection of frauds or errors is important role played by financial accounting. It
records all financial data fairly which is used by management for analysis purposes. This data
acts as proof and reduces the chances of any frauds or errors.

3. Present True Financial Position

Financial accounting reveals and interprets the true financial position of organizations. It records
each financial aspect and supplies it from time to time to the internal management team.
Managers get the real ideas of all financial resources of the organization regularly through data
supplied by financial accounting.

4. Helps In Preparing Financial Statements

Preparation of financial statements is a must for knowing the true profit or loss and real worth of
the organization. Financial accounting supplies all relevant accounting data for the preparation of
financial statements like profit and loss account and balance sheet. 

5. Comparison of Result
Financial accounting helps in comparing the performance of business organizations. It
systematically records and stores financial data for many accounting years. This way comparison
of present data with previous year’s data can be easily done.

6. Assists the Management

Managers depend on financial accounting for various data for taking managerial decisions. It
provides the full information’s regarding all cash flows in an organization. They can easily
anticipate any surplus or deficit of funds in an organization and take decisions accordingly.

Disadvantages of accounting

1. Records Only Financial Aspects

The foremost disadvantage of financial accounting is that it considers only monetary transactions
of organizations. It does not take into account various non-financial aspects such as market
competition, economic conditions, political situation, government rules, and regulations, etc. All
these factors have a great influence on the functioning of organizations.

2. Historic In Nature
Financial accounting provides all historical data from past activities. It does not provide data on
day-to-day activities rather than it accumulates all accounting information of a particular
accounting period at the end of that period.

3. Provides Insufficient Information

Financial accounting does not provide detailed information related to departments, products,
processes, service or any other activity within the organization. It presents data as a whole in
terms of assets, liabilities, profit, and loss of organization

4. No Cost Control Method

It does not have any role in controlling the cost or expenses of organization. Financial accounting
provides cost data at end of accounting period means when they are already incurred. It also does
not check any wastage or losses of materials and misappropriation. Financial accounting has
nothing to do with controlling the cost.

5. Records Actual Cost

Financial accounting does not consider the price fluctuations taking place from time to time. It
records the historical cost or the actual cost of the acquisition of assets. The value of the asset
does not remain the same and it changes with time. 
 TRIAL BALANCE
Meaning of Trial Balance: “A Trial Balance is a statement, prepared with the debit and credit
balances of the Ledger Accounts to test the arithmetical accuracy of the books.”

A Trial Balance is prepared after having posted the Journal entries into the ledger
and balancing the accounts. The balance of an account is the difference between the total of the
debit entries and the total of the credit entries in an account. If the total of debit entries is greater,
it is called a Debit balance. Likewise, if the total of credit entries is greater, it is called a Credit
Balance.

Characteristics of Trial Balance:

1. It is a list of balances of Ledger accounts and cash book.

2. It is not a part of double entry system of book keeping. It is a result of double entry system of
book keeping. It is only a working paper.

3. It can be prepared on any date if the accounts are balanced.

4. It verifies the arithmetical correctness of posting of entries from the Journal to the Ledger.

5. It is helpful in preparation of Trading Account, Profit and Loss Account and the Balance
Sheet.

Objectives of a Trial Balance

1. To ascertain the Arithmetical correctness of Ledger Accounts: The Trial balance enables
one to establish whether posting and other accounting processes have been carried out without
committing arithmetical errors.

2. To help prepare the final accounts: Financial statements are prepared from the Trial
Balance. Preparation of Financial Statements, therefore, is the second objectives of preparing
trial balance.

3. Summary of each account: The Trial Balance is a summary of each Ledger account. The
ledger account may have to be referred only when more details required in respect of an account.

4. To help in locating errors: The trial balance helps in locating errors in maintaining book of
account. It should, however, be kept in mind that it does not disclose, i.e., show all the errors in
book keeping except the arithmetical inaccuracies.

Limitations of Trial Balance

1. The omission of entry in daybook or subsidiary books: Imagine if an accountant

completely misses posting the ledger account. It would mean that no financial transaction has
been done and this will not reflect in the ledger accounts. This omission hence will not be
reflected in the trial balance.

2. Wrong posting to account: It means that the accountant has posted the entry to the wrong
account although to correct side be it debit or credit.

3. The wrong Amount Entered: It means that the accountant has correctly recorded and posted
the journal entry into respective ledger accounts but with the wrong amount. 

4. The error of Principle: If the accountant does not make the proper allocation of ledger head
at the time of posting the journal entry, such error is called the error of principle. For example,
furniture purchased by the business, the accountant has a debited purchase account instead of a
furniture account.

5. The error of Compensation: When the accountant makes an excess debit or excess credit
entry although the same being neutralized by excess credit or excess debit respectively in the
same or another account, such error is recognized as error of compensation.
 PRINCIPLE OF ACCOUNTING

1. Accrual Principle: The accrual principle is the concept that you should record accounting
transactions in the period in which they actually occur, rather than the period in which the
cash flows related to them occur. The accrual principle is a fundamental requirement of all
accounting frameworks, such as Generally Accepted Accounting Principles and
International Financial Reporting Standards.

2. Consistency Principle: The consistency principle states that once you decide on an
accounting method or principle to use in your business, you need to stick with and follow this
method or principle consistently throughout your accounting periods.

3. Conservatism Principle: The conservatism principle is one of the main accounting

principles and guidelines listed under UK GAAP. GAAP is a regulatory body of principles and
standards that all accountants should follow when reporting the financial activity of a business.
Hence, for stakeholders interested in the financial data of a company, the conservatism principle
ensures that the financial statements and information of that business is not overestimated or
misleading.

4. Matching Principle: The matching principle directs a company to report an expense on its
income statement in the period in which the related revenues are earned. Further, it results in a
liability to appear on the balance sheet for the end of the accounting period. The matching
principle is associated with the accrual basis of accounting and adjusting entries.

5. Materiality Principle: The materiality principle states that an accounting standard can be
ignored if the net impact of doing so has such a small impact on the financial statements that
a user of the statements would not be misled. Under generally accepted accounting
principles (GAAP), you do not have to implement the provisions of an accounting standard
if an item is immaterial. This definition does not provide definitive guidance in
distinguishing material information from immaterial information, so it is necessary to
exercise judgment in deciding if a transaction is material.

6. Cost Concept: According to the cost principle, transactions should be listed on financial
records at historical cost – i.e. the original cash value at the time the asset was purchased – rather
than the current market value.

It is common for an asset’s price to diverge from its historical cost; however, because the cost
principle specifies that financial records should not be adjusted, you should always follow
specific processes to account for any changes.

7. Revenue Recognition Concept: Revenue recognition is a generally accepted accounting

principle (GAAP) that stipulates how and when revenue is to be recognized. The revenue
recognition principle using accrual accounting requires that revenues are recognized when
realized and earned–not when cash is received.

8. Going Concern Concept: The going concern concept of accounting implies that

the business entity will continue its operations in the future and will not liquidate or be forced to
discontinue operations due to any reason. A company is a going concern if no evidence is
available to believe that it will or will have to cease its operations in foreseeable future.
 Human Resource Accounting
Meaning of Human Resource Accounting: Human resources are considered as important
assets and are different from the physical assets. Physical assets do not have feelings and
emotions, whereas human assets are subjected to various types of feelings and emotions. In the
same way, unlike physical assets human assets never gets depreciated.

Definition of Human Resource Accounting

The American Association of Accountants (AAA) defines HRA as follows: ‘HRA is a

process of identifying and measuring data about human resources and communicating this

information to interested parties’.

Flamhoitz defines HRA as ‘accounting for people as an organizational resource. It involves

measuring the costs incurred by organizations to recruit, select, hire, train, and develop human

assets. It also involves measuring the economic value of people to the organization’.

According to Stephen Knauf, ‘HRA is the measurement and quantification of human organiza-

tional inputs such as recruiting, training, experience and commitment’.

Objectives of Human Resource Accounting:

1. Providing cost value information about acquiring, developing, allocating and maintaining
human resources.

2. Enabling management to monitor the use of human resources.

3. Finding depreciation or appreciation among human resources.

4. Assisting in developing effective management practices.

5. Increasing managerial awareness of the value of human resources.

6. For better human resource planning.

7. For better decisions about people, based on improved information system.

8. Assisting in effective utilization of manpower.

Advantages of Human Resource Accounting

1. It helps in efficient utilization of human resources and understanding the evil effects of labour

unrest on the quality of human resources.

2. This system can increase productivity because the human talent, devotion, and skills are

considered valuable assets, which can boost the morale of the employees.

3. It can assist the management for implementing best methods of wages and salary

administration.

4. Managerial decisions can be improved with the help of HRA.

Disadvantages of Human Resource Accounting

1.  The valuation methods have certain disadvantages as well as advantages; therefore, there is

always a bone of contention among the firms that which method is an ideal one.

2. There are no standardized procedures developed so far. So, firms are providing only as

additional information.

3. Under conventional accounting, certain standards are accepted commonly, which is not

possible under this method.

4. All the methods of accounting for human assets are based on certain assumptions, which can

go wrong at any time. For example, it is assumed that all workers continue to work with the same

organization till retirement, which is far from possible.

5. It is believed that human resources do not suffer depreciation, and in fact they always

appreciate, which can also prove otherwise in certain firms.

6. The lifespan of human resources cannot be estimated. So, the valuation seems to be

unrealistic.