Distinguish Between Management Accounting And Financial Accounting Accounting Essay

When sum is paid to Anand, his history should hold been debited. On the other manus, his history was credited for a incorrect sum of Rs.34.37. Hence there has been extra recognition to the extent of Rs.78.74 ( 44.37 + 34.37 ) . To rectify this dual mistake we need to debit Anand ‘s history to the extent of Rs.78.74 and recognition suspense history.

2. Purchases account was over debited by Rs.9 ( Rs.154.50 – Rs.145.50 ) . To rectify this mistake we need to recognition purchase history to the extent of Rs.9 and debit suspense history.

3. Repairs spent on edifice are, by error debited to constructing history. This is mistake of rule. Repairs history is debited and edifices account is credited to rectify the mistake.

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4. Discount received from B has non been taken to records. This is an mistake of skip. Therefore, it is now brought to histories. This has non affected the test balance.

5. When old furniture is sold, the furniture history should hold been credited. On the other manus, gross revenues account was credited against to the rule of accounting. To rectify the mistake, gross revenues account is debited and old furniture history is credited.

Q2. Distinguish between direction accounting and fiscal accounting.

Answer: Fiscal accounting is the readying and communicating of fiscal information to foreigners such as creditors, bankers, authorities, clients and so on. Another aim of fiscal accounting is to give complete image of the endeavor to stockholders. Management accounting on the other manus purposes at fixing and describing the fiscal information to the direction on regular footing. Management is entrusted with the duty of taking appropriate determinations, planning, public presentation rating, control, direction of costs, cost finding etc. , For both fiscal accounting and direction accounting the fiscal information is the same and the studies prepared in fiscal accounting are besides used in direction accounting But the followers are major differences between Financial accounting and Management accounting.

Fiscal accounting

Management accounting

The primary users of fiscal accounting information are stockholders, creditors,

authorities governments, employees etc. ,

Top, in-between and lower degree directors use the information for planning and determination devising

Accounting information is ever expressed in footings of money

Management accounting may follow any measurement unit like labour hours, machine hours or merchandise units for the intent of analysis

Financial information is presented for a definite period, say one twelvemonth or a one-fourth

Reports are prepared on uninterrupted footing, monthly or hebdomadal or even day-to-day

Fiscal accounting focal points on historical informations

Management accounting is oriented towards hereafter

Fiscal accounting is a subject by itself and has its ain rules, policies and conventions

Management accounting makes usage of other subjects like economic sciences, direction, information system, operation research etc. ,

Q3. Draw the Balance Sheet for the undermentioned information provided by Sarawath Ltd..

a. Current Ratio: 2.50

B. Liquidity Ratio: 1.50

c. Net Working Capital: Rs.300000

d. Stock Turnover Ratio: 6 times

e. Ratio of Gross Net income to Gross saless: 20 %

f. Fixed Asset Turnover Ratio: 2 times

g. Average Debt aggregation period: 2 months

h. Fixed Assets to Net Worth: 0.80

I. Reserve and Surplus to Capital: 0.50

Hint: B/S total 1100000

Answer:

Balance Sheet aˆ¦aˆ¦

Liabilitiess

Rs.

Assetss

Rs.

Capital

500000

Fixed Assetss

600000

Militias & A ; Surplus

250000

Inventories

200000

Long-run Debt

150000

Debtors

250000

Current Liabilitiess

200000

Bank

50000

Entire

1100000

Entire

1100000

Working Notes

If Current Liabilities = 1

Current Assets = 2.5

Working Capital ( 2.5 -1 ) = 1.5 = 300000

Therefore Current Assets ( 2.5/1.5 ) x 300000 = 500000

Current Liabilities ( 1/1.5 ) x 300000 = 200000

Liquidity Ratio = 1.5

Current Liabilities = 200000

Therefore Liquid Asset ( 200000 x 1.5 ) = 300000

Inventories ( Current plus – Liquid plus ) = 200000

Stock Turnover Ratio = 6 times

Cost of gross revenues ( 6 x 200000 ) = 1200000

Gross Profit Ratio = 20 %

Gross Net income

If Gross saless is 100 ; Gross Profit is 20

Hence cost of gross revenues is ( 100-20 ) = 80

Therefore Gross Net income is ( 20/80 ) x 1200000 = 300000

Gross saless ( Cost of Gross saless + Gross Profit ) = 1500000

Fixed Asset Turnover ratio = 2 times

( cost of sales/Fixed assets )

Therefore Fixed Assets ( 1200000/2 ) = 600000

Debtors Collection Period = 2 months

( Calendar months in a twelvemonth /Debtors turnover )

Debtors Turnover Ratio ( 12/2 ) = 6 times

( Sales/ Debtors )

Debtors ( 1500000/6 ) = 250000

Fixed Assets to Shareholders ‘ Net worth = 0.80

Share holders ‘ Internet worth ( 600000 /0.80 ) = 750000

Militias & A ; Surplus to Capital = 0.50

If capital is 1: militias & A ; Surplus is 0.5

Militias & A ; Surplus + Capital = Shareholder ‘s Internet

worth ( 0.5 +1 =1.5 )

Militias & A ; Surplus ( 7500000 x ( 0.5/1.5 ) = 250000

Therefore portion Capital = 500000

Q4. Following is the balance sheet for the period stoping 31st March 2006 and 2007. If the current twelvemonth ‘s net loss is Rs.38,000, calculate the hard currency flow from operating activities.

Particulars

31st March

2006

2007

Short-run loan to employees

15000

18000

Creditors

30000

8000

Provision for dubious debts

1200

0

Bills collectible

18000

20000

Stock in trade

15000

13000

Bills receivable

10000

22000

Prepaid disbursals

800

600

Outstanding disbursals

300

500

Hint: Net hard currency lost in operating activities ( 69800 )

Answer: Statement demoing Cash flows from Operating Activities

Net Loss ( 38,000 )

Attention deficit disorder: Decrease in Current Assetss

Decrease in Stock 2,000

Decrease in Prepaid disbursals 200

Increase in current liabilities

Increase in Outstanding disbursals 200

Addition in Bills collectible 2,000 + 4,400

( 33,600 )

Less: Addition in current assets

Addition in Short term loan to the employees 3,000

Addition in Bills receivable 10,000

Decrease in Creditors 22,000

Decrease in Provision for dubious debts 1,200 ( 36,200 )

Net hard currency lost in operating activities ( 69,800 )

Q5. The undermentioned informations are related to the industry of a standard merchandise during the month of July 2009.

Natural stuffs consumed

Rs.15,000

Direct rewards

Rs. 9,000

Machine hours worked

900 hours

Machine hours rate

Rs.5

Administrative operating expenses

20 % of plants cost

Selling operating expenses

Re.0.50 per unit

Unit of measurements produced

17,100

Unit of measurements Sold

16,000 @ Rs.4 per unit

Fix a cost sheet from the above to demo:

a. The cost per unit

B. The net income per unit sold and net income for the period

Hint: Net income = 24000

Answer: Unit of measurements produced 17,100

Particulars

Sum

Cost/unit

Natural stuffs consumed

15,000

0.88

Direct Wagess

9,000

0.53

Direct Expense ( 900 x 5 )

4,500

0.26

Prime cost

28,500

1.67

Attention deficit disorder: Factory operating expenses

Nothing

Factory /WORKS COST

28,500

1.67

Attention deficit disorder: Admn. operating expenses ( 20 % of plants

cost )

5,700

0.33

Cost OF PRODUCTION

34,200

2.00

Attention deficit disorders: Selling operating expenses ( 0.50 per unit )

16000 ten 0.50 = 8,000

8,000

0.50

Attention deficit disorder: op. stock of F. goods

Nothing

Less: Chlorine. Stock of F. Goods ( 1100 units )

1100 x 2.00 = 2200

( 2,200 )

Cost of Gross saless ( sold 16,000 units )

40,000

2.50

Net income 1.50 ten 16,000 = 24,000

24,000

1.50

Gross saless 16,000 ten 4.00 = 64,000

64,000

4.00

Q6. Write the differences between soaking up costing and direction costing.

Answer:

Absorption Costing

Fringy Costing

It is known as full costing. Both fixed and variable are included to determine the cost

Merely variable costs are included. Fixed costs are recovered from part.

Different unit costs are obtained at different degrees of end product because of fixed disbursals staying the same

Fringy cost per unit remain same at different degrees of end product because variable disbursals vary in the same proportion in which end product varies

Difference between gross revenues and entire cost ( fringy cost and fixed cost ) is net income

Difference between gross revenues and fringy cost is part and difference between part and fixed cost is net income or loss

A part of fixed cost is carried frontward to the following period because shuting stock of work-in-progress and finished goods is valued at cost of

production which is inclusive of fixed cost

Stock of work-in-progress and finished goods are valued at fringy cost. Fixed cost of a peculiar period is charged to that really period and is non carried over to the following period.

The allotment of fixed disbursals on an arbitrary footing gives rise to over or under soaking up of operating expenses

Merely variable cost are charged to merchandises therefore fringy costing does non take to over or under soaking up of fixed operating expenses.

It affects managerial determinations in the countries such as whether to accept the export order or non, whether to purchase or fabricate etc

It is really helpful in taking managerial determinations because it takes into consideration the extra cost involved merely presuming fixed disbursals staying changeless.

Costss are classified harmonizing to functional footing such as production cost, office and administrative cost and merchandising and distribution costs

Costss are classified harmonizing to the behaviour of costs – fixed costs and variable costs.

It fails to set up relationship of cost, volume and net income

CVP relationship is an built-in portion of fringy costing.