Fundamentals

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 The art of Recording, Classifying,
And summarizing in terms
of money ,transactions and events
Accounting which are of financial Nature,
and interpreting the results
thereof

Cost Management
Financial
Accounting Accounting
Accounting

PARAMJIT SHARMA
 Manufacturing & Marketing Cars

What Would Be The Role Of Financial Accounting ?

What Would Be The role Of Cost Accounting ?
What Would Be Role Of Management Accounting ?

PARAMJIT SHARMA
 Manufacturing & Marketing Cars

Reducing Cost of the car by INR 10,000

PARAMJIT SHARMA
Financial Accounting- Fundamentals
meaning & limitations

FA is concerned with Journal

RECORDING,
CLASSIFYING AND
SUMMARISING
Ledger

financial transactions in accordance Trial Balance

with the generally accepted
Accounting Principles
Final Statements
PARAMJIT SHARMA
Financial Statements Fundamentals

PROFIT & LOSS

BALANCE-SHEET
ACCOUNT

STATEMENT OF
SOURCES &
APPLICATIONS OF
FUNDS

PARAMJIT SHARMA
Financial Accounting- limitations Fundamentals

HISTORICAL
HISTORICAL ONLY
ONLYNET
NETRESULTS
RESULTS

NO
NOCONTROL
CONTROL NO
NODISTINCTION
DISTINCTION
ON
ONCOST Direct
COST Direct&&Indirect
Indirect

Inadequate
InadequateInformation
Information NO
NOCOMPARISON
COMPARISONOF
OF
For
For
PRICE FIXATION COSTS
COSTS
PRICE FIXATION

NO
NOSTANDARDS
STANDARDSTO TO
Assess
AssessPerformance
PARAMJIT SHARMA Performance
Management
Accounting

PARAMJIT SHARMA
Management Accounting
• A field of accounting that provides
economic and financial information for
managers and other internal users.

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 MANAGEMENT ACCOUNTING
BASICS
Activities include:
• Explaining manufacturing and non
manufacturing costs and how they are reported
in the financial statements
• Computing the cost of providing a service or
manufacturing a product
• Determining the behavior of costs and expenses
as activity levels change
• Analyzing cost-volume profit relationships
within a company

PARAMJIT SHARMA
 MANAGEMENT ACCOUNTING
BASICS
Activities include (continued):
• Assisting management in profit planning and
budgeting
• Providing a basis for controlling costs and
expenses by comparing actual results with planned
objectives and standard costs
• Accumulating and presenting relevant data for
management decision making

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 COMPARING MANAGEMENT
AND FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

Internal Users: Managers

External Users;
Directors
Stockholders, Creditors Primary users
Regulators Of Reports

Financial Statements Types & Frequency Internal Reports

Quarterly & Annually As Frequently Required
Of Reports
General Purpose
Purpose of Reports Special Purpose for
Specific Decisions
Pertains to Business as Whole
Limited to Double Entry Acct, Contents of Reports Pertains To some sub unit of
Cost Data Business
GAAP/IAS Very Detailed
Extend beyond DE Accounting
Standard is relevance to Decision
Audit By CA
Verification Process No independent Audits

PARAMJIT SHARMA
Few Terms - clarification Fundamentals

COST ACCOUNTANCY
COSTING
COST ACCOUNTING

PARAMJIT SHARMA
 Few Terms - clarification Fundamentals

COST ACCOUNTANCY

ItIt is
isthe
theapplication
applicationof Costing and
of Costing and Cost
Cost Accounting
Accounting
Principles,Methods
Principles, Methodsand andTechniques
Techniquesto tothe
thescience,
science,
artand
art andpractice
practiceof of Cost
CostControl
Control and
andthe
theascertainment
ascertainment
of profitability.
of profitability. ItItincludes
includesthe
thepresentation
presentationofofinformation
information
derivedthere
derived therefrom
from for forthe
thepurpose
purposeofof Managerial
Managerial
DecisionMaking
Decision Making

PARAMJIT SHARMA
COST ACCOUNTING- introduction Fundamentals

The Process of accounting for costs from the

Point at which expenditure is incurred or
committed to the establishment of its ultimate
relationship with cost centers and cost units

Books Cost Centers

Of Cost Accounts

PARAMJIT SHARMA
 Few Terms - clarification Fundamentals

COSTING
•Technique and process of ascertaining costs

•Classifying, recording and appropriate allocation of Expenditure

for determination of costs of products ( Watch, TV, Computers)
or services (Electricity, telephone, Transport Etc)

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Costing Objectives

Ascertaining Setting Cost Cost

cost Price Control Review

Operating
Decisions

PARAMJIT SHARMA
decision making Fundamentals

MAKE OR
BUY SALES
CAPACITY VOLUME

PROFIT
PRICE

OPERATE
EXPORT
NEW OR
PRICE
MODEL SHUT
PARAMJIT SHARMA
Cost Accounting- principles Fundamentals

1. A cost is related to cause- rent of factory charged to factory

2. A cost is charged after it has been Incurred-no selling cost to unsold

stock

3. Abnormal costs are excluded – loss due to fire accident

4. Conservatism Concept ignored in Cost Accounting- stock

valued at cost only

5 Principle of Double entry applied to cost accounting too

PARAMJIT SHARMA
Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Need Compulsory Obligatory

Final Results to stake

Purpose Holders Cost Information

Recording Subjective Recording Objective Recording

Profit Product wise

Analysis
Total Profit/Loss

Contents External Transactions Internal

PARAMJIT SHARMA
Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Periodicity Once/twice Daily/weekly/monthly

Control Inadequate System at Place

Nature Historical Historical/Predetermined

Valuation Cost or market Cost Price

PARAMJIT SHARMA
Management/Cost Accounting- differences Fundamentals

factor MA CA
Derivation Of Data •Cost/Financial Acct Data From CA

Information Provided •Cost/Fin. Information Only Cost Inf.

CVP/Fin Ratios
Emphasis •Decision Making Cost Ascertainment
& Control
•Planning, Decision M Reporting Cost
Purpose
& Control
•Short/Long Term Short Term
Planning
Variable Costing,
•RA,FF, C Flow Budgetary Control etc
Techniques
•Not possible without Can Be Installed
Installation CA system Without CA

PARAMJIT SHARMA
Cost Accounting- advantages Fundamentals

Supplies Detailed Cost Information

Helps in Price Fixation
Reveals UN (Profitable) Activities
Reveals idle capacity
Assist in Controlling Costs
Helps in decision Making
Facilitates Cost Comparison
Helps in Inventory Control
PARAMJIT SHARMA
Cost Accounting- Objections Fundamentals

It is Unnecessary
It is Inapplicable
It is a failure
Mere matter of
Forms and Ruling
It is Expensive

PARAMJIT SHARMA
 Price …..Quality ….Strategies
Price
High Med low
1 2 3
H Premium High value Super value
Product Quality

Strategy strategy strategy

4 5 6
Overcharging Medium Good value
M
strategy Value Stg. Strategy

7 8 9
Rip off False Econ. Economy
L Strategy Strategy Strategy
PARAMJIT SHARMA
 Fundamentals
Costing Methods

Job Costing
Batch Costing
Contract Costing
Process Costing
Unit Costing
Operation Costing
Operating Costing
Multiple Costing
PARAMJIT SHARMA
Costing Techniques Fundamentals

Historical Costing
Standard Costing
Marginal Costing
Absorption Costing
Direct Costing
Uniform Costing

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Installation Of Costing System Fundamentals

•Nature Of Business
•Structure of Organization
•Objectives and Expectations
•Cooperation and support Of staff
•Standardization of Forms
•Prompt Reporting
•Flexibility
•Reconciliation of FA & CA
•Current Practices
•Simplicity

PARAMJIT SHARMA
Installation Of Costing System-difficulties Fundamentals

•Lack Of Management Support

•Resistance Of Staff
•Non Cooperation From Other Levels
•Shortage Of Trained Staff
•Heavy Cost Of Operating The System

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 Fundamentals

Time for Questions

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