FRSA 2024 Module 1.ppt Financial Reporting, Statements and Analysis

Financial Reporting, Statements and Analysis 24MBACC104 Module 1 Introduction to Accounting Syllabus Module 1: Introduction to Accounting: Accounting – Meaning and Definition Functions of Accounting Types of Accounting Need or Use of Accounting Accounti...

Financial Reporting, Statements and Analysis 24MBACC104 Module 1 Introduction to Accounting Syllabus Module 1: Introduction to Accounting: Accounting – Meaning and Definition Functions of Accounting Types of Accounting Need or Use of Accounting Accounting Users – Internal and External. Basic Accounting terms Accounting Concepts and Conventions Introduction to GAAP, IGAAP, Ind AS, IFRS, IFRS Vs. GAAP Accounting Equation Case Study: Accounting in Action for Vikram's General Store Objectives: Students will gain a comprehensive understanding of the fundamental principles and practices of accounting. Students will learn to apply various accounting standards, concepts, and conventions (such as GAAP, Indian GAAP, Ind AS, and IFRS) to real-world business scenarios. Background Scenario: Part 1: Meaning and Functions of Accounting 1 7 Priya explains to Vikram that accounting is “the systematic 2 process of recording, 6 summarizing, and reporting financial transactions to 5 3 provide useful information for 4 decision-making”.  Scenario Type Question - 1 Vikram owns a bustling general store in a suburban area of Rajasthan, catering to a diverse clientele seeking everyday essentials and specialty items. Vikram is planning to expand his store and is trying to understand the role of accounting in managing his business finances effectively. Question: Explain how the accounting function helps Vikram in making informed business decisions about expanding his store.  Types of Accounting Priya introduces Vikram to the different types of accounting that can be utilized for various operational purposes in his store:  Scenario Type Question - 2 Vikram recognizes the need for specialized accounting expertise to handle payroll, inventory management, and financial reporting. His goal is to streamline operations, ensure compliance with local regulations, and make informed strategic decisions to foster continued growth and profitability. Question: Describe the different types of accounting Vikram should use to manage his store's daily operations and why each type is necessary for his business. The Need for Accounting  Scenario Type Question - 3 Priya sits down with Vikram and emphasizes the importance of accounting in his business operations. She explains that without proper accounting, it would be challenging to monitor financial health, plan for the future, or make informed decisions. Accurate financial records are also crucial for building trust with banks and potential investors, ensuring the business's growth and sustainability. Question: Why is accounting crucial for Vikram's business in terms of building trust with banks and potential investors? Internal and External Users Priya continues her discussion with Vikram, explaining that accounting data serves a variety of users both inside and outside the business. She categorizes these users into internal and external groups and details their specific needs and how Vikram’s accounting practices can address them. Internal Users External Users  Scenario Type Question - 4 As Vikram diligently prepares his financial statements for his expanding general store in suburban Rajasthan, he reflects on the importance of understanding who will use this critical information. He seeks clarity on how various stakeholders, both within and outside his business, will utilize these statements to make informed decisions and assess the financial health of his store. Question: Identify internal and external users of Vikram’s accounting data and explain how each user benefits from this information.  Basic Terms of Accounting Priya continues her consultation by introducing Vikram to basic accounting terms that are essential for understanding and managing his store's finances. These terms will help Vikram grasp the fundamentals of accounting and apply them effectively in his business operations.  Terms Profit and Loss Balance Sheet Statement Expenses Owner’s Equity Income Assets & Liabilities Property, Cash, Capital, Profit Loss Reserves, Stock, Debtors Creditors  Scenario Type Question - 5 Vikram is learning about key financial terms to better understand his store's financial health. As he reviews his profit and loss statement and balance sheet, he seeks to grasp fundamental concepts like assets, liabilities, revenues, and expenses. This knowledge will help him identify areas for improvement and make informed financial decisions to enhance the store's profitability and sustainability. Question: Explain what 'assets' and 'liabilities' mean in the context of Vikram’s General Store and provide an example of each. Additionally, describe the terms 'revenue' and 'expenses' and their importance in the store's profit and loss statement.  Accounting Concepts Priya continues her comprehensive guide to accounting by explaining nine fundamental accounting concepts and four accounting conventions that are relevant to Vikram's General Store. Understanding these concepts and conventions will help Vikram maintain accurate financial records and ensure that his financial statements are reliable and meaningful. Accounting Concepts 1 2 3 4 Accounting Concepts 5 6 7 8  Scenario Type Question - 6 Vikram, owner of a general store in suburban Rajasthan, is studying the fundamental accounting concepts to ensure accurate financial reporting. As he plans to expand his business, understanding these concepts will help him maintain reliable financial records, make informed decisions, and secure potential financing. This knowledge is crucial for sustainable growth and managing his store's finances effectively. Question: Describe Vikram's understanding of the accounting concepts and how he will apply each one to ensure accurate financial reporting for his store. Accounting Conventions Scenario Type Question - 7 Vikram wants to ensure that his financial reporting is consistent and transparent. With his store's growing success in suburban Rajasthan, Vikram understands that accurate and reliable financial statements are crucial for maintaining trust with suppliers, customers, and potential investors. He aims to adopt best practices in accounting to enhance the credibility of his financial information. Question: Explain how Vikram will use or apply all four accounting conventions when reporting his store’s financial information. Introduction to GAAP, Indian GAAP, Ind AS, and IFRS Priya proceeds to explain the various accounting frameworks and standards that Vikram should be aware of, particularly those relevant in India. She provides an overview of Generally Accepted Accounting Principles (GAAP), Indian GAAP, Indian Accounting Standards (Ind AS), and International Financial Reporting Standards (IFRS). Additionally, she highlights the differences between IFRS and GAAP, illustrating their relevance to Vikram’s General Store. Introduction to GAAP, Indian GAAP, Ind AS, and IFRS Introduction to GAAP, Indian GAAP, Ind AS, and IFRS  Scenario Type Question - 8 Vikram aims to adopt best practices in financial management, ensuring accuracy, transparency, and compliance. He is exploring Indian GAAP, Ind AS, and IFRS to enhance his store's financial credibility and attract potential investors. Additionally, he seeks to align his practices with local regulations to avoid any legal issues. Question: Explain how adhering to Indian GAAP, Ind AS, and IFRS helps Vikram comply with local accounting regulations and ensures reliable financial reporting for his store, and how he will apply each of these standards. IFRS Vs. GAAP  Scenario Type Question - 9 Vikram is considering expanding his business internationally and is exploring the differences between IFRS and GAAP. To attract global investors and ensure compliance with international standards, Vikram aims to understand how these frameworks affect his financial reporting. His expansion plans include new markets in neighboring countries, requiring precise and transparent financial statements that meet both local and international regulations. Question: Compare IFRS and GAAP and explain how their differences impact Vikram’s financial reporting. Accounting Equation The accounting equation, Assets = Liabilities + Equity, forms the foundation of double- entry accounting. For Vikram's General Store, this equation reflects the fundamental relationship between the resources owned by the business (assets), the obligations owed to creditors (liabilities), and the owner's investment in the business (equity). By maintaining a balance between these elements, Vikram ensures that his financial records accurately reflect the financial position of his store at any given time. Accounting Equation ssets: Cash, Bank, Stock(Inventory), Plant Property and Equipment, Accounts Receivable(Debtors), Office Supplies iabilities: Accounts Payable, Notes Payable(Bank Loan) quity: Owner’s Equity (Investment), Drawings, Revenues, Expenses  Accounting Equation * PPE – Plant, Property and Equipment A/c Payable – Creditors – Due to Goods Purchased for Credit from the Supplier Receivables – Debtors – Due for goods sold on Credit. Notes Payable – Loan - Amount borrowed or due to any person or bank or financial institution. T H A N Y O K U