Financial Accounting

Users of accounts
Meaning of Accounting
Objectives/Functions/Purpose of Accounting
Qualitative Characteristics of Financial statements
Branches of Accounting and Distinction between the Branches of Accounting

Presented By
Bharat Kumar Meher
Assistant Professor

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Accounts?
Users of Accounts
 1. THE INVESTOR GROUP

What Investors care about?

They require information concerning the performance of the
company measured in terms of its profitability and the extent to
which those profits are to be distributed to shareholders.
2. THE LENDER GROUP
 The ability of the organization to repay the interest
on such loans as they fall due;

 The long-term growth and stability of the

organization to ensure that it is capable of repaying
the loan at the agreed time
 3. THE EMPLOYEE GROUP
 Ability of the organization to pay wages and pensions
today.

 They are interested in the future of the organization

because this will affect their job security and future
prospects within the organization.
4. THE ANALYST/ADVISOR GROUP

• Includes a range of advisors to investors, employees

and the general public. The needs of these users will
be similar to those of their clients.

• Members of this group are more technically qualified

to understand accounting reports.
5. THE CUSTOMERS/SUPPLIERS
• Customers- the organization has the ability to provide the
goods/services requested and to continue to provide similar
services in the future.

• Suppliers will wish to ensure that the organization will be

capable of paying for the goods/services supplied when
payment becomes due.
6. THE PUBLIC

 Concern about the policies of the organization and how

those policies affect the community.

 The public is increasingly interested in environmental

issues.
7. INTERNAL USERS
In a commercial organization it is referred to as the board of directors.
These people require information to assist them in decisions affecting the
long-term future of the organization.

These people require information to assist them in

monitoring performance and making decisions to enable
the organization to achieve its short- to medium-term
targets.

This is the level of management responsible for

decisions concerning the day-to-day activities of the
organization. It is common for the information provided
to them to be quantified in non-monetary units, such as
hours worked, number of components produced, and so
on.
8. THE GOVERNMENT
• This group includes taxation authorities, and other
government agencies and departments.

• The taxation authorities will calculate the organization’s

taxation liability based upon the accounting reports it
submits to them.
Summary

Users of Accounting

1. The Investors Group

2. The Lender Group
3. The Employee Group
4. The Analyst/Advisor Group
5. The Customers/Suppliers
6. The Public
7. Internal Users
8. Government
 Meaning of Accounting

Accounting may be defined as

the process of recording,
classifying,
summarizing,
analyzing and
interpreting financial transactions and
communicating the results there of to the
users interested in such communication
 r n?
l ea Financial
to Accounting
g
o in
g
are
e Financial
tw Journal Ledger Trial Balance Statements
ha (Final Accounts)
W

Manufacturing
Journal Proper
Account

Cash Book Trading Account

Re
lat
ed

Other Subsidiary Profit & Loss

To

Books Account

Bank
Reconciliation Balance Sheet
Statement
Objectives/Purpose/Functions
of Accounting
1. Keeping Systematic Records
• numerous amount of varied transactions such as purchases, sales, receipts,
payments, etc. that takes place in business everyday.
• Systematic record of all financial transactions in book of accounts.
• enables verifiability and acts as an evidence.

2. Ascertaining the operating results/Calculation of Profit and

Loss
The owners of business are keen to have an idea about the net results of their business
operations periodically, i.e. whether the business has earned profits

3. Ascertaining the Financial Position

Accounting also aims at ascertaining the financial position of the business concern
in the form of its assets and liabilities at the end of every accounting period.

4. Facilitating rational decision-making by the

users/Providing Accounting Information to its Users
Branches of Accounting
 Financial
Accounting

Cost Accounting

Traditional
Management
Accounting

Branches of Human
Accounting Resource
Accounting

Modern (New)
Social
Accounting

Environment
Accounting

Forensic
Accounting
• Financial Accounting concerned with the recording of
transactions in the books of accounts. The primary objective
determine the operating results (i.e., profit or loss) of an
organization during each accounting period and to disclose its
financial position as at the end of such accounting period

• Cost Accounting concerned with the collection,

classification, recording, summarization, and presentation of
costing information that is used for cost ascertainment, cost
control and cost reduction. Cost Accounting deals with the
determination of costs of manufacturing a product or
rendering a service.
Management Accounting presentation of accounting
information in such a way so as to assist the management in
day-to-day operations of the concern, in planning, in policy
formulation, in controlling, and in decision-making.

Other New Branches of Accounting

 Human Resource Accounting
 Social Accounting
 Environmental Accounting
 Forensic Accounting
 Distinction between Financial and Cost Accounting

Basis Financial Accounting Cost Accounting

Applicability Applicable to all types of entities Only for manufacturing and
(manufacturing, trading, service service-rendering entities
rendering, etc.)

Concern Classifying, recording, and analyzing the Classifying, recording,

transactions of an entity. allocation, reporting, and
control of costs

Objective determine the true financial ascertainment of cost, cost

performance of the organization and control, and cost reduction
disclose its financial position

Function classify, record, analyze, and interpret the classify, record, analyze, and
financial transactions of an entity interpret the cost-related
transactions of an entity
 Basis Financial Accounting Cost Accounting
Cost Focus Concerned only with Concerned with both historical costs as
historical costs well as future or estimated costs
Nature of Data uses only actual financial uses actual data as well as abstract data
data such
as, opportunity costs, relevant costs, etc
Focus focuses on the entire focuses on specific parts of the
organization organization, namely, individual
products, services, departments,
Etc
 Distinction between Financial and Management Accounting
Basis Financial Accounting Management Accounting
Concern concerned with classifying, recording, concerned with assisting the
summarizing, and analyzing the management in day-to-day
transactions of an entity. operations, planning, policy
formulation, controlling, and
decision-making.

Objective to determine the true financial to help management in decision

performance of the organization and making
disclose its financial position.

Function classify, record, analyze, and ensure optimum use and

interpret the financial transactions of an accountability of the resources of
entity an entity.

Data deals with only financial data both financial as well as non
financial data
Basis Financial Accounting Management Accounting
Periodicity Financial Accounting is done for a there is no such specific period of
specific accounting period. accounting.

Interdepe Financial accounting is not dependent Management accounting depends

ndency on Management Accounting on financial and cost accounting
Control Process

1. Performance of the Organization as set out in

detailed operational plans is compared with the
actual performance

2. The corporate plan is reviewed in the light of the

comparisons
The Qualitative Characteristics of Accounting
Information

1. Reliability - (Accuracy, Clarity & Quality of accounting

information)

2. Relevance - (meaningful and useful to the user of accounting

information for the purpose of decision making)

3. Understandability - (presented in a systematic way to the

users)

4. Comparability
 Thank You

Note : These slides are made for the sake of

Convenience only. Please don’t parrot these slides