Accounting for Managers

Accounting for
managers
Presented by:
Rajesh.R

First semester MBA degree
examination –Jan 2012

1.

What is GAAP?

2. What do you mean by trial
balance?
3. Explain the significances of ratio
analysis.
4. What are the advantages &
limitations of cash flow statement?

What is GAAP?
Accounting practices follow certain guidelines
the rule that governs how an accountant
measure progress and communicate financial
information fall under the principle “Generally
Accepted Accounting Principles”(GAAP).
GAAP comprises of conventions rules and
procedures at any given time they are like the
law or rules for conducting behavior in a way
acceptable to majority of people. GAAP differ
from country to country because of the
legislative requirements of the country.

What is Trail Balance?
It is a statement containing the various ledger
balances on a particular date. Trial Balance
helps in knowing the arithmetical average of
accounting entries. This is because according
to the dual aspect concept for every debit
there must be an equivalent credit.

Trial Balance represents a summary of all
ledger balances and therefore if the 2 sides of
trial balance tally, it is an indication of the fact
that the books of account are arithmetically
accurate. Trial Balance can be prepared under
3 methods.
• Total Method
• Balance Method
• Total & Balance Method

Significance of Ratio Analysis?
This is the important tool available to financial
analysts for their works. In Accounting Ratio
Shows the relationship in mathematical terms
between two inter related accounting figures.
The figures have to be inter related, because
no useful purpose will be served if ratios are
calculated between two figures. Accounting
ratios
relationships
expressed
in
mathematical.

Advantages and Limitations of cash
flow?
A cash flow statement is a statement
depicting
change
in
cash
and
cash
equivalents position from one period to
another. The term cash here stands for cash
and demand deposits with banks. cash
equivalents are short-term, highly liquid
investments that are readily convertible into
known amount of cash and which are subject
to an insignificant risk of changes in value.

Adavantages of Cash flow…..
A cash flow statement is useful for short-term
planning. A business enterprise needs
sufficient cash to meet its various obligations
in the near future such as payment for
purchase of fixed assets, payment of debts
maturing in the near future, expense of the
business, etc. A cash flow analysis is an
important financial tool for the management.
Its chief advantage are as follos:

Advantages….

• Helps in efficient cash management:-Cash
flow analysis helps in evaluating financial
policies and cash position . Cash is the
basis for all operations and hence a
projected cash flow statement will enable
the management can know how much
cash is needed from which sources it will
be derived .
• Helps in internal financial management:Cash flow analysis provides information
about funds which will be available from
operation. This will help the management
in determining policies regarding internal
financial management.
• Disclose the movement of cash:-Cash flow
statement discloses the complete story of
cash movement. The increase in or
decrease of cash and the reason therefore
can be know. It discloses the reasons for
low cash balance in spite of heavy
operating profits or for heavy cash
balance in spite of low profits.
• Discloses success or failure of cash
planning:-The extent of success or failure
of cash planning can be known by

comparing the projected cash flow
statement with the actual cash flow
statement
and
necessary
remedial
measures can be taken.

Limitations
statement?

of

Cash

Flow

Cash flow statement analysis is a useful tool
of financial analysis. However, it has its own
limitations. These limitations are as under:
• Cash flow statement cannot be equated
with the income statement. An income
statement takes into account both cash as
well as non-cash items and , therefore, net
cash does not necessarily mean net
income of the business
• The cash balance as disclosed by the cash
flow statement may not represent the real
liquid position of the business since it can
be easily influenced by postponing
purchase and other payment

• Cash flow statement cannot replace the
income statement or the funds flow
statement. Each of them has a separate
function to perform.