Accounts Mid Sem 2009

1)Management Accounting: Management Accounting is the presentation of accounting information in such a way as to assist Management in the creation of policy and the day to day operation of an undertaking.
             Management Accounting is concerned with accounting information that is      useful to management.

2) Common size Financial Statements: are those statements in which items are converted into percentages taking some common base. It is also called “100% statement”. It includes common size balance sheet and common size profit & loss A/C.

3) Financial Statements: are those statements showing the financial position and results of business operation at the end of the accounting period. This include B/S (position statement) and P&L A/c (Income statement)
        Besides B/S and P&L, it also include Statement of retained earning, Fund flow statements, cash flow statements etc .These are prepared to supplement the two financial  statements.

4) Horizontal Analysis (Dynamic Analysis) when financial statements for a number of years analysed, the analysis is called Horizontal Analysis (Dynamic Analysis) eg: Study of profitability trends for a period of 5 or 10 years.

5) Vertical Analysis (Static Analysis): Refers to the analysis of the mutual relationship between different items in the Financial Statements at a particular date .(comparison of CA &CL)

6) Accounting ratios in different categories.

  I) according to accounting statement:
   (1) B/S or financial ratios-current ratio, fixed assets ratio
   (2)P&L A/C ratio- gross profit ratio
   (3)Combined or mixed ratio-stock turn over ratio

II) According to Nature of functions:

(1)   Liquidity ratios-current, ratios-quick ratios

(2)   Leverage ratios-/ capital structure ratios-Measures Long term solvency-eg: Debt-equity, capital gearing.

III) Activity ratios/Turn over ratios-Stock turn ratio, fixed assets  turn over ratios ,debtors turn over ratios  .

IV) Profitability ratios – measure profitability or operating efficiency of a firm eg :gross profit ratio, operating profit ratio, Net profit ratio

 v) Market Test ratios: used for evaluating shares and stocks which are traded in the market     
  eg. Earning per share (EPS), Price Earning Ratio (P/E ratio)

7) PE ratio (Price earning ratio) gives fair idea about the potential market price of a share – expectations about the future of a coy.
PE ratio = Market price per share
                    Earnings per share
Market price per share = PER X EPS

8) Gross working capital: Total current assets. Net working capital: excess of current assets over current liabilities. (Current assets minus Current liabilities)

9) Duties of Management Accountant: (1) Collection of information (2) Evaluation of information  (3) Interpretation of information (4) Reporting of information

10) Importance for Management
Importance for investors
Importance for creditors and suppliers
Importance for bankers
Importance for Customers
Importance for Employees
Importance for Government and Agencies
Importance for public
Importance for Trade Unions