A TEXTBOOK OF. FINANCIAL COST. AND. MANAGEMENT. ACCOUNTING. Dr.
P. PERIASAMY,. M.B.A., Ph.D.,. Reader,. Department of Business Management, ...
ATEXTBOOK OF FINANCIAL COST AND MANAGEMENT ACCOUNTING Dr. P. PERIASAMY, M.B.A., Ph.D., Reader, Department of Business Management, ' Erode Arts College, Erode - 638 009.
Kat GJIimalaya CJlublishingGJIouse MUMBAI • DELHI • NAGPUR • BANGALORE • HYDERABAD
© AUTHOR
No part of this pUblication should be reproduced, ·stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical. photocopying, recording' and/or otherWise without the prior written permission of the author and the publisher. '
ISBN
: 978-93-5024-501-9
Revised Edition: 2010
Published by
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Nagpur
Bangalore
Hyderabad
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CONTENTS (1)
ACCOUNTING PRINCIPLES AND CONCEPTS
I 1-6
Meaning and Scope of Accounting - Definition of Accounting - Steps of Accounting - Functions of Accounting - Objectives of Accounting - Book keeping - Limitations of Accounting; Branches of Accounting; Accounting Principles - Accounting Concepts - Entity Concept - Dual Aspect Concept - Accounting Period Concept - Going Concern Concept - Cost Concept - Money Measurement Concept - Matching Concept - Realization Concept - Accrual Concept - Rupee Value Concept; Accounting Conventions - Conventions of Disclosure - Convention of Conservatism - Convention of Consistency - Convention of Materiality - Questions. (2)
DOUBLE ENTRY SYSTEM OF ACCOUNTING
7 - 12
Meaning - System of Accounting - Cash System - Mercantile System - Mixed System - Single Entry System - Double Entry System - Advantages - Factors Common to Every Business; Types of Accounts - Personal Accounts - Real Accounts - Nominal Accounts; Accounting Rules - Debit Aspect - Credit Aspect - Problems and Solutions and Exercises - Questions. (3)
ACCOUNTING BOOKS AND RECORDS
13 - 89
Introduction - Meaning of Books and Records - Journal - Meaning - Specimen ruling of Journal Preparation of Journal - Types of Journal - General Journal - Special Journals - Sales Book Purchase Book - Sales Returns Book - Purchase Returns Book - Preparation Subsidiary Journals Bills Receivable Book - Bills Payable Book - Cash Book - Types of Cash Book - Preparation of Cash Book - Petty Cash Book - Preparation of Petty Cash Book - Purpose of Subsidiary Books Illustrations - Solutions - Questions and Practical Problems; Ledger - Meaning - Specimen Ruling of Ledger - Posting of Journal to Ledger - Balancing of Ledger - Difference between Journal and Ledger - Preparation of Ledger - Illustrations - Solutions - Questions and Exercises; Trial Balance - Meaning - Objectives - Errors not disclosed by Trial Balance - Classification of Errors - Errors of Omission - Errors of Commission - Errors of Principles Compensating Errors - Errors Disclosed by Trial Balance - Locating Errors - Suspense Account - Method of Preparation of Trial Balance Specimen - Problems - Solutions - Questions and Exercises. (4)
FINAL ACCOUNTS
90 - 121
Meaning - Manufacturing Account - Components of Manufacturing Account - Illustration and Solution; Trading, Profit and Loss Account - Meaning - Purpose - Specimen Format - Elements of Trading Account - Equations of Trading Account - Profit and Loss Account - Specimen Format Preparation of Final Accounts - Operating Expensel'- - Non-operating Expenses - Operating Incomes . - Non-operating Incomes; Balance Sheet - Meaning.~- t•.>urpose - Specimen form of Balance Sheet Assets 'and Liabilities - Classification of Asset~ hl'i :Uabilities - Adjustment Entries - Difference between Profit and Loss Account and Balance S};et:t - Preparation of Profit & Loss and Balance Sheet - Illustrations - Solutions - Questions - Exf:ldses.
(5)
DEPRECIATION
122 - 148
Introduction - Meaning and Definition of Depreciation, Depletion and Amortization - Purpose Factors affecting Depreciation - Methods of charging Depreciation - Straight Line Method - Written Down Value Method - Annuity Method - Sinking Fund Method - Revaluation Method. Insurance Policy Method - Depletion Method - Sum of Digits Method - Machine Hour Rate Method Calculation of Machine Hour Rate - Illustrations - Solutions - Questions - Exercises.
(6)
FINANCIAL STATEMENTS ANALYSIS AND INTERPRETATION
149 - 172
Introduction - Meaning of Income Statements, Balance Sheet and Statement of Retained EarningsNature of Financial Statements - Objectives of Financial Statements - Limitations of Financial Statements; Analysis and Interpretation - Meaning - Types of Analysis and Interpretations - Internal Analysis - External Analysis - Horizontal Analysis - Vertical Analysis - Rearrangement of Income Statements - Income Statement Equations - Rearrangement of Balance Sheet - Balance Sheet Equations - Methods of Analysis and Interpretations - Comparative Financial Statements - Common Size Statements - Trend Analysis - Ratio Analysis - Fund Flow Analysis - Cash Flow Analysis Illustrations - Solutions - Questions - Exercises.
(7)
FUND FLOW STATEMENT
173 - 209
Introduction - Meaning of Fund, Flow of Fund and No Flow of Fund - Statement of changes in Financial Position - Flow of Funds chart - No Flow of Funds Chart - Examples of Flow of Fund Components of Flow of Funds - Current Assets - Current Liabilities - Non-current Assets Non-current Liabilities - Fund Flow Statement - Meaning - Difference between Fund Flow Statement and Income Statement - Fund Flow Statement Vs Balance Sheet - Preparation of Fund Flow Statement; Fund From Operations - Statement of Changes in Working Capital - Fund Flow Statement - Meaning - Specimen Format - Purposes - Calculation of Fund From Operations - Illustrations Solutions - Rules for Preparation of Working Capital Statement - Specimen Form - Illustrations Sources of Fund and Applications of Fund - Components of Sources of Fund and Applications of Fund - Calculation of Sources and Application of Fund - Illustrations - Solutions - Exercises.
(8)
CASH FLOW STATEMENT
210 - 232
Meaning - Purpose of Cash Flow Statement - Difference between Cash Flow Statement and Fund Flow Statement - Limitations - Preparation of Cash Flow Statement - Flow of Cash Under Non-Current Items - Flow of Cash due to Operations - Non-cash Items - Specimen Format Calculation of Cash Received from Operations - Illustrations - Solutions - Questions - Exercises.
(9)
RATIO ANALYSIS
233 - 297
Meaning and Definition of Analysis and Interpretations of Ratios; Principles of Ratio Selection Advantages - Limitations of Ratio Analysis; Classification of Ratios - Liquidity Ratio; Current Ratio - Quick Ratio - Absolute Liquid Ratio; Profitability Ratio; Gross Profit Ratio - Operating Ratio Operating Profit Ratio - Net Profit Ratio - Return on Investment Ratio - Return on Capital Employed Ratio - Earning per Share Ratio - Dividend Yield Ratio - Price Earning Ratio - Net Profit to Net Worth Ratio; Turnover Ratio; Stock Turnover Ratio - Debtors Turnover Ratio - Debt Collection Period Ratio - Creditor's Turnover Ratio - Average Payment Period - Working Capital Turnover Ratio - Fixed Assets Turnover Ratio - Capital Turnover Ratio; Solvency Ratios; Debt Equity Ratio - Proprietary Ratio - Capital Gearing Ratio - Debt Service Ratio; Overall Profitability Ratio; Illustrations - Solutions - Questions - Practical Problems.
(10) COST ACCOUNTING
298 - 304
Introduction - Definitions of Important Concepts - Cost - Cost Accounting - Cost Control - Cost Reduction - Cost Allocation - Cost Absorption - Cost Audit - Cost Unit - Cost Centre -
Objectives of Cost Accounting - Difference between Financial Account and Cost Accounting Management Accounting - Meaning - Cost Accounting Vs Management Accounting - Advantages of Cost Accounting - Limitations of Cost Accounting - Installation of Cost Accounting System Practical Difficulties in Installation of Costing System - Steps to Overcome - Questions. (11) COST METHODS, TECHNIQUES OF COST ACCOUNTING AND CLASSIFICATION OF COST
305 - 309
Introduction - Methods of Cost':" Job Costing - Contract Costing - Cost Plus Contract - Batch Costing - Process Costing: Operation Costing - Output Costing - Multiple Costing - Technique of Costing - Uniform Costing - Marginal Costing - Standard Costing - Historical Costing - Absorption Costing; Classification of Cost; On the basis of Nature - Functions - Variability - Normality Controllability - Material- - Labour - Expenses - Production Cost - Administrative Cost - Selling Cost - Distribution Cost - Normal Cost - Abnormal Cost - Fixed Cost - Variable Cost Controllable Cost - Uncontrollable Cost - Sunk Cost - Opportunity Cost - Replacement Cost Conversion Cost - Questions. (12) COST SHEET ANALYSIS (OR) STATEMENT OF COST
310 - 325
Introduction - Meaning - Elements of Cost - Direct Cost - Indirect Cost - Overheads - Prime Cost - Works Cost - Cost of Production - Cost of Sales - Importance of Cost Sheet - Specimen Format of Cost Sheet - Preparation of Cost Sheet - Illustrations - Solutions - Questions - Practical Problems. (13) MATERIAL COST CONTROL
326 - 331
Meaning of Materials - Direct Materials - Indirect Materials - Material Control - Functions of Materials Control - Objectives of Stores Control - Essentials - Advantages; Materials Purchase Control - Organization of Purchasing - Centralized Organization - Advantages - Disadvantages Decentralized Purchasing - Purchase Manager - Qualities - Duties of Purchase Manager - Functions of Purchase Department - Purchase Procedure - Bills of Materials - Purchase Requisition - Selection of Suppliers - Purchase Orders - Goods Received Note - Inspection of Materials - Questions. (14) MATERIALS -
INVENTORY CONTROL
332 - 351
Introduction - Store and Store keeping - Purpose of Store keeping - Functions of the Store keeper Stores Layout - Types of Stores - Centralized Stores - Decentralized Stores - Combination of Both; Fixation of Stock levels - Minimum Stock Level - Maximum Stock Level - Danger Level - Reorder Level - Calculations - Economic Order Quantity - Calculation EOQ - Illustrations - Solutions ABC Analysis - Alphabetical Method - Numerical Alphabetical Method; Inventory System Periodic Inventory System - Perpetual Inventory System - Continuous Stock Taking - Advantages of Each System - Bin Card - Stores Ledger - Bin Card Vs Stores Ledger - Continuous Stock Taking Vs Periodic Stock Taking - Material Stores Losses - Normal Loss - Abnormal Loss - Inventory Turnover Ratios - Illustrations - Solutions - Questions - Exercises. (15) VALUATION OF MATERIALS ISSUES
352 - 367
Introduction - Valuation of Total Cost of Material Purchased - Trade Discount - Quantity Discount - Cash Discount - Materials Issue Procedure - Material Requisition - Bill of Materials; Methods of Materials Pricing Issues - First In First Out (FIFO) - Last In First Out (LIFO) - Specific Price Method - Base Stock Method - Highest In First Method (HIFO) - Periodic Simple Average Method - Periodic Weighted Average Method - Standard Price Method - Inflated Price Method Market Price or Replacement Price Method - Illustrations - Solutions - Questions - Practical Problems.
(16) LABOUR COST CONTROL
368 - 381
Meaning - Types of Labour Cost - Direct Labour Cost - Indirect Labour Cost - Control of Labour Cost - Technique - Organization for Control of Labour Cost - Personnel Department - Engineering and Works Study Department - Method Study - Motion Study - Time Study - Job Analysis - Job Evaluation - Merit Rating - Job Evaluation Vs Merit Rating; Time Keeping Department - Time Keeping - Objectives - Methods of Time Keeping - Manual Method - Disc Method - Mechanical Method - Time Keeping Clocks - Dial Time Records - Key Record System; Time Booking Objectives - Methods of Time Booking - Daily Time Sheet - Weekly Time Sheet - Job Cards Combined Time and Job Card; Piece Work Card - Idle Time - Types - Normal Idle Time and Abnormal Idle Time - Accounting Treatment of Idle Time; Overtime - Meaning - Effect of Overtime - Accounting Treatment of Over Time - Control of Overtime - Casual Workers - System of Control - Out Workers; Pay Roll Department - Labour Turnover - Methods of Labour Tum over - Separation Method - Replacement Method - Flux Method - Illustrations - Solutions - Questions Practical Problems.
(17) LABOUR COST ACCOUNTING
382 - 401
Introduction - Meaning - Objectives of an Ideal Wage System - Principles - Methods of Remuneration - Time Rate System - At Ordinary Levels - At High Wage Levels - Guaranteed Time Rates - Piece Rate System - Straight Piece Rate - Piece Rate With Guaranteed Time Rate; Differential Piece Rates - Taylor Differential Piece Rate System - Merrick Differential Piece Rate System - Gantt Task and Bonus Plan - Bonus System or Incentive System; Individual Bonus Plan Halsey Premium Plan - Halsey - Wire Premium Plan - Rowan Plan - Barth Variable Sharing Plan Emerson Efficiency Plan - Bedaux Point Premium System - Accelerating Premium Plan; Group Incentive Plan - Indirect Monetary Incentives - Non-Monetary Incentives - Illustrations - Solutions - Questions - Practical Problems.
(18) OVERHEADS
402 - 424
Meaning and Definitions of Overheads - Importance of Overheads - Classification of Overheads Indirect Materials Cost - Indirect Labour Cost - Indirect Expenses - Production Overhead Administration Overhead - Selling Overhead - Distribution Overhead - Fixed Overhead - Variable Overhead - Useful of Overhead Classification; Codification of Overhead - Advantages of Codification - Procedure or Steps in Overhead - Collection of Overhead - Overhead Expenses - Sources and Documents Used - Overhead Analysis - Allocation and Absorption - Apportionment of Overhead Basis of Apportionment - Illustrations - Solutions - Reapportionment or Redistribution of Overhead - Method of Re-apportionment - Direct Re-distribution Method - Step Distribution Method Reciprocal Service Method - Step Repeated Distribution Method - Simultaneous Equitation Method - Trial and Error Method - Illustrations of Each Methods - Solutions - Questions - Practical Problems.
(19) ABSORPTION OF
OVE~HEAD
425 - 446
Meaning - Overhead Rate - Actual Overhead Rate - Pre-Determined Overhead Rate - Blanket Overhead Rate - MUltjple Overhead Rate - Normal Overhead Rate - Supplementary Overhead Rate; Methods of Absorption of Overhead - Direct Material Cost Method - Direct Labour Cost Method Direct Labour Hours Method - Prime Cost Method - Unit Output Method - Machine Hour Rate; Calculation of Machine Hour Rate - Fixed or Standing Charges - Variable Machine Expenses Basis for Apportionment of Machine Expenses - Advantages - Disadvantages - Illustrations Solutions -- Questions - Practical Problems.
(20) JOB, BATCH AND PROCESS COSTING
447 - 470
Introduction - Meaning - Features of Job Order Costing - Objectives of Job Order Costing - Prerequisite for Job Order Costing - Advantages and Disadvantages of Job Order Costing Procedure for Job Order Cost System; Batch Costing - Meaning - Features - Determeniation Diffemece between Job Costing and Batch Costing - Advantages and Disadvantages - Problems and Solutions; Process Costing - Meaning - Application of Process Costing - Job Costing Vs Process Costing - Calculation of Normal Process Loss and Abnormal Process Loss - Procedure for Preparation of Process Costing - Illustrations - Solutions - Questions - Practical Problems. (21) JOINT PRODUCT AND BY-PRODUCT
471 - 490
Introduction - Joint Products - Me
