School of Business

ACCOUNTING FOR MANAGERS

 TOPICS TO BE COVERED

MEANING AND OBJECTIVES OF

ACCOUNTING

ADVANTAGES OF ACCOUNTING

BRANCHES OF ACCOUNTING
USERS OF ACCOUNTING
INFORMATIONS
ACCOUNTING CONCEPTS

ACCOUNTING PROCESS

ACOUNTING CONVENTIONS

ACCOUNTING STANDARDS

ACCOUNTING PRINCIPLES
MEANING & OBJECTIVES OF
ACCOUNTING
 INTRODUCTION

 Every organization enters into a number of transactions during its course of business to achieve its
objectives. These transaction affect its assets and liabilities.

 All accounting work in the beginning was in the nature of financial accounting which was used to record
business transactions for a certain period usually called accounting period.
 These transactions were classified and summarized in the form of profit and loss account to calculate profit
& loss at the end of accounting period.
 Accounting also enables to find out the financial position of the business enterprise on the last date of
accounting period.
 MEANING AND DEFINITION OF ACCOUNTING

 Meaning of Accounting
Accounting is a specialized branch that keeps track of a company's transactions. Using
standardized guidelines, the transactions are recorded, summarized, and presented in a
financial report or financial statement such as an income statement or a balance sheet.

 Definition
As per American Institute of Certified Public Accountant:-
Accounting is the art of recording, classifying and summarizing in a significant manner and
in terms of money, transaction and events which are in parts at least, of a manner character,
and interpreting the results thereof.
LET ME MAKE YOU UNDERSTAND THE CONCEPT OF ACCOUNTING
 OBJECTIVES OF ACCOUNTING

(1) To Maintain proper records of business transaction.

(2) Ascertaining the sources of the items of revenue and

expenses.

(3) To ascertain the amount of profit or loss made by the

business

(4) To calculate the financial Position by preparing the

balance sheet on a particular date

(5)To Provide information about the cash flow with the

help of cash flow statement

(6) To Communicate the Accounting Information to the

different stakeholders
 OBJECTIVES OF ACCOUNTING

(7.) Ascertaining the position of debtors and creditors

(8.)Facilitating research in business operations.

(9) Controlling the performance of the Business

(10) Meeting the Legal Requirements

ADVANTAGES OF ACCOUNTING
 ADVANTAGES OF ACCOUNTING

(1)Maintenance of Records rather memory

(2) Preparation of financial statements

(3) Comparison of Results

(4) Assistance to management

(5)Helps In Taxation Matters

(6)Prevention of errors and frauds

(7) Communication to External Users

 ADVANTAGES OF ACCOUNTING

1. MAINTENANCE OF RECORDS RATHER MEMORY

All business transaction are systematically recorded in various books of accounts.
Its is not Possible at all to do any type of business by just remembering the
transaction which have grown in size and have become complex.
2. PREPARATION OF FINANCIAL STATEMENT
When Business transactions are maintained in a proper manner it becomes possible
to prepare two basic financial statement , namely: (a) Profit and Loss A/c (b) The
Balance Sheet.
3. COMAPRISON OF RESULTS
A proper recorded accounting is very helpful to compare the profits or loss and
financial position of one year with those of previous years. It is called Intra Firm
comparison.
 ADVANTAGES OF ACCOUNTING

4. ASSISTANCE TO MANAGEMENT
The Accounting information helps the management to plan its future activities
by preparing budgets in respect of sales, production, expenses, cash, etc.
5.HELPS IN TAXATION MATTERS
Income tax authorities could be convinced about the amount of taxable income
or actual sales as the case may be with the help of written records
6 PREVENTIONS OF FRAUDS AND ERRORS
Accounting records are subject to auditing in most of the case. Auditing helps
detection of errors and frauds that have taken place during the year and take
steps to prevent their recurrence.
7. COMMUNICATION TO EXTERNAL USERS
Accounting provides valuable financial information to external users like
investors, consumers, creditors, Govt. agencies etc. who require such
information for various purposes.
BRANCHES OF ACCOUNTING
 BRANCHES OF ACCOUNTING

1. Financial Accounting.
2. Management Accounting (6) Green (7) Forensic (1)Financial
3. Cost Accounting. Accounting Accounting Accounting
4. Tax Accounting.
5. Human Resource Accounting
6. Green Accounting.
7. Forensic Accounting. (5)Human Branches of (2.)Managem
Resource Accounting ent
Accounting Accounting

(4) TAX (3)Cost

ACCOUNTING Accounting
 BRANCHES OF ACCOUNTING

(1)FINANCIAL ACCOUNTING
It is concerned with the recording of business transactions and periodic preparation
of income statement, balance sheet and cash flow statement from such records.

(2) MANAGEMENT ACCOUNTING

It is concerned with the interpretation of accounting information to guide the
management for future planning, decision making, control etc. It serve the
information needs of the insiders e.g owners, managers and employees.
 BRANCHES OF ACCOUNTING

(3) COST ACCOUNTING

It has been developed to ascertain the costs incurred for carrying out
various business activities and need to help the management to exercise
strict cost control.
(4) TAX ACCOUNTING
This Branch of accounting has grown in response to difficult tax laws
such as relating to income tax, GST, excise duties, custom duties etc. An
accountant is required to be fully aware of various tax legislations.
(5) HUMAN RESOURCE ACCOUNTING
It is concerned with the human resources of an enterprise. Accounting
methods are applied to evaluate the human resources in money terms so
that the society might judge the total work of the business enterprise. It
is therefore accounting for the people of the organization.
 BRANCHES OF ACCOUNTING

(6) GREEN ACCOUNTING

Green Accounting is a kind of accounting that tries to take into consideration the
environmental costs in the calculation of operating income of an enterprise. Green
Accounting take into consideration not only value of natural resources but also the
cost of pollution and deletion of natural resources.

(7) FORENSIC ACCOUNTING

Financial scams and frauds in accounting practices have drawn attention of the
users of the accounting information supplied by business enterprises. Auditors who
are also qualified accountants have the increased responsibility of detecting the
frauds and scams in the corporate world.
USERS OF ACCOUNTING
INFORMATION
 INTRODUCTION

 It is correctly said that “ Accounting was born without notice and brought up in
negligence. It means accountancy was first practiced and its principles (i.e. rules and
guidelines) were developed later on.

 There is no doubt that rules and guidelines are necessary for recording the business
transactions to bring some uniformity in the preparation and interpretation of basic
financial statement namely i.e. profit and loss account and the balance sheet.
 USERS OF ACCOUNTING INFORMATION

INTERNAL USERS EXTERNAL

(PRIMARY USERS) USERS( SECONDARY
USERS)
OWNERS INVESTORS

MANAGERS LENDERS

EMPLOYEES SUPPLIERS

CUSTOMERS

TAX AUTHOROTIES

GOVERNMENT

AUDITOR

PUBLIC
 INTERNAL USERS OF ACCOUNTING INFORMATION

1. OWNERS
Financial statements provide information to owners about
the profitability of the overall business as well as individual
products and geographic segments.

2. MANAGERS
Managers need accounting information to plan, monitor and make
business decisions.
Management need accounting information to monitor the
performance of business by comparison against past performance,
competitor analysis, key performance indicators and industry
benchmarks.
 INTERNAL USERS OF ACCOUNTING INFORMATION

3. EMPLOYEES
 Employees are interested in knowing how
well a company is performing as it could
have implications for their job security
and income.

 Many employees review accounting

information in the annual report.
 EXTERNAL USERS OF ACCOUNTING INFORMATION

External users are the secondary users of accounting.

(1) INVESTORS
 Investors need to know how well their investment is
performing. Investors primarily rely on the financial
statements published by companies to assess the
profitability, valuation and risk of their investment.

 Investors use accounting information to determine

whether an investment is a good fit for their portfolio.
 EXTERNAL USERS OF ACCOUNTING INFORMATION

(2) LENDERS
 Lenders use accounting information of borrowers to assess
their credit worthiness, i.e. their ability to pay back any loan.
Lenders offer loans and other credit facilities on terms that are
based on the assessment of financial health of borrowers.

(3)SUPPLIERS
 Just like lenders, suppliers need accounting information to
assess the credit-worthiness of its customers before offering
goods and services on credit.
 EXTERNAL USERS OF ACCOUNTING INFORMATION

(4)CUSTOMERS
 Industrial consumers however need accounting information about
its suppliers in order to assess whether they have the required
resources that are necessary for a steady supply of goods or services
in the future.

(5) TAX AUTHORITIES

 Tax authorities determine whether a business declared the correct
amount of tax in its tax returns. Occasionally, tax authorities
conduct audits of the tax returns filed by businesses in order to
verify the information with the underlying accounting records.
 EXTERNAL USERS OF ACCOUNTING INFORMATION

(6) GOVERNMENT
 Government ensures that a company’s disclosure of accounting
information is in accordance with the regulations that are in place to
protect the interest of various stakeholders who rely on such information
in forming their decisions.

(7)AUDITOR
 External auditors examine the financial statements and the underlying
accounting record of businesses in order to form an audit opinion.

(8) PUBLIC
 General public may also be interested in accounting information of a
company. These could include journalists, analysts, academics, activists
and individuals with an interest in economic developments.
LET ME MAKE YOU UNDERSTAND THE CONCEPT OF WHY THE USERS
NEED ACCOUNTING INFORMATION
ACCOUNTING CONCEPT
 MEANING ACCOUNTING CONCEPTS

 Meaning : An Accounting concept is a basic assumption or rules or

principles or an opinion for recording business transactions which ultimately
lead to the preparation of basic financial statements. An assumption is
something that is accepted as true without proof.

 It is recognised presumption that an accounting entity is separate from its

owners in every type of business organization like sole proprietorship, a
partnership firm or joint stock company.
 ACCOUNTING CONCEPTS

1. Business Entity Concept

2. Money Measurement Concept (1) BUSINESS
ENTITY
3. Going Concern Concept. CONCEPT (2) MONEY
4. Cost Concept MEASUREM
5. Dual Aspect Concept ENT
CONCEPT
(5) DUAL
ASPECTS
ACCOUNTIN
CONCEPT
G CONCEPTS

(3) GOING
CONCERN
CONCEPT
(4) COST
CONCEPT
 ACCOUNTING CONCEPTS

6. Accounting Period Concept

(6)
7. Realisation Concept ACCOUNTIN
8. Accrual Concept G PERIOD
9. Matching Concept CONCEPT
10. Objective Evidence Concept (10)
(7)
REALISATIO
OBJECTIVE
N CONCEPT
EVIDENCE
CONCEPT
ACCOUNTIN
G
CONCEPTS

(9) (8) ACCRUAL

MATCHING CONCEPT
CONCEPTS
 ACCOUNTING CONCEPTS

(1)BUSINESS ENTITY CONCEPT

A business and its owner should be treated separately as far as their financial transactions
are concerned. For example when the owner invests or introduce money (the capital) in the
business, the business entity receives the assets cash and the capital of the business is treated
as a liability of the business entity towards the owner.

(2) MONEY MEASUREMENT CONCEPT

Money measurement Concept means that the business transactions are recorded in the books
of account in terms of value of money at the time of recording the transactions.

(3) GOING CONCERN CONCEPT

The going concern concept means that in accounting , the business will continue to carry on
its business activities for an indefinite period of time.
 ACCOUNTING CONCEPTS

(4) COST CONCEPT

The cost concept means that a fixed asset like building or machine etc. is
recorded in the books of account at the price actually paid for it, it is called
its acquisition cost which includes purchase price, the amount spent in
installing and all expense paid in making the asset ready for use.

(5) DUAL ASPECT CONCEPT

It is also known as Accounting equation concept. This Concept emphasizes
the fact that every transaction has two fold effect and its commonly
expressed in the form of a fundamental accounting equation.

ASSETS = EQUITIES + LABILITIES

 ACCOUNTING CONCEPTS

(6) ACCOUNTING PERIOD CONCEPT

The Accounting period concept is related to going concern concept which
presumes that a business is likely to continue for an indefinite period of time.
Each business chooses a specific time period to complete a cycle of the
accounting process.

(7) REALISATION CONCEPT

It is also known as Revenue Recognition Concept.According to this concept,
profit is recognized only when it is earned. An advance or fee paid is not
considered a profit until the goods or services have been delivered to the buyer.
 ACCOUNTING CONCEPTS

(8) ACCRUAL CONCEPT

The Accrual concept is applicable to the recognition of both the revenue
and expense. The Accrual concept means that all transaction must be
recorded whether they are settled in cash or not.

(9) MATCHING CONCEPT

This principle dictates that for every entry of revenue recorded in a given
accounting period, an equal expense entry has to be recorded for correctly
calculating profit or loss in a given period..
 ACCOUNTING CONCEPTS

(10) OBJECTIVITY EVIDENCE CONCEPT

 Objectivity concept means that the recording of the business or accounting
transactions should not be influenced by personal bias of either the
management or the accountant who prepare the accounts.
 As such all accounting entries should be supported by source document or
business document such a purchase, pay in slips, counterfoils of cheque
book, vouchers.
ACCOUNTING
PROCESS
 INTRODUCTION

 Accounting process is the complete sequence of accounting procedures which begins with the recording of
business transactions from source of documents in the Journal.

 There is no doubt that rules and guidelines are necessary for recording the business transactions to bring
some uniformity in the preparation and interpretation of basic financial statement namely i.e. profit and
loss account and the balance sheet.

 Accounting Conventions is a rule or an accepted methods or procedure or a statement of practice which

is adopted either by general agreement or common consent which may be in writing or implied.
 MEANING OF ACCOUNTING PROCESS

 Accounting Process is the complete sequence of accounting Procedures which begins with the recording of
business transactions from source documents in the journal purpose or special subsidiary books,

 As the case may be and end with the preparation of two basic financial statement, namely , income
statement ( Profit and Loss account) and the balance sheet.

 In Case of Limited Liability Companies, The Cash Flow Statement is also prepared.
 The main purpose of the accounting process is to record all the transactions systematically without
missing an entry.
STEPS OF ACCOUNTING PROCESS (1/9)
 ACCOUNTING PROCESS (2/9)

 Step No 1: Analyze Business Transaction

 Steps of Transaction Analysis are as follows:-

(1)Ascertaining the accounts involved
(2)Ascertaining the nature of accounts involved
(3)Determining the effects of in terms of increase and decrease
(4)Applying the Rules of Debit and Credit.
 ACCOUNTING PROCESS (3/9)

 Step No 2: Journalize the transactions

 Journalizing is the practice of documenting a business transaction in accounting records,
 Record keeping, especially for accountants, is a detail-oriented skill that requires commitment.
Every business transaction is recorded in a journal, also known as a Book of Original Entry, in
chronological order.


 ACCOUNTING PROCESS (4/9)

 Step No 3: Post to Ledger Account :

 After the transactions are recorded in the journal, it is then posted in the principal book called as
‘Ledger’. The process of transferring the entries from journal to respective ledger accounts is
called ledger posting. Balancing of ledgers is carried to find out differences at the end of the year.
 This process is carried throughout the year and at the end of the financial year the ledger accounts
are closed and are totaled and balanced. This process is called the balancing of the ledger
accounts.

 ACCOUNTING PROCESS (5/9)

 Step No 4: Preparation of Trial Balance

 A Trial Balance is a statement that shows the total debit and total credit balances of accounts. The
total of debit amounts shall be equal to the credit amounts.
 It thus verifies the arithmetical accuracy of the postings in the ledger accounts.
 ACCOUNTING PROCESS (6/9)

 Step No 5: Recording Adjusting Entries:

Adjusting entries ensure that the revenue recognition and matching principles are followed. To find
the revenues and expenses of an accounting period adjustments are required.
Adjusting entries are required to be is because a transaction may have influence revenues or expenses
beyond the current accounting period and to journalize to the events that not yet recorded

Step No 6: Prepare the Adjusted Trial Balance:

An
adjusted trial balance contains all the account titles and balances of the general ledger w
hich is created after the adjusting entries for an accounting period
have been posted to the accounts.
It helps to create the income statement and balance sheet and provide enough information for
preparing the cash flow statement.
 ACCOUNTING PROCESS (7/9)

 Step No 7: Prepare financial Statement such as profit & loss A/c Balance sheet & Cash Flow Statement:
 Financial statements are prepared from the balances from the adjusted trial balance. The financial
statements are made at the very last of the accounting period.
 Financial Statements Includes (1) Profit & Loss A/c , (2) Balance Sheet, (3) Cash Flow Statement.
 ACCOUNTING PROCESS (8/9)

 Format Of Balance sheet Account & Cash Flow Statement

 ACCOUNTING PROCESS (9/9)

 Step No 8: Post Closing Entries:

 At the end of an accounting period, Closing entries are made to transfer data in the temporary accounts
to the permanent balance sheet or income statement accounts.
 Transferring the balances of the temporary accounts or nominal accounts (e.g. revenue, expense, and
drawing accounts) to the owner’s equity or retained earnings account is used because these types of
accounts only affect one accounting period.

 Step No9: Prepare a Closing Trial balance:

 To make sure that debits equal credits, the final trial balance is prepared. As the temporary ones have
been closed only the permanent accounts appear on the closing trial balance to make sure that debits
equal credits.
LET ME MAKE YOU UNDERSTAND THE CONCEPT OF ACCOUNTING
PROCESS WITH THE HELP OF VIDEO
ACCOUNTING
CONVENTIONS
 MEANING OF ACCOUNTING CONVENTION(1/6)

 Meaning of Accounting Conventions:

 Accounting Conventions is a rule or an accepted methods or procedure or a
statement of practice which is adopted either by general agreement or
common consent which may be in writing or implied.

 Accounting conventions are in fact based on customs or practice which have

been in use for a long period of time and which guide the accountants while
recording the business transactions and preparing the profit and loss account
and the balance sheet.

 For Example , It is an anticipate practice by general agreement amongst

the accountants that “ anticipate no gain but provide all losses” and this
is called convention of conservatism.
 ACCOUNTING CONVENTIONS (2/6)

 Following are the accounting conventions:

(1) CONVENTION OF DISCLOSURE (1)CONVETION
OF
(2) CONVENTION OF MATERIALITY
DISCLOSURE
(3) CONVENTION OF CONSISTENCY
(4) CONVENTION OF CONSERVATISM
(2) CONVETION
OF
CONVENTION ACCOUNTING MATERIALITY
OF CONVENTIONS
CONSERVATIS
M

CONVENTION
OF
CONSISTENCY
 ACCOUNTING CONVENTIONS (3/6)

(1) CONVENTION OF DISCLOSURE

 The Convention of full disclosure suggests that every financial
statement should fully disclose all relevant information that effects
the average investors.
 Full Disclosure means that there should be full, fair and adequate
disclosure of accounting information.

 Secret Reserves/ Profits should not be made

 The actual facts should be presented in the final accounts so as to
present true & fair amount so as to present true & fairs view of the
enterprise.
 ACCOUNTING CONVENTIONS (4/6)

(2) CONVENTIONS OF MATERIALITY

 The Convention means that in accounting only important &
relevant information should be provided to the users of financial
statements
 Any item /information which is material (important) should be
included in the accounting statements & whatever is not important
should be ignored.
 An item should be regarded as important if it can influence the
decision of the stakeholder/ investors.
 In Order to make financial statements more meaningful & to
minimize the cost, accountants should report only such information
which is material.
 Thus, this convention emphasis on avoidance of immaterial and
useless information.
 ACCOUNTING CONVENTIONS (5/6)

(3) CONVENTION OF CONSISTENCY

 It implies that same accounting policies should used for similar items
over the years.
 It means that accounting information is useful only if it can be compared
with the similar information within same firm for few years and with
similar information between two or more firms for the same period.
 This concept says that frequent changes in accounting treatment would
make the balance sheet & income statement unreliable for end users but
this does not mean that they can not make changes in its accounting
policies.
 If it want to influence any changes it may do so. However such a change
should be reported in its financial statements & its effect on income
statement & Balance sheet should be shown separately.
 ACCOUNTING CONVENTIONS (6/6)

(4) CONVENTION OF CONSERVATISM

 Conservatism is a policy of playing safe in the world of
uncertainties.
 It emphasizes on evaluating/ forecasting risk and uncertainties
present in the business to ensure that reasonable provisions are made
for anticipated loss/ expenses.
 Anticipate no gains but provide for all possible losses.

 This means recognize all losses that have incurred or likely to be

incurred and to admit the gains only when they have been realized.
ACCOUNTING
STANDARDS
 MEANING OF ACCOUNTING STANDARDS

 Accounting standards are defined as codified or written statements, or documents

of accounting rules and guidelines or practices for preparing the uniform and
consistent financial statements relating to recognition, measurement and
disclosures of accounting transactions.
 Accounting standards may also be defined as written policy documents issued by
expert accounting body ( Eg. such as Institute of Charted Accountants of India) or
by Government (Eg. companies Act, Income Tax Act) or its regulatory body (Eg.
Securities and exchange Board of India popularly known as SEBI) covering such
aspects as recognitions of events, measurement, presentation and disclosures of
accounting transactions and events in the financial statements
 The focus of the accounting standards is to covey the same meaning of any
accounting concept to all users of accounting information in the same sense so
that uniformity and comparability in financial statements is achieved.
 Accounting standards may also be termed as codified forms of generally
accepted principles.
 LET ME MAKE YOU UNDERSTAND THE CONCEPT OF ACCOUNTING
STANDARDS WITH THE HELP OF VIDEO


 NATURE OF ACCOUNTING STANDARDS

 Accounting Standards prescribe a model code or yardstick or benchmark of accounting policies and
Practices for guidance for the accountants as to how transactions and events are to be presented and
disclosed in the financial statements.

 Accounting Standards eliminate the effects of several accounting policies and practices so that financial
statements of different firms become comparable.

 Accounting Standards Provide the most suitable Accounting Methods to solve one or more accounting
problems. For Example , the accounting standard on revenue recognition enables the accountant to solve
the problem of the realization by suggesting sales as the main criterion.
 Accounting Standards clearly Communicate to the users of the financial information the basis on which
financial statement have been prepared. For Example how the fixed assets and current assets have been
valued , how the cash from operating activities, investment activities and financial activities has been
arrived at.
 ISSUES COVERED BY ACCOUNTING STANDARDS

The Accounting standards primarily deals with the following issues :

(a) Recognition or identification of events and transaction in the financial statement
(b) Measurement of these transaction and events in terms of money.

(c) Presentation of these transactions and events in the financial statement in a

manner that is meaningful and understandable to the users of accounting
information’s.

(d) The disclosures requirements to enable the public in general and creditors, owners
and potential or future investors in particular to know what is inside the financial
statement so that they can take prudent or intelligent business decision.
 LIST OF ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF
CHATERED ACCOUNTANTS OF INDIA (1/2)

 AS 1: DISCLOSURE OF ACCOUNTING POLICIES

 AS 2: VALUATION OF INVENTORIES
 AS 3: CASH FLOW STATEMENTS
 AS 4: CONTINGENCIES & EVENTS OCCURRING AFTER THE
BALANCE SHEET DATE
 AS 5: NET PROFIT OR LOSS FOR THE PERIOD ITEMS AND
CHANGES IN ACCOUNTING POLICIES.
 AS 6: DEPRECIATION ACCOUNTING
 AS 7: ACCOUNTING FOR CONSTRUCTION CONTRACTS
 AS 9: REVENUE RECOGNITION
 AS 10: PROPERTY, PLANT AND EQUIPMENT
 AS 11: THE EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES.
 AS 12: ACCOUNTING FOR GOVT GRANTS
 AS 13: ACCOUNTING FOR INVESTMENTS
 AS 14: ACCOUNTING FOR AMALGAMATION
 LIST OF ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF
CHARTED ACCOUNTANTS OF INDIA (2/2)

 AS 15: EMPLOYEE BENEFITS

 AS 16: BORROWING COST
 AS 17: SEGMENT REPORTING
 AS 18: RELATED PARTY DISCLOSURE
 AS 19: LEASE
 AS 21: CONSOLIDATED FINANCIAL STATEMENT
 AS 22: ACCOUNTING FOR TAX & INCOME
 AS 23: ACCOUNTING FOR INVESTMENT IN ASSOCIATES IN CONSOLIDATED
 AS 24: DICONTINUING OPERATIONS
 AS 25: INTERIM FINANCIAL REPORTING
 AS 26: INTANGIBLE ASSETS
 AS 27: FINANCIAL REPORTING OF INTEREST IN JOINT VENTURE
 AS 28: IMPAIRMENT OF ASSETS
 AS 29: PROVISION CONTINGENT LIABILTIES & CONTINGENT ASSET
 AS 31: FINANCIAL INSTRUMENT- PRESENTATION
 AS 32: FINANCIAL INSTRUMENT DISCLOSURES
 SIGNIFICANCE OF ACCOUNTING STANDARD(1/6)

(1)EASY INTRA FIRM AND INTER-FIRM COMAPRABILITY

(2) RELIABILTY AND CREDIBILTY

(3) TRUE AND FAIR VIEW OF THE FINANCIAL REPORTING

(4) IMPROVES THE QUALITY OF FINANCIAL REPORTING

(5) REDUCTION IN ALTERNATIVES ACCOUNTING PRACTICES

 SIGNIFICANCE OF ACCOUNTING STANDARD(2/6)

(6) EFFICIENCY OF MANAGEMENT

(7) VALUE OF ACCOUNTIN G INFORMATION

(8) USEFUL TO ACCOUNTING INFORMATION

(9) REDUCTION OF MANIPULATION AND FRAUDS

(10) RESOLVING CONFLICT OF FINANCIAL INTEREST

 SIGNIFICANCE OF ACCOUNTING STANDARD (3/6)

(1)EASY INTRA –FIRM AND INTER FIRM COMPARABILITY

As the same Accounting methods and policies are adopted in the preparation and
presentation of financial statement, accounting standards facilitate or help in
comparing the financial statements of various years of the same enterprise and
among various enterprises in the same industry ( Inter Firm). Hence Accounting
standards are helpful in intra firm and inter firm comparison of operating results
and financial positions.

(2) RELIABILITY AND CREDIBILITY

Accounting information is used by various groups of person which include
investors, creditor, lenders, trade unions, management, Government official etc. The
use of Accounting Standards create a sense of confidence among the users of
accounting information.

(3)TRUE AND FAIR VIEW OF THE FINANCIAL POSITIONS

In order to present a true and fair view of the financial position for users of
accounting information’s it is necessary to use accounting standards
 SIGNIFICANCE OF ACCOUNTING STANDARDS (4/6)

(4)IMPROVE THE QUALITY OF FINANCIAL REPORTING

Accounting standards improves the quality of financial reporting in the sense that financial reports are
prepared using not only standards formats but also easily understandable common terms with same meaning
attached to them. For Example , the Companies Act prescribes a common balance sheet format for all
companies engaged in general business.

(5) REDUCTION IN ALTERNATIVES ACCOUNTING PRACTICES

Accounting standards reduces or bring down the number of alternatives accounting practices for recording &
presenting the business transactions. For Example, Accounting standard on Depreciation Accounting (6)
limits the number of depreciation methods. Similarly Accounting Standards (AS)-2: Valuation of Inventories
limits the choices of inventory valuations.

(6) EFFICIENCY OF MANAGEMENT

Accounting Standards are very helpful in assessing or evaluating the efficiency of management in respect of
liquidity, Profitability, solvency, debtors turnover, sales turnover and so on. In the absence of accounting
standards the financial positions and operating results (profitability) can not be compared and hence overall
efficiency of management can not be judged by way of such comparison.
 SIGNIFICANCE OF ACCOUNTING STANDARDS (5/6)

(7) VALUE OF ACCOUNTING INFORMATION

Accounting standards provides a definite structure of accounting framework by giving definition of
accounting terms or standards rules for valuation and measurement etc. in this manner use of
accounting standards increases the value of accounting information.

(8) USEFUL TO ACCOUNTANT AND AUDITORS

The use of accounting standards reduce the work of the accountants and auditors since they have to
work within a definite accounting framework. It is the duty of the auditors to ensure that financial
statement have been prepared in accordance with the relevant accounting standards. They will
make adequate disclosures in their in audit reports to enable the users of accounting information to
know if certain aspects of the accounting standards have not been followed such as valuation of
fixed assets or inventories.
 SIGNIFICANCE OF ACCOUNTING STANDARDS (6/6)

(9)REDUCTION OF MANIPULATION AND FRAUDS

The use or adoption of accounting standards has minimize to a large extent , manipulation, frauds
and use of inappropriate accounting policies in the preparation of financial statement. This is true
because accounting policies in the preparation of financial statements. This is true because
accounting standards prescribe appropriate policies and adequate financial disclosure in recording
accounting transaction and in preparing profits and loss account and balance sheet.
(10) RESOLVING CONFLICT OF FINANCIAL INTEREST
In a number of cases, there is a conflict of interest amongst various users of the financial information.
For Example, the shareholders and creditors may have may have opposite or contrary interests in
assessing or evaluating the profitability and net worth of the business enterprise. Shareholders are
interested in more profitability then the financial position while the creditors are concerned equally
with the profitability and financial position with the creditor are concerned equally with the
profitability and financial position.
ACCOUNTING
PRINCIPLES
 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

 MEANING OF GAAP
GAAP stand for Generally Accepted Accounting Principles. Accounting
Rules used to prepare & standardize the reporting of financial statements.
Those guidelines which help the Accountant in preparing the accounting
standards in such a way that uniformity and comparability in the
accounts. GAAP is implemented through measurement principles &
disclosures This general acceptability of accounting principles has made
them popular as Generally Acceptable Accounting Principle briefly
expressed GAAPs.
ICAI (Institute of Charted Accountant of India) is the body of India.

 The general acceptance of accounting principles depends upon how

well these principle meet the following three conditions:
(A) RELEVANCE
(B) OBJECTIVE
(C) FEASIBILTY
 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)

(a) RELEVANCE
Accounting principle is relevant if it is helpful in providing useful information to the users of
financial statements.

(b) OBJECTIVITY
Accounting principle is objective in the sense that the accounting information is free from
personal judgement or bias of those who provide it. The Accounting information must be
verifiable, that is there is some methods of findings out the correctness of the information
reported with the help of documentary evidence.

(c) FEASIBILTY
It means that the principle is practicable , that it can be used without much complications or
cost. This criterion or condition applies to time labor and cost pf providing accounting
information, its accuracy and resulting benefits.
 SALIENT FEATURES OF GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES

The main Characteristics or silent features of generally accepted Accounting

Principles are as follows:
(i) To Ensure uniformity: Accounting Principles have been developed to ensures
uniformity and easy understanding of the accounting information or financial
statements.
(ii) Simple Guidelines : Accounting Principles are man made and flexible. They are
not rigid and universally applicable like the principles of physical science like
physics or chemistry and other natural science.
(iii) Not final statements: Accounting principle are not final statements and thus not
static. They are modified from time to time in view of the changes in
government policies, changes in business practices and the requirements of the
users of accounting information.
 INSTITUTIONS THAT INFLUENCE INDIAN GAAPs

 Many institution influence that development of accounting

Principle followed by accountants in the preparation and
presentation of financial statements in India. These includes the
following:
(I)Institute of Chartered Accountant of India (ICAI),
(II) Department of Corporate Affairs
(III) The Securities & exchange Board of India (SEBI)
(IV) The central Board of Direct Taxes (CBDT)
(V) The Reserve Bank of India (RBI)
(VI) Comptroller and Auditor General (CAG) of India
(VII)Financial Accounting Standard Board, USA International
Accounting Standard Board (IASB)
Thank You