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Finance Corporate Accountstraining.bsnl.co.in/digital_library_source/upgradation/E2-E3/E2-E3...

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For internal circulation of BSNL only E2-E3 Finance Corporate Accounts
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  • For internal circulation of BSNL only

    E2-E3

    Finance

    Corporate Accounts

  • WELCOME

    • This is a presentation for the E2-E3(Finance)

    • Module for the Topic: Corporate Accounts

    • Eligibility: Those who have got the Upgradation from

    E2to E3

    • This presentation is last updated on 15-3-2011.

    • You can also visit the Digital library of BSNL to see this

    topic.

    For internal circulation of BSNL only

  • Accounting

    • Accounting is the Art and science of

    Recording

    Classifying

    Summarizing

    Interpreting

    For internal circulation of BSNL only

  • Objective of Accounting

    • Is to enable a person to ascertain :

    – The amount he has gained or lost in the

    business

    – The value of assets and liabilities and the

    capital in the business

    – How the profit is made or loss occurred

    – How the business stands in comparison to

    similar business

    For internal circulation of BSNL only

  • Various Stages of Accounting in BSNL

    1. Recording transactions in cash / bank book

    2. Recording transactions in journals

    3. Posting as per schedule of accounts in

    ledgers.

    4. Preparation of Trial Balance

    5. Compilation of schedules and reconciliation

    6. Circle Trial Balance

    7. Closure of Accounts

    8. Preparation of Financial statements

    For internal circulation of BSNL only

  • Double Entry System

    • Duality or Accounting Equivalence concept-

    Owners’ equity+ outside liability = Assets

    • Based on Accrual concept

    • Matching concept- expenses matched with

    revenue, revenue and expenses matched for a

    particular period

    For internal circulation of BSNL only

  • Basic concepts in accounting

    • True and fair view-unbiased presentation of

    accounts

    • Concept of capital and income-depending on

    duration of benefit derived

    • Money measurement concept-concerned with

    facts which are expressible in monetary terms

    For internal circulation of BSNL only

  • Basic concepts in accounting

    • Cost concept-amounts paid or payable

    • Conservatism concept-revenue to be

    recognised when absolute certainty of receipt

    exists whereas cost to be recognised even

    without absolute certainty of payment

    • Consistency concept- accounting treatment

    remains consistent over a period of time

    For internal circulation of BSNL only

  • Basic concepts in accounting

    • Business entity concept- distinct entity from

    the owners and managers

    • Going concern concept- assumed that

    operations will continue

    • Accounting period concept-Financials

    prepared for a particular period maintained from

    year to year.

    For internal circulation of BSNL only

  • Financial Reporting Framework

    Qualitative Characteristics:

    • Understandability

    • Relevance

    • Materiality

    • Reliability

    • Comparability

    For internal circulation of BSNL only

  • Financial Reporting Framework

    Pillars of Reliability :

    • Faithful representation

    • Substance over form

    • Neutrality

    • Prudence

    • Completeness

    For internal circulation of BSNL only

  • Financial Statements

    • Balance Sheet

    • Profit and Loss Account

    • Cash Flow Statement

    For internal circulation of BSNL only

  • Objective of Financial statements

    • Is to provide information about the

    financial position, performance and cash flows

    that is useful to a wide range of users in making

    economic decisions.

    For internal circulation of BSNL only

  • Users and their information needs• Investors: Need information to decide whether

    they should sell, buy or hold and also the ability

    of the company to pay dividends

    • Employees: Stability and profitability of the

    company. Ability to provide remuneration,

    retirement benefits and employment

    opportunities

    • Lenders: Whether their loans and interest

    attaching to them will be repaid when due

    • Suppliers and other creditors :Whether the

    amounts owing to them will be paid when dueFor internal circulation of BSNL only

  • Users and their information needs

    • Customers : Information about the continuance

    of an enterprise

    • Government and their agencies : interested in

    allocation of resources and also to determine the

    taxation policies

    • Public : Substantial contribution to the local

    economy like number of people they employ and

    their patronage of local suppliers.

    • Management: To carry out its planning, decision

    making and control responsibilities.

    For internal circulation of BSNL only

  • Financial statements

    • Information about financial position is primarily

    provided in a Balance Sheet

    • Information about the performance is primarily

    provided in the Profit and Loss Account

    • Information about the cash flows is provided in

    the cash flow statement.

    For internal circulation of BSNL only

  • Financial Position

    • Asset : Is a resource controlled by the enterprise

    as a result of past events from which future

    economic benefits are expected to flow to the

    enterprise

    • Liability : Is a present obligation of the enterprise

    arising from past events, the settlement of which

    is expected to result in outflow from the

    enterprise of resources

    • Equity : Is the residual interest in the assets of

    the enterprise after deducting all the liabilities.

    For internal circulation of BSNL only

  • Balance Sheet• Statutory format prescribed by the companies Act 1956

    and contained in part I of Schedule VI

    • The broad Headings under which the assets and liabilities

    side are classified

    Liabilities Assets

    Share capital Fixed assets

    Reserves and surplus Investments

    Secured & unsecured loans Current assets

    Current liabilities loans and advances

    Provisions Miscellaneous Expr

    Profit and loss account

    • Notes

    – Claims against the company not acknowledged as debts

    – Moneys for which the company is contingently liable

    For internal circulation of BSNL only

  • Profit and loss account

    • No prescribed format

    • What information to be furnished is contained in

    Part II of schedule VI of Companies Act 1956

    • Should clearly set out the various items relating

    to the income and expenditure arranged under

    most convenient and logical heads.

    For internal circulation of BSNL only

  • Profit and loss account (cont)

    • Financial information

    • Managerial remuneration

    • Payments to auditor

    • Foreign exchange transactions

    • Other matters

    For internal circulation of BSNL only

  • Cash Flow

    What is a Cash Flow Statement?

    ‘The Cash Flow statement is a statement showing

    the movement of cash into and out of the business

    and its net impact on the cash balance with the

    business’

    For internal circulation of BSNL only

  • Why Cash Flow Analysis?

    • Cash position is more critical to a business

    than profitability

    • More direct reflection of a company’s

    viability

    For internal circulation of BSNL only

  • Types of Cash Flows

    • Operating activities

    • Investing activities

    • Financing activities

    For internal circulation of BSNL only

  • Limitations of Financial Statements

    • Information furnished is not precise.

    • Balance sheet is a static document

    • Balance sheet is not a valuation statement

    • Profit shown in P&L account is not real profit

    • Human capital is not shown in the financial

    statements

    • Due to difference in the methods of accounting

    followed by different concerns it is difficult to

    compare the statements

    For internal circulation of BSNL only

  • BSNL Accounting policies

    For internal circulation of BSNL only

  • Accounting Policies of BSNL

    • Basis :

    – Financial statements are prepared under the historical cost

    convention adopting accrual method of Accounting

    • Revenue Recognition :

    – Recognized when earned and realizable at the time of billing –

    unbilled revenues are recorded as accrued revenue

    – Installation charges

    – Charges for services and infrastructure provided to DOT

    – Income from SIMS , prepaid calling cards etc.,

    – Interest on loans to employees

    – Sale proceeds of scraps arising from mtcs and project works

    – uncertainty in realization -Liquidated damages, Amounts due

    from local bodies etc.,

    – Claims from USO on a/c of provision of infrastructure.

    For internal circulation of BSNL only

  • Accounting Policies of BSNL

    • Fixed Assets :

    – Carried at cost less depreciation

    – Replacement of assets

    – Capitalization

    • Depreciation :

    – Method

    – Petty Assets

    – Partitions

    – Buildings

    – Intangible assets such as Entry license fee

    – Computer software Application

    For internal circulation of BSNL only

  • Accounting Policies of BSNL

    • Impairment of Assets

    • Inventories

    • Foreign currency transactions

    • Extraordinary items

    For internal circulation of BSNL only

  • Accounting Policies of BSNL

    • Employees benefits

    – Short term employee benefits

    – Long term employee benefits

    • Defined contribution plan:

    – Pension contribution

    – EPF

    – Contribution for leave salary

    • Defined benefit plans

    – Leave encashment

    – Gratuity

    – Other benefits including post employment

    medical care

    For internal circulation of BSNL only

  • Accounting Policies of BSNL

    • Manufacturing Expenses

    • Prior period items

    • Taxes on income

    • Contingent liabilities

    • Earning per share

    • Segment reporting

    For internal circulation of BSNL only

  • For internal circulation of BSNL only


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