CS Executive Corporate and Management Accounting Notes (CMA Short Summary Notes)

CS Executive Corporate and Management Accounting Notes

Introduction to Financial Accounting

Accounting is the art of recording, classifying and summarizing transactions and events

which are of a financial character in terms of money, and interpreting the results thereof.

Three main branches of accounting are financial accounting, cost accounting and

management accounting.

Accounting functions are: keeping systematic records; protecting and controlling business

properties; ascertaining the operational profit/loss; ascertaining the financial position of

the business; and facilitating rational decision-making.

Accounting is the language of business and is used to communicate financial and other

information to different interested parties, like owners, manager, creditors, investors,

researchers and government.

Accounting information should be relevant, reliable, comparable, understandable, timely,

neutral, verifiable and complete.

Accounting can be based on cash or accrual system. In cash system, accounting entries are

passed only when cash is received or paid, while in accrual system transactions are

recorded on the basis of amounts having become due for payment or receipt.

Book-keeping is different from accounting. Book-keeping is concerned with the permanent

recording or maintaining of all transactions in a systematic manner to show their financial

effects on the business.

Accounting is concerned with the summarizing of the recorded transactions.

Accounting principles are guidelines to establish standards for sound accounting practices

and procedures in reporting the financial status of a business. These principles can be

accounting concepts and accounting conventions.

Accounting concepts are defined as basic assumptions on the basis of which financial

statements of a business entity are prepared. While ‘convention’ denotes custom or

tradition or practice based on general agreement between the accounting bodies which

guide the accountant while preparing the financial statements.

Some of the important accounting concepts are: business entity concept, money

measurement concept, cost concept, going concern concept, dual aspect concept,

realization concept, accrual concept, accounting period concept and revenue match

concept.

Accounting conventions are consistency, disclosure, conservatism and materiality.

Accounting Standards (ASs) are written policy documents issued by expert accounting

body or by government or any other regulatory body.

Two classes of accounts are personal accounts and impersonal accounts. Impersonal

accounts can be further classified into real and nominal accounts.

Accounting Equation represents that sum of resources (assets) is equal to the obligations

(capital and liabilities) of the business.

Accounting cycle includes identifying, recording, classifying and summarizing of the

transactions.

Every transaction is recorded in the journal before being posted into the ledger. It is the

book of account in which transactions are recorded in a chronological order.

Recording in the journal is done following the rules of debit and credit.

Posting is the process of recording transactions in the ledger based on the entries in the

journal.

The main function of a ledger is to classify or sort out all the items appearing in the journal

or other subsidiary books under their appropriate accounts so that at the end of the

accounting period summary of each account is easily available.

Balancing of ledger accounts involves equalization of both sides of the account by putting

the difference on the side where the amount is short.

Various subsidiary books are: purchases book; sales book; purchases returns book; sales

returns book; bills receivable book; bills payable book and cash book.

Petty Cash Book may be maintained under Imprest System of petty cash.

General journal or journal proper is maintained for recording those transactions for which

there are no other appointment subsidiary book.

Trial balance is prepared after posting the entries in ledger to verify the arithmetical

accuracy of entries made in the ledger.