Importance of Managerial Accounting

Module 1 Fundamentals of Managerial Accounting Managerial Accounting - Dr. Varadraj Bapat

Dr. Varadraj Bapat Chartered Accountant Cost Accountant Ph.D., IIT B, Powai, Mumbai Contact Information: varadraj@som.iitb.ac.in Managerial Accounting - Dr. Varadraj Bapat

LEARNING OBJECTIVES Need to Know About Accounting Managerial Accounting Financial Statements - Balance Sheet, Income Statement Managerial Accounting - Dr. Varadraj Bapat

Need to Know About Accounting Need to Know About Accounting and Finance Managerial Accounting - Dr. Varadraj Bapat

Why do I need to learn about finance I am very good in my own area of specialization How would you react to the above statement? Managerial Accounting - Dr. Varadraj Bapat

The job content Management & Finance Expertise As you mo ve up .. Functional Expertise Managerial Accounting - Dr. Varadraj Bapat

About Managerial Accounting What is Accounting? Financial Accounting, Cost Accounting and Management Accounting Financial Accounting and Financial Management Finance and complexity of organisation Managerial Accounting - Dr. Varadraj Bapat

Accounting Language of Business Performance is reported and evaluated in financial terms Knowledge is personal investment and tax planning as well useful for Managerial Accounting - Dr. Varadraj Bapat

Accounting It is not necessary to become accountant But its very useful if every one understands the and financial concepts and terminology properly accounting Managerial Accounting - Dr. Varadraj Bapat

Need to Learn Accounting It assists in management Will help organisation business Leads to increase in efficiency of business Profit maximization in planning, control and of Managerial Accounting - Dr. Varadraj Bapat

Streams of Accounting Financial Accounting and Management Accounting Let us understand similarities and difference in these three accounting Accounting, Cost the streams of Managerial Accounting - Dr. Varadraj Bapat

Financial Accounting Recording of Financial Transactions Reporting of Financial Results Preparation of Financial Statements Targeted to External Users Managerial Accounting - Dr. Varadraj Bapat

Cost Accounting Recording of Costs Analysis of Costs Preparation of Cost Statements Targeted to Internal Users Managerial Accounting - Dr. Varadraj Bapat

Management Accounting Recording of Financial & other data Analysis of Financial and other information Preparation of Statements for Managerial Decisions Managerial Accounting - Dr. Varadraj Bapat

Management Accounting Targeted to Internal Users - All levels of Management This is a broader concept encompasses Financial Cost Accounting and Managerial Accounting - Dr. Varadraj Bapat

Meaning of Management Accounting Any form of accounting which enables a business conducted more efficiently can be regarded as Management Accounting. (Institute Chartered Accountants of India- ICAI) Management Accounting is the to be of Managerial Accounting - Dr. Varadraj Bapat

application knowledge preparation information in such a way as to assist management in the formation of policies and in the planning and control of operations of undertaking. (International Capital Association, London- ICMA) of professional skill in accounting and the of Market Managerial Accounting - Dr. Varadraj Bapat

Financial Management Financial Accounting, Managerial Accounting and Management: Relationship Financial Management deals with raising and utilization of funds Raising of funds may include Cost of Capital, Capital Structure Financial Managerial Accounting - Dr. Varadraj Bapat

Financial Management decisions, Capital Markets, IPOs and so on Financial Management deals with raising and utilization of funds Utilization of funds may include Capital Budgeting, Management, Working Capital Management and so on Portfolio Managerial Accounting - Dr. Varadraj Bapat

Managerial V/s Financial Accounting Accounting System (accumulates all accounting data) Managerial Accounting Information for decision making, and control of an organization s operations. Financial Accounting Published financial statements and other financial reports. External Users Internal Users Managerial Accounting - Dr. Varadraj Bapat

Complexity of Organisation Finance organisation As the organizations grow, they become complex Ownership and Management are separated and complexity of Managerial Accounting - Dr. Varadraj Bapat

Complexity of Organisation Ownership is widespread This increases the importance of Finance function Managerial Accounting - Dr. Varadraj Bapat

About this course Managerial Accounting Course The course will cover Financial Accounting, Cost Accounting and Management Accounting Financial Management is dealt in a different course Managerial Accounting - Dr. Varadraj Bapat

Financial Statements What are they? Which are important Financial Statements? What purposes do they serve? Managerial Accounting - Dr. Varadraj Bapat

Company or Organisation PROVIDERS OF MONEY RESOURCES FOR BUSINESS These two are always equal Managerial Accounting - Dr. Varadraj Bapat

The Basic Business Model Infrastructure The Money Cycle Money Collection Procurement Billing Value Addition Cycle Consumption Delivery People Managerial Accounting - Dr. Varadraj Bapat

Infrastructure Money Collection Costs Procurement Billing Consumption Delivery To be profitable, our revenue should be more than our cost ! This would make the organisation stronger, healthy and long-lasting. Managerial Accounting - Dr. Varadraj Bapat

Profit & Loss Account Balance Sheet Liabilities Assets Infrastructure Revenue Capital Costs Fixed Assets Money Borrowings from Banks / FIs Collection Current Assets or Working Capital Procurement & Inventory Outstanding Current Liabilities Profit/ Loss Consumption & WIP Delivery & Billing Human Assets People Balance Sheet shows the financial position of organisation, while Profit & loss Account shows the profitability of organisation. Managerial Accounting - Dr. Varadraj Bapat

Balance cumulative position of resources (assets) and sources (liabilities) at the end of the year. Profit & Loss Revenue & Cost during a quarter/ year. Sheet shows the of funds Account shows performance Managerial Accounting - Dr. Varadraj Bapat

Balance Sheet Profit & Loss Account Liabilities Assets Infrastructure Revenue Capital Reserves Costs Fixed Assets Money Borrowings (eg.from Banks) Collection Current Assets or Working Capital Procurement & Inventory Outstanding Current Liabilities Profit Consumption & WIP Delivery & Billing Human Assets People Profits build up reserves & enable an enterprise to acquire new assets without borrowing money. Exactly the way we can acquire assets for our use without borrowing. Managerial Accounting - Dr. Varadraj Bapat

Balance Sheet Profit & Loss Account Assets Liabilities Infrastructure Revenue Capital Reserves Costs Fixed Assets Money Borrowings (eg.from Banks) Collection Current Assets or Working Capital Procurement & Inventory Outstanding Current Liabilities Profit Consumption & WIP Delivery & Billing Human Assets People Profits build up reserves & enable an enterprise to acquire new assets without borrowing money. Exactly the way we can acquire assets for our use without borrowing. Managerial Accounting - Dr. Varadraj Bapat

Balance sheet may be prepared at any time showing the position as on that date. Profit and loss account may be prepared for period. any particular Managerial Accounting - Dr. Varadraj Bapat

Balance Sheet Owners Funds Non Current liabilities Current liabilities Fixed Assets Non Current Investments Other non current assets Current Assets Managerial Accounting - Dr. Varadraj Bapat

The Annual Report Usually Contains ... financial statements which consist of Balance sheet, Profit & Loss A/c Cash Flow Statements notes to the financial statements disclosure of accounting policies Managerial Accounting - Dr. Varadraj Bapat

The Annual Report Usually Contains ... - Chairman s Statement - Board of Directors & Committees - Directors Report - Directors Responsibility Statement - Auditors Report - Report on Corporate Governance Managerial Accounting - Dr. Varadraj Bapat

The Annual Report Usually Contains ... - Disclosure Stock options Schemes - List of remuneration exceeding Rs. 60 Lakhs - Conservation of Energy Reports regarding Employee employees receiving Managerial Accounting - Dr. Varadraj Bapat

The Annual Report Usually Contains ... - Consolidated Financial Statements - Subsidiaries Financial Statements - Management Discussion and Analysis - Annual General Meeting Notice Managerial Accounting - Dr. Varadraj Bapat