CONTENTS Chapter 1 : ACCOUNTING AND FINANCE : AN OVERVIEW 1 1.1 Meaning of Accounting. 1 1.2 Definition 1 1.3 Chracteristics of Accounting..1 1.4 Basis of Accounting .. 2 1.5 Objectives of Financial Accounting . 2 1.6 Accounting as an Information System 3 1.7 Bookkeeping and Accounting. 4 1.8 Distinguish between Bookkeeping vs. Accounting 4 1.9 Relationship of Accounting with Other Disciplines 4 1.10 Accounting Key Terms . 5 1.11 Classification of Accounting.. 6 1.12 Distinction between Financial Accounting vs. Cost Accounting .. 7 1.13 Distinction between Financial Accounting vs. Management Accounting 7 1.14 Bookkeeping, Accounting and Auditing ..8 1.15 Meaning of Finance8 1.16 Definition of Financial Management 9 1.17 Objectives of Financial Management 9 1.18 Importance of Financial Management 9 1.19 Role of Finance Manager in the Changing Scenario 10 Chapter 2 : ACCOUNTING PRINCIPLES 11 2.1 Meaning of Accounting Principles . 11 2.2 Characteristics of Accounting Principles .11 2.3 Classifications of Accounting Principles .11 2.4 Accounting Concepts..11 2.5 Traditional Techniques of Debit-Credit Identification 15 2.6 Accounting Conventions 15 2.7 Classification of Accounts .. 16 2.8 Relationship among various Accounts .. 16 2.9 Accounting Standards . 18 Chapter 3 : JOURNAL, LEDGER AND TRIAL BALANCE 21 3.1 Meaning of Journal .. 21 3.2 Essential Features of Journal 21 3.3 Advantages of Journal. 21 3.4 Proforma of a Journal . 22 3.5 Classification of Journal .. 22 3.6 Golden Rules of Accounting 23 3.7 Meaning of Ledger .. 25 3.8 Essential Features of Ledger. 25 3.9 Advantages of Ledger . 25 3.10 Proforma of a Ledger . 25 3.11 Subdivision of Ledger . 26 3.12 Distinction between Journal vs. Ledger .. 27 3.13 Meaning of Trial Balance .. 31 3.14 Essential Features of Trial Balance 31 3.15 Advantages of Trial Balance. 31 3.16 Proforma of a Trial Balance . 32 3.17 Methods of Trial Balance .. 32 3.18 Meaning of Errors 35 3.19 Types of Errors . 35 Chapter 4 : CASH BOOK AND SUBSIDIARY BOOKS 43 4.1 Meaning of Cash Book 43 4.2 Essential Features of Cash Book .. 43 4.3 Advantages of Cash Book .. 43 4.4 Proforma of a Cash Book.. 44 4.5 Classification of Cash Book . 44 4.6 Trade Discount vs. Cash Discount. 48 4.7 Subsidiary Books 51 4.8 Purchase Day Book .. 52 4.9 Sales Day Book . 53 4.10 Debit Note vs. Credit Note .. 54 4.11 Purchase Return Book. 55 4.12 Sales Return Book 56 4.13 Bills Receivable Book 57 4.14 Bills Payable Book .. 57 Chapter 5 : FINAL ACCOUNTS 68 5.1 Meaning of Final Accounts.. 68 5.2 Trading Account 68 5.3 Manufacturing Account 72 5.4 Profit and Loss Account 74 5.5 Balance Sheet. .. 77 5.6 Functions of Balance Sheet. . 78 5.7 Advantages of Balance Sheet 78 5.8 Limitations of Balance Sheet 78 5.9 Classification of Assets and Liabilities .. 78 5.10 Marshalling of Assets and Liabilities 81 5.11 The Work Sheet. 82 5.12 Final Accounts (With adjustments) 82 5.13 Treatment of Special Items in Balance Sheet .. 83 Chapter 6 : ELEMENTS OF COSTS AND COST SHEET 100 6.1 Meaning of Cost Accounting 100 6.2 Definition of Costing, Cost Accounting and Cost Accountancy 100 6.3 Objectives of Cost Accounting.. 100 6.4 Importance of Cost Accounting .. 101 6.5 Advantages of Cost Accounting .. 101 6.6 Limitations of Cost Accounting .. 102 6.7 Relationship of Cost Accounting with other disciplines.. 102 6.8 Elements of Cost 103 6.9 Method of Costing.. 105 6.10 Techniques of Costing 106 6.11 Cost Sheet 107 6.12 Various divisions of costs .. 107 6.13 Proforma of a Cost Sheet .. 108 6.14 Treatment of Stocks in Cost Sheet. 109 6.15 Items not Included in Costs . 110 Chapter 7 : STANDARD COSTING (VARIANCE ANALYSIS) 124 7.1 Meaning of Standard Costing 124 7.2 Standards, Standard Cost and Standard Costing 124 7.3 Standard Cost and Estimated Cost 124 7.4 Standard Cost and Historical Cost 125 7.5 Preliminaries to Establishment of Standards 125 7.6 Advantages of Standard Costing . 125 7.7 Limitations of Standard Costing .. 126 7.8 Standard Cost Sheet.. 126 7.9 Variance Analysis 127 7.10 Cost Variance. . 127 7.11 Computation of Cost Variance .. 128 7.12 Analysis of Variance . 128 7.13 Direct Material Variance .. 128 7.14 Direct Labour Variance 136 7.15 Overhead Variance .. 141 7.16 Sales Variance . 145 Chapter 8 : COST-VOLUME-PROFIT ANALYSIS (MARGINAL COSTING) 152 8.1 Meaning of Marginal Costing 152 8.2 Definition of Marginal Costing. .. 152 8.3 Characteristics of Marginal Costing 152 8.4 Absorption Costing vs. Marginal Costing 152 8.5 Profit Statement under Marginal Costing and Absorption Costing .. 153 8.6 Marginal Costing Equation . 155 8.7 Cost-Volume-Profit Analysis. 156 8.8 Uses of Cost-Volume-Profit Analysis .. 156 8.9 Application of Marginal Costing Techniques . 156 8.10 Break EvenPoint 156 8.11 Profit/Volume Ratio. . 160 8.12 Margin of Safety 163 8.13 Angle of Incidence .. 165 8.14 Graphic Presentation of Cost-Volume-Profit Relation .. 166 8.15 Assumptions of Break Even Analysis .. 166 8.16 Advantages of Break Even Analysis .. 167 8.17 Limitations of Break Even Analysis. .. 167 Chapter 9 : BUDGETARY CONTROL 173 9.1 Meaning of Budget .. 173 9.2 Definition of Budget . 173 9.3 Budget, Budgeting and Budgetary Control .. 173 9.4 Objectives of Budgetary Control . 174 9.5 Essentials of Budgetary Control.. 174 9.6 Different Types of Budgets. 176 9.7 Zero-base Budgeting . 178 9.8 Performance Budgeting 178 9.9 Advantages of Budgetary Control 178 9.10 Limitations of Budgetary Control. 178 9.11 Responsibility Accounting.. 179 9.12 Control Ratios . 179 Chapter 10 : WORKING CAPITAL MANAGEMENT AND CONTROL 187 10.1 Meaning of Working Capital 187 10.2 Definitions of Working Capital .. 187 10.3 Concepts of Working Capital 187 10.4 Kinds of Working Capital.. 188 10.5 Significance of Working Capital . 189 10.6 Advantages of Adequate Working Capital. .. 189 10.7 Disadvantages of Excessive or Redundant Working Capital .. 190 10.8 Disadvantages of Inadequate Working Capital . 190 10.9 Factors Determining the Working Capital Requirements . 190 10.10 Management of Cash. 197 10.11 Management of Receivables 198 10.12 Management of Inventories. 197 Chapter 11 : COSTING FOR DECISION MAKING 210 11.1 Meaning of Decision Making 210 11.2 Definition 210 11.3 Decision-making Process.. 210 11.4 Decision Relating to Fixation of Selling Prices 211 11.5 Decision Relating to the Selection of Profitable Product-mix .. 212 11.6 Decision Relating to Make or Buy 214 11.7 Decision Relating to the Problem of Key or Limiting Factor .. 215 11.8 Decision Relating to the Effect of Changes in Sales Price 216 11.9 Decision Relating to the Maintaining a Desired Level of Profit 217 Chapter 12 : CAPITAL INVESTMENT DECISIONS 222 12.1 Meaning of Capital Investment.. 222 12.2 Definition 222 12.3 Kinds of Capital Budgeting Proposals .. 222 12.4 Capital Budgeting Process . 223 12.5 Capital Budgeting Appraisal Methods .. 224 12.6 Pay back Period Method.. 225 12.7 Accounting Rate of Return Method 226 12.8 Net Present Value Method . 226 12.9 Internal Rate of Return Method .. 228 12.10 Profitability Index Method . 232 12.11 Capital Rationing 233 Chapter 13 : CAPITAL STRUCTURE 237 13.1 Meaning of Capital Structure 237 13.2 Definition 237 13.3 Capitalisation, Capital Structure, Financial Structure, Assets Structure. 237 13.4 Factor Determining the Capital Structure 239 13.5 Patterns of Capital Structure 240 13.6 Leverage 242 Chapter 14 : FINANCIAL STATEMENT ANALYSIS 247 14.1 Meaning of Financial Statements . 247 14.2 Definitions 247 14.3 Nature of Financial Statements .. 247 14.4 Tools of Financial Statement Analysis.. 248 14.5 Comparative Statements .. 248 14.6 Common Size Statements .. 248 14.7 Trend Analysis . 248 14.8 Statement of Changes in Working Capital .. 249 14.9 Funds Flow Analysis . 249 14.10 Cash Flow Analysis.. 256 14.11 Ratio Analysis . 258 Appendix 1 279 Appendix 2 280 Appendix 3 281 Appendix 4 282