Principles of Financial Accounting

and Management

Subject Code: BCA 4040/IMC 4040 BKID – B1769

Edition: Fall 2012

Sikkim Manipal University Directorate of Distance Education

Department of Information Technology

Dean Directorate of Distance Education, Sikkim Manipal University (SMU DDE)

Board of Studies

Chairman Head – IT SMU DDE, Manipal – 576 104

Mrs. Vidya Selvaraj Asst. Prof., Dept. of IT SMU-DDE, Bangalore

Additional Registrar SMU DDE Manipal – 576 104

Dr. A. Kumaran Research Manager, Multilingual Research, Microsoft (India)

Addl. Registrar (S.E.) Office of the Student Evaluation Manipal – 576 104

Mr. Ashwin Krishna Director, Keystone Business Bangalore

Director SMU-DDE, Bangalore

Dr. N.V.S. Subba Reddy Vice- Chancellor, Mody Institute of Technology and Science, Lakshmangarh, Rajasthan

Prof. A. Srinivas Director – Research and Consultancy and Professor of Computer Science PES Institute of Technology, Bangalore

Dr. Ramprasad Vardhachar Director, Computer Studies Dayanand Sagar Institutions, Bangalore

Dr. Rajasekar Image Quality Leader Wipro - GE (India), Bangalore

Mr. Chitta Prasad Senior Consultant, Technology Excellence Group for Insurance and healthcare TCS, Bangalore

Dr. Ashok Kumar T. K. General Manager IBM (India), Bangalore

Edition: Fall 2012

Print: January 2013

This book is a distance education module comprising a collection of learning material for our students. All rights reserved. No part of this work may be reproduced in any form by any means without permission in writing from Sikkim Manipal University, Gangtok, Sikkim. Printed and published on behalf of Sikkim Manipal University, Gangtok, Sikkim by Mr. Rajkumar Mascreen, GM, Manipal Universal Learning Pvt. Ltd., Manipal – 576 104. Printed at Manipal Technologies Limited, Manipal.

Author’s Profile

Mr. Johny Talreja, working as Assistant Manager, SBI Life Insurance, Mumbai.

Umesh Maiya, working as Assistant Professor, Department of Commerce &

Management, SMUDDE, Manipal.

Reviewer’s Profile

Bharatish Ballal, worked as Accounts executive at Mysore Kirloskar Ltd., Currently

working as Associate faculty at Manipal Institute of Management and a Chartered

Accountant at Bharatheesha & Associates.

In House Technical Team

Umesh Maiya, working as Assistant Professor, Department of Commerce &

Management, SMUDDE, Manipal.

Contents

Unit 1

Financial Accounting – An Introduction 1

Unit 2

Primary Books 14

Unit 3

Secondary Books 30

Unit 4

Trial Balance and Final Accounts 49

Unit 5

An Introduction to Financial Management 68

Unit 6

Financial Planning 76

Unit 7

Working Capital Management – I 85

Unit 8

Working Capital Management – II 111

Unit 9

Financial Statement Analysis 126

Unit 10

Funds Flow Analysis 166

Unit 11

Cash Flow Analysis 179

Unit 12

Understanding Cost 202

Unit 13

Marginal Costing & Break-even Analysis 231

Unit 14

Budgetary Control 254

BCA 4040/IMC 4040

Principles of Financial Accounting

and Management

This SLM is designed to cover the concepts of Principles of Financial

Accounting and Management.

Accounting is basically meant for preserving valuable information for future

reference and use. Financial accounting is primarily concerned with

reporting information about the financial position and financial results of the

business to the persons outside the business. The prime responsibility of a

Finance Manager of a firm is to make sure that the actions of the firm

ultimately lead to wealth maximization of shareholders. He is under

obligation to put the assets of the company to the best possible use in order

to enhance the company’s worth as well as the profitability of the

shareholders over time. The Finance Manager is the pivot around whom all

the factors which have a bearing on the financial aspect rotate. Hence his

role in production cannot be undermined. This courseware encompasses

within its fold different aspects of financial management and the role of

Finance Manager in wealth maximization. Financial Management involves a

system of collection and presentation of relevant economic information

relating to an enterprise for planning, controlling and decision-making.

This SLM has been split into 14 units to cover the Principles of Financial

Accounting and Management and the overview of which are given below:

Unit 1: Financial Accounting – An Introduction

This unit deals with the meaning and concepts of accounting.

Unit 2: Primary Books

This unit deals with the Primary books and Introduces different types of

journals.

Unit 3: Secondary Books

This unit discusses the Secondary books and explains different types of

secondary books and posting techniques.

SUBJECT INTRODUCTION

Unit 4: Trial Balance and Final Accounts

This unit deals with Trial Balance and Final Account: Tells about errors and

their rectification in the Final account statement.

Unit 5: An Introduction to Financial Management

This unit explores the meaning and the objectives of Financial Management.

Unit 6: Financial Planning

This unit describes the steps involved in Financial Planning and explains the

factors affecting Financial Plan. It also discusses the causes and effects of

both of over-capitalization and under-capitalization.

Unit 7: Working Capital Management I

This unit explains the meaning, definition and concepts of working capital.

Unit 8: Working Capital Management II

This unit discuses on working capital and brings out the importance of

working capital management while throwing light on the techniques of

inventory control.

Unit 9: Financial Statement Analysis

This unit introduces Ratio Analysis and discusses the advantages and

limitations of ratio analysis.

Unit 10: Funds Flow Analysis

This unit throws light on Funds Flow Analysis and sources and applications

of funds.

Unit 11: Cash Flow Analysis

This unit explores the cash flow analysis. Discuss on cash flow statement

difference between cash flow and fund flow statement.

Unit 12: Understanding Cost

This unit deals with understanding of cost.

Unit 13: Marginal Costing & Break-even Analysis

Deals with basic concepts of marginal costing, profit and contribution and

the P/V ratio

Unit 14: Budgetary Control

This unit deals with meaning, essential and objectives of the budgetary

control. Also explores the types of budget and the merits and demerits of

budgetary control.