UNIT-I

-: Financial Accounting :-
Financial accounting is a branch of accounting that involves recording,
summarizing, and
reporting the financial transactions of a business.
=> It aims to provide an accurate picture of a company's financial health to
external
parties like investors, creditors, and regulators.

Nature of Financial Accounting :-

1. Monetary Transaction, Analyzing and Interpreting
2. Historical in Nature
3. Focus on External Users:
4. Regulated by Standards
5. Periodic Reporting

Scope of Financial Accounting :-

1. Recording Transactions
2. Classifying and Summarizing:
3. Current Taxation, Cost Accounting
4. Business Forecasting
5. Replacing Memory

Financial Management :- This focuses on providing internal management with the

necessary
information to make informed business decisions. It
includes budgeting,
forecasting, cost analysis, and performance
evaluation.

-: Different Financial Accounting & Management

Accounting :-
Financial Accounting Management
Accounting
1. Communication of financial position of business. 1. Decision making
2. It is mandatory for all organisation. 2. This is
optional.
3. External 3. Internal as
well as external.
4. Quarterly, Annually 4. As per need.
5. Wide Scope 5. Limit Scope.
6. Mandatory 6. Optional

Accounting concepts :-
1. Money Measurement Concept :- This concept tell Measurement money Monetary unit.
2. Accounting Period Concept :- Business activities into specific time periods.
3. Cost Concept :- Historical Cost Concept reported at their original purchase
price or cost.
4. Dual Aspect Concept:-Every financial transaction effects in atleast two
different accounts.
5. Realization Concept :- Revenue is recognized when earned, not necessarily when
received.

Accounting convention :- Accounting conventions are standard practices followed to

ensure
consistency and comparability in financial reporting
and record-keeping.
=> Consistency, Comparability, Materiality etc.
 Accounting standards in India :- In India, accounting standards are set by the
Institute of
Chartered Accountants of India(ICAI)and are known as Indian Accounting
Standards(Ind AS).

=> They aim to ensure transparency, consistency, and comparability in financial

reporting.

Accounting standards :-
AS 1 Cash Flow statement
AS 2 Depreciation Accounting
AS 3 Accounting for Taxes on Income
AS 4 Borrowing Costs
AS 5 Intangible Assists
AS 6 Net Profit or Loss for the Period

UNIT-II
-: Basics of accounting : –
Capital :- Capital refers to financial assets or resources that a company or
individual uses to
fund their operations, invest in projects, or generate wealth.

Revenue:-Revenue is the total income generated by a business from its normal

business operations.

Assets :- Assets are things of value used by the business in its operations.
=> It is two types - 1. Fixed Assets(T/I) 2. Current Assets(Stock, Debtors,
Cash)

Expenditure :- Expenditure refers to the total amount of money spent by a

business, organization,
or individual to acquire goods, services, or assets.
=> Long-term Expenditure :- equipment, buildings etc.
=> Operating expenditures :-like salaries, rent, and utilities.

Liabilities :- Liabilities are what a company owes to others. They are debts or
obligations that
must be paid in the future, such as loans, accounts payable, or
mortgages.
=> It is two types 1. Long time Liabilities 2. Current Liabilities

Promoter :- Promoter is an individual or group of person who under take risk of

the business
is know as promoter.

Drawing :- Drawings refer to the money or assets taken out of a business by its
owner for
personal use.

Stock/Inventory :- Row material, semi finished, Goods, finished Goods.

Expenses:-Expenses are the cost incurred by the bossiness in the process of

operation of business.

Income :- Income is the money a business or individual earns from various sources.
Income = Revenue - Expense

Debtors :- Debtors are customers or clients who have made purchases on credit.
 Creditors :- Creditors are individuals or institutions that lend money or extend
credit to a borrower.

Voucher :- It is a written document in supported transaction.

Receipt :- A piece of paper that is given to show that you have paid for something

Types of Expenditure :-
1. Capital Expenditure
2. Revenue Expenditure

Application of Computer in Accounting :-

1. Automation of Transactions Expensive, Dependency
2. Financial Reporting Data Loss or Corruption
3. Data Management
4. Budgeting and Forecasting
5. Payroll Management

Double Entry System :- This is fundamental concept accounting introduced by Luca

Pacioli.
=> Record dual except of business transition in term of debt and credit is double
entry system.

Types of Account :-
1. Personal Account(Natural, Artificial, Representative)
2. Real Account (T/IT)
3. Nominal Account (Expenses, Income)

Personal A/C Real A/C Nominal A/C

-----------------------------------------------------------------------------------
--------
Ravi's A/C Cash A/C Purchase A/C
Kirti's A/C Furniture A/C Sales
A/C
ABC Ltd A/C Machinery A/C Salary A/C
XYZ traders A/C Building A/C Rent A/C
School A/C Vehicles A/C Wages A/C
Institute A/C Computer A/C Insurance
A/C
Bank A/C Goodwill A/C
Advertisement A/C
Capital A/C Patents A/C Electrochemist A/C
Drawing A/C Copyright A/C Stationery
A/C
Debtors A/C Trade A/C Bad debts
A/C
Creditors A/C Franchise A/C Bad debts
recovery A/C
Outstanding Salaries A/C Computer Software A/C Discount allowed
A/C
Prepaid rent A/C Stock A/C Discount resaved
A/C

1. Personal Account :-
Golden Rule :- "Debit the receivers and credit the giver."

2. Real Account :-
Golden Rule :- "Debit what comes in and credit goes out."
 3. Nominal Account :-
Golden Rule :- "Debit the expenses and losses and credit income and
gain,"

Book-Keeping--> Journal--> Ledger--> Trail Balance--> Profit & Loss A/C--> Balance
sheet

Book-Keeping :- Book-Keeping is an art of recording business dealings in a set of

books.

Introduction to Journal :- Journal is a book of primary entry or a book of

original entry in
which transition are first record in a chronological order from the accounting
voucher that
are prepared on the basis of source document.

=> The Book in which all the business transition are entered systematically for
the first time is
know as Journal.

Journal Entry :- A entry records in journal is called a "Journal Entry".

Journalising :- Process of recording a transition.

Narration :- After each entry a brief explanation of transition.

-: Format of Journal :-
Date Particulars L.F. Amount(Dr.) Amount(Cr.)

Ledger and Procedure for Recording and Posting :- The book which contains a
classified and
permanent records of all the transactions of a business is called
the Ledger.

-: Format of Ledger :-
Dr. Cr.
Date Particular J.F. Amount Date Particular J.F. Amount
To By

=> b/d and c/d A/C

Introduction to Trial Balance :- Trial Balance is a statement, prepared with the

debit and credit
balance of ledger accounts to test balances the Arithmetical
accuracy of the books.

Trail
Name of Accounts L.F. Balance(Dr.) Balance(Cr)

Preparation of Final Account :- Final Accounting are prepared with the objective
of proving a
precise summary of profit .
1. Trail account and Profit and loss account
2. Balance sheet

Profit & Loss Account and related concepts:- Profit & Loss Account is an account
into which
all gain and loss are called to assertion the excess of gain over the losses or
vice-versa.

-: Format of Profit & Loss A/C :-

Dr. Cr.
Particular Amount Particular Amount
To By

Balance Sheet :- A balance sheet is a financial statement showing a company's

assets,
liabilities, and owner's equity at a specific time.

-: UNIT-III :-
Financial statement analysis:
Ratio analysis :- Ratio analysis is a study of the relationship among the various
financial
factor in a business.
1. Liquidity Ratio
2. Solvency Ratio
3. Profitability Ratio
4. Activity/Turnover Ratio

Funds flow analysis :- Funds flow analysis tracks how a company generates and uses
funds,
highlighting changes in financial position and operational
efficiency.

Uses Funds flow :-

1. Understand Financial Changes
2. Evaluate Liquidity
3. Plan Investments
4. Monitor Debt Management
5. Improve Cash Management

Preparation of funds flow statement :-

Simple Problems :-

Cash flow analysis :- The statement, which is prepared with a view to ascertain
the inflow and
outflow of cash, is know as 'Cash Flow Statement'.

Uses Cash flow :-

1. Operational Management
2. Financial Planning
3. Liquidity Management
4. Strategic Decision-Making
5. Risk Management

Preparation of cash flow statement :-

Simple Problems :-
 Break – even analysis :- A Break-even analysis indicates at what levels costs and
revenue are
in equilibrium.

-:- UNIT-IV -:-

-: Financial Management :-
Financial Management is the process of planning, organizing, controlling, and
monitoring financial
resources to achieve organizational goals and objectives.
=> Financial may be defined as the position of money at the time it is wanted.

Nature of Financial Management :-

1. Decision-Making
2. Resource Allocation
3. Planning and Forecasting
4. Monitoring and Control
5. Profit Maximization

Objective of Financial Management :-

1. Cost Control
2. Financial Planning and Forecasting
3. Efficient Utilization of Resources
4. Profit Maximization
5. Investment Decision

Long Term Sources of Finance :-

1. Equity Share
2. Preference Share
3. Debentures
4. Bonds
5. Borrowing from bank

Introductory idea about capitalization :-

Capitalization refers to the total value of a company’s outstanding shares of
stock. It
represents the company's worth as determined by the stock market.

Capital Structure :- Capital structure refers to the way a company finances its
operations and
growth through different sources of funds.

Concept of Cost of Capital :-

Importance of Cost of Capital :-

1. Investment Decisions
2. Financing Decisions
3. Cost Control
4. Strategic Planning
5. Dividend Policy

Explicit & Implicit cost :-

Measurement of cost of capital :-

Cost of debt :-

-:- UNIT-V -:-

-: Working Capital :-
Working Capital is a amount of funds necessary to cover the cost of operation the
enterprise.
1. Gross Working Capital
2. Net Working Capital

Nature of Working Capital :-

1. Short-term Need
2. Circular Movement
3. Less Risky
4. Current Assets
5. Current Liabilities

Components of working Capital :-

Working Capital = Current Assets - Current Liabilities
1. Current Assets
2. Current Liabilities

Factors Influencing the Composition of working Capital :-

1. Nature of Business
2. Nature of Demand
3. Production Policy
4. Working Capital Cycle
5. Credit Policy

Objectives of working Capital Management :-

1. Liquidity Management
2. Operational Efficiency
3. Minimizing Costs
4. Risk Management
5. Optimal Inventory Management

–: Liquidity Vs. Profitability :-

Liquidity and profitability are two critical financial metrics that businesses
must balance to
ensure long-term success.

Liquidity :- Liquidity refers to the ability of a company to meet its short-term

obligations using
its current assets.

Profitability :- Profitability measures a company’s ability to generate income

relative to revenue,
 assets, equity, and other financial metrics.

Working capital policies :-

1. Hedging/Matching Policy
2. Conservative Policy
3. Aggressive Policy
4. Zero Working Capital Policy

Theory of working capital :-

1. Walker's approach - 4 Principle
2. Trade off approach -

-:- UNIT-VI -:-

Cash Management :- Cash management means managing money properly so that the
company can meet its daily operational needs and
does not face
financial problems. It includes-
1. Cash flow planning
2. Managing Cash Reserves
3. Managing Bank Relationships etc.

Inventory Management :- Inventory denotes "stock of goods".

=> Inventory management means monitoring and controlling stocks so that the right
amount
of materials is available and excess or shortage of stock is
avoided. It includes-
1. Monitoring stock levels
2. Inventory Turnover
3. Forecasting Demand etc.

Receivables Management :- Receivables management means monitoring and managing the

money
that a company is owed by its customers.
This includes -
1. Monitoring of outstanding payments
2. Collection Process
3. Credit Policy etc.

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