First Course in Financial Accounting

Description

For Business Managers
by Asish K Bhattacharyya

First Published: 2022
Second Edition: 2023

ISBN: 978-81-960978-0-6

Published by: Nonlinear Insights (OPC) Pvt. Ltd.
Publication Division

CHAPTER-1: Accounting as an Information System

The Nature and Purpose of Accounting
Business purpose
Business activities
Financial capital
Firm structures –
Sole Proprietorship
Partnership
LLP
Private Limited Company
Corporate governance
Four pillars of financial reporting –
GAAP
Accounting conventions
Accounting ethics
Internal controls
Qualitative characteristics of financial statements
Financial statements
Annual report
Management commentary

CHAPTER-2: Balance Sheet and Income Statement- Relevant Concepts

Balance Sheet And Profit And Loss Account Of Banks
Accounting equation
Assets
Liabilities
Income
Expenses
Aggregation and disaggregation
Commonly used groupings –
Assets
Liabilities
Income
Balance sheet presentation –
Division II of schedule III of the Companies Act 2013
GAAP on presentation of assets and liabilities in the balance sheet
Statement of profit and loss format –
Division II of schedule III of the Companies Act 2013
GAAP on presentation Profit and loss

CHAPTER-3: Accounting Cycle: Bookkeeping

Accounting cycle
General ledger
T Account
Books of primary entry
Double entry bookkeeping –
Debit-credit rules
Books of prime entry
Cash book
Purchase day book
Sales day book
Subsidiary ledgers
Trial balance

CHAPTER-4: Accounting Cycle: Preparation of Financial Statements

Accrual Accounting adjustments
Adjustment for depreciation and amortisation
Provision for doubtful debts
Bank reconciliation statement
Preparation and presentation of financial statements of trading firms –
Trading account
Profit and loss account
Balance sheet
The preparation and presentation of Financial statements of manufacturing firms

CHAPTER-5: Cash Flow Statement

Statement of cash flow –
Basic principles
Cash and cash equivalents
Classification of activities
Cash flow from operating activities –
Direct method
Indirect method
Cash flow from investing activities
Cash flow from financial activities
Exchange difference – treatment in cash flow statement
Cash flow ratios –
Cash flow efficiency
Cash flow yield ratio
Cash flows to sales ratio
Cash flows to assets ratio
Free cash flow

CHAPTER-6: Financial Statement Analysis
Vertical analysis
Horizontal analysis
Purpose of financial ratio analysis – cross sectional analysis and trend analysis
Limitations of financial statement analysis
Reorganisation of financial statements
Summary measure of financial performance –
ROIC
Decomposition of ROIC
ROE
Decomposition of ROE
DuPont model
Economic Value Added
Activity ratios
Profitability ratios
Earnings per share (EPS)
Working capital management –
Inventory turnover
Receivables turnover
Working capital cycle
Conversion cycle
Financial health –
Solvency ratios
Liquidity ratios
Cash-based ratios
Evaluating market strength –
P/B ratio
P/E ratio
Altman’s Z score

CHAPTER-7: Evaluating Group Financial Position and Performance

Consolidated financial statements – basic principles 409
Consolidation process 411
Adjustments for special items in the consolidated balance sheet
and statement of profit and loss 413
Financial ratios to evaluate the group performance 421
CHAPTER-8: Property, Plant and Equipment 443 – 506
Definition 443
Recognition principles 449
Measurement at recognition (initial measurement) 454
Measurement after recognition (subsequent measurement) 467
Depreciation –
Accounting principles 473
Depreciation methods 477
Impairment 482
CHAPTER-9: Other Non-financial Assets and Financial Assets 507 – 584
Intangible assets –
Recognition 509
Measurement 510
Impairment 511
Right-to-use assets–
Recognition 517
Measurement 517
presentation 517
Lease contract –
Characteristics of lease contract 520
Recognition and Measurement 524
Sale and lease back transaction 527
Investment property –
Recognition 531
Measurement 531
Inventory valuation –
Accounting principle 533
Net realizable value 534
Cost determination 534
Cost formulas 543
xvi
Financial assets –
Recognition 549
Measurement 553
Impairment 557
CHAPTER-10: Liabilities, Income and Expenses 585 – 645
Liabilities –
Recognition 585
Measurement 586
Measurement of provision 587
Accounting for post-retirement defined benefits obligation 588
Revenue –
Identification of contract 593
Recognition 593
measurement 593
Performance obligation 596
Transaction price 602
Application issues 618
Other income –
Interest income 626
Dividend 626
Government grant 626
Expenses –
Interest expense 629
Depreciation 62
CHAPTER-11: Accounting Ethics 646 – 661
Nature of Ethics 646
Code of Ethics for Professional Accountants 650
Profession Competence and Due Care 652
Threats to Compliance with the Fundamental Principles 655
Ethical Dilemma 657
Protecting the reputation of a Colleague 658
Intimidation 65