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
As
you
mo
ve
up
..
Management
& Finance
Expertise
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
useful
for
personal investment and tax
planning as well
Managerial Accounting - Dr. Varadraj Bapat
Accounting
 It
is not necessary to become
accountant
 But its very useful if every one
understands the accounting
and financial concepts and
terminology properly
Managerial Accounting - Dr. Varadraj Bapat
Need to Learn Accounting
 It
assists in management
 Will
help
in
planning,
organisation and control of
business
 Leads to increase in efficiency of
business
 Profit maximization
Managerial Accounting - Dr. Varadraj Bapat
Streams of Accounting
 Financial
Accounting,
Cost
Accounting and Management
Accounting
 Let
us
understand
the
similarities and difference in
these
three
streams
of
accounting
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 and
Cost Accounting
Managerial Accounting - Dr. Varadraj Bapat
Meaning of Management
Accounting
 Any
form of accounting which
enables a business to be
conducted more efficiently can
be regarded as Management
Accounting.
(Institute
of
Chartered Accountants of IndiaICAI)
 Management Accounting is the
Managerial Accounting - Dr. Varadraj Bapat
application
of
professional
knowledge
and
skill
in
the
preparation
of
accounting
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
Market
Association, London- ICMA)
Managerial Accounting - Dr. Varadraj Bapat
Financial Management
 Financial
Accounting, Managerial
Accounting
and
Financial
Management: Relationship
 Financial Management deals with
raising and utilization of funds
 Raising of funds
may include
Cost of Capital, Capital Structure
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,
Portfolio
Management, Working Capital
Management and so on
Managerial Accounting - Dr. Varadraj Bapat
Managerial V/s Financial
Accounting
Accounting System
(accumulates all
accounting data)
Managerial Accounting
Financial Accounting
Information for decision
Published financial
making, and control
statements and other
of an organization’s
financial reports.
operations.
Internal
Users
Managerial Accounting - Dr. Varadraj Bapat
External
Users
Complexity of Organisation
 Finance
and complexity of
organisation
 As the organizations grow, they
become complex
 Ownership and Management are
separated
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
The
Money
Cycle
Value
Addition
Cycle
Infrastructure
Collection
Money
Procurement
Billing
Delivery
Managerial Accounting - Dr. Varadraj Bapat
People
Consumption
Infrastructure
Money
Collection
Costs
Procurement
Billing
Delivery
Consumption
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
Fixed Assets
Money
Borrowings from
Collection
Banks / FIs
Current Assets
or Working
Outstanding
Current
Capital
Liabilities
Human Assets
Costs
Delivery &
Billing
Procurement
& Inventory
Consumption
& WIP
Profit/ Loss
People
Balance Sheet shows the financial position of
organisation, while Profit & loss Account shows
the profitability of organisation.
Managerial Accounting - Dr. Varadraj Bapat
Balance
Sheet
shows
the
cumulative position of resources
(assets) and sources of funds
(liabilities) at the end of the year.
Profit & Loss Account shows
‘Revenue
&
Cost’
performance
during a quarter/ year.
Managerial Accounting - Dr. Varadraj Bapat
Balance Sheet
Liabilities
Assets
Profit & Loss Account
Infrastructure
Capital
Fixed Assets
Reserves
Borrowings
Collection
(eg.from Banks) Current Assets
or
Working
Outstanding
Current
Capital
Liabilities
Human Assets
Revenue
Money
Delivery &
Billing
Procurement
& Inventory
Consumption
& WIP
Profit
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
Costs
Balance Sheet
Liabilities
Profit & Loss Account
Assets
Infrastructure
Capital
Fixed Assets
Reserves
Borrowings
Collection
Current Assets
(eg.from Banks)
or
Working
Outstanding
Capital
Current
Revenue
Money
Procurement
& Inventory
Liabilities
Human Assets
Delivery &
Billing
Consumption
& WIP
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
Costs
Profit
 Balance
sheet may be prepared
at any time showing the position
as on that date.
 Profit and loss account may be
prepared for any particular
period.
Managerial Accounting - Dr. Varadraj Bapat
Balance Sheet
 Owners
Funds
 Non Current
liabilities
 Current
liabilities
Managerial Accounting - Dr. Varadraj Bapat
 Fixed
Assets
 Non Current
Investments
 Other non
current assets
 Current
Assets
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 regarding Employee
Stock options Schemes
List
of
employees
receiving
remuneration exceeding Rs. 60
Lakhs
Conservation of Energy Reports
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