SESSION 2023-24 VIII SEMESTER

KOE-083

ENTREPRENEURSHIP DEVELOPMENT

UNIT -3

Dr. Ranjeet Pathak

Assistant Professor
Department Computer science Engineering
 Content
 Accountancy- Preparation of balance sheets
 Assessment of economic viability,
 decision making,
 expected costs,
 Planning, Production control,
 quality control, marketing, industrial relations
 Sales and purchases, advertisement, wages and incentive,
 Inventory control, preparation of financial reports
 Accounts and stores studies
Previous Year Questions -unit 2
 Write elements of Cost? -2 marks
 What do you mean by Accountancy?2 marks
 What are the different functions of Production Planning and Control?10
 What is Project Control? How can profit plan be used as a useful tool for project control?10
 What are different types of accounts? Explain how a balance sheet is prepared?10
 What is accountancy? What is the purpose and requirement of accountancy in a small
business?10
 Describe about the Preparation of balance sheets and assessment of Economic viability.10
 Describe Planning and Production control in Entrepreneurship Development .10
 Accounting
Accounting can be defined as a process of reporting, recording, interpreting and
summarizing economic data.

The introduction of accounting helps the decision-makers of a company to make

effective choices, by providing information on the financial status of the business.

The American Institute of Certified Public Accountants (AICPA) had defined

accounting as the
“art of recording, classifying, and summarizing in a significant manner and in
terms of money, transactions and events which are, in part at least, of financial
character, and interpreting the results thereof”.
 Accounting- Objective

The main objectives of accounting are:

 To maintain a systematic record of business transactions

 To ascertain profit and loss

 To determine the financial position

 To provide information to various users

 To assist the management

 Terms of accounting
Economic Events- It is a consequence of a company has to undergo when the
number of monetary transactions is involved. Such as purchasing new machinery,
transportation, machine installation on-site, etc.
Identification, Measurement, Recording, and Communication- The accounting
system should be outlined in such a way that the right data is identified, measured,
recorded and communicated to the right individual and at the right time.

Organization-In refers to the size of activities and level of a business operation.

Interested Users of Information- It is about communicating important financial

information to the customers, according to which they will make the correct
decision.
 Terms of accounting
Debit (DR) vs. Credit (CR)
Both of the terms debit and credit have Latin roots. The term debit comes from the
word debitum, meaning "what is due," and credit comes from creditum, defined as
"something entrusted to another or a loan."1

When you increase assets, the change in the account is a debit, because something
must be due for that increase (the price of the asset).

Conversely, an increase in liabilities is a credit because it signifies an amount that

someone else has loaned to you and which you used to purchase something (the
cause of the corresponding debit in the assets account).
Accounting-terms
Recording of Transaction: As soon as a transaction happens it is at first recorded
in subsidiary book.
Journal: The transactions are recorded in Journal chronologically.
Ledger: All journals are posted into ledger chronologically and in a classified
manner.
Trial Balance: After taking all the ledger account closing balances, a Trial Balance
is prepared at the end of the period for the preparations of financial statements.
Adjustment Entries: All the adjustments entries are to be recorded properly and
adjusted accordingly before preparing financial statements.
Adjusted Trial Balance: An adjusted Trail Balance may also be prepared.
Closing Entries: All the nominal accounts are to be closed by the transferring to
Trading Account and Profit and Loss Account.
Financial Statements: Financial statement can now be easily prepared which will
exhibit the true financial position and operating results.
 Accounting- Process/ steps
(1) Identification: It is the process of identifying and analyzing business
transactions.
(2)Recording: For recording, we use ‘Journal’ or Subsidiary Books.
(3) Classification of transactions: Classification means segregation of transactions
on the basis of nature and posting them in a format known as Ledger Account.
(4) Summarization: It includes preparation of Trial Balance and
Financial Statements.
(5) Analysis & Interpretation: It includes an assessment of the financial reports
and making some meaningful conclusions.
(6) Communicating information to the users: It includes sharing the financial
reports and interprets results to the users of financial statements.
Accounting-types

1. Financial Accounting : Determining the financial results for the period and the
state of affairs on the last day the accounting period.
2. Cost Accounting : Information generation for Controlling operations with a
view to maximizing efficiency and profit.
3. Management Accounting :Accounting to assist management in planning and
decision making. Decision Accounting.
BOOK-KEEPING
What Is a Cash Book?
 A cash book is a financial journal that contains all cash receipts and
disbursements, including bank deposits and withdrawals.
 This is the main area where businesses record any and all cash-related
information. Entries are normally divided into cash payments and receipts.
 All of these are posted in the company's general ledger.
BOOK-KEEPING
‘Book-keeping is a science and art of correctly recording in books-of accounts all
those business transactions that result in transfer of money or money’s worth’.
Book-keeping is a mechanical task which involves:
 Collection of basic financial information.
Identification of events and transactions with financial character i.e., economic
transactions.
 Measurement of economic transactions in terms of money.
 Recording financial effects of economic transactions in order of its occurrence.
 Classifying effects of economic transactions.
 Preparing organized statement known as trial balance.
 Balance Sheet
The objective of Preparing a Balance Sheet
It is important to understand why you should have a balance sheet, whether you are
a business owner or just establishing one.
Balance sheets can be used to:
 Showcase your company’s current financial situation.
 Keep a record of your debits and credits.
 Assess the worth and status of all assets and liabilities.
 Determine the amount of capital owing to the owner at the end of the financial
year.
 Use as a reference if there is a need for a loan.
 Understand the company’s liquidity pattern and profit/loss status.
 Evaluate the business’s strengths and shortcomings and use them as a guideline
for developing policies and goals for the company.
 Balance Sheet- need
Importance of the Balance Sheet
The balance sheet is a very important financial statement for many reasons. It can
be looked at on its own and in conjunction with other statements like the income
statement and cash flow statement to get a full picture of a company’s health.
Four important financial performance metrics include:
Liquidity – Comparing a company’s current assets to its current liabilities provides
a picture of liquidity. Current assets should be greater than current liabilities, so the
company can cover its short-term obligations. The Current Ratio and Quick Ratio
are examples of liquidity financial metrics.
Leverage – Looking at how a company is financed indicates how much leverage it
has, which in turn indicates how much financial risk the company is taking.
Comparing debt to equity and debt to total capital are common ways of assessing
leverage on the balance sheet.
 Balance Sheet
Efficiency – By using the income statement in connection with the balance sheet,
it’s possible to assess how efficiently a company uses its assets. For example,
dividing revenue by the average total assets produces the Asset Turn over Ratio to
indicate how efficiently the company turns assets into revenue. Additionally, the
working capital cycle shows how well a company manages its cash in the short
term.
Rates of Return – The balance sheet can be used to evaluate how well a company
generates returns. For example, dividing net income by shareholders’ equity
produces Return on Equity (ROE), and dividing net income by total assets
produces Return on Assets (ROA), and dividing net income by debt plus equity
results in Return on Invest.
 Balance Sheet- components
5 main parts of a balance sheet
1. Current assets
Cash, as well as other assets you expect to turn into cash within the next 12
months. Examples of current assets include accounts receivable and inventory.
2. Fixed assets
Property or equipment the company owns and uses in its operations to generate
income. Fixed assets are purchased for long-term use (longer than one year). Their
value decreases over time because of wear and tear. This change is recorded as
depreciation on the income statement.
 Balance Sheet-components
3. Current liabilities
Debts and other obligations to creditors that will be due within the next 12
months. Examples of current liabilities include accounts payable, credit card bills,
sales taxes collected, payroll liabilities and loan payments.
4. Long-term liabilities
Debts and other obligations to creditors that will not be due in the next 12
months. Examples of long-term liabilities include term loans and mortgages.
5. Shareholders’ equity
This is made up of common and preferred stock, paid-in capital as well as
retained earnings, meaning the accumulated company profits that have not been
distributed to shareholders
 Balance Sheet- preperation
Preparation of the Balance Sheet
Step 1: Determine the balance sheet date and period
Step 2: Determine the Assets
. To make this section more actionable, arrange them in order of liquidity. More
liquid assets, such as cash and accounts receivable, are prioritised, whereas illiquid
assets, such as inventories, are prioritised last. After you’ve listed your current
assets, you’ll need to mention your non-current (long-term) ones. Remember to list
non-monetary assets as well.
Balance Sheet- preparation
3. Determine Your Liabilities
Similarly, you must identify liabilities. Then, list current liabilities, which include
Accounts payable, Accrued costs, and Deferred income. After listing current liabilities,
you must include non-current liabilities, such as deferred revenue and long-term debt.
4. Determine Shareholders’ Equity
Determine your company’s retained earnings, working capital, and total shareholders’
equity. This computation may get more complex if it is publicly traded, depending on the
different forms of shares issued. This area of the balance sheet contains common line
items such as common stock, preferred stock, and so on.
5. Make the sum of Total Liabilities and Total Shareholders’ Equity and compare it
to Total Assets
To ensure the balance sheet is balanced, total assets must be compared to total liabilities
plus equity. To do so, sum the liabilities and shareholders’ equity together. You’ve done
the balance correctly if your liabilities + equity = assets. If not, you may need to go back
and evaluate your sheet.
 Balance Sheet
What Is the Balance Sheet Formula?
A balance sheet is calculated by balancing a company's assets with its liabilities and
equity.
The formula is: total assets = total liabilities + total equity.

Total assets is calculated as the sum of all short-term, long-term, and other assets.
Total liabilities is calculated as the sum of all short-term, long-term and other
liabilities.
Total equity is calculated as the sum of net income, retained earnings, owner
contributions, and share of stock issued.
.
Balance Sheet-limitation
Limitations of a Balance Sheet
A balance sheet is limited due its narrow scope of timing. Looking at a single balance
sheet by itself may make it difficult to extract whether a company is performing well.
Without context, a comparative point, knowledge of its previous cash balance, and an
understanding of industry operating demands, knowing how much cash on hand a
company has yields limited value.

Different accounting systems and ways of dealing with depreciation and inventories will
also change the figures posted to a balance sheet. Because of this, managers have some
ability to game the numbers to look more favorable. Pay attention to the balance sheet's
footnotes in order to determine which systems are being used in their accounting and to
look out for red flags.

Last, a balance sheet is subject to several areas of professional judgement that may
materially impact the report.
 Elements of Cost
Material Cost
Direct Material
Direct materials are the raw materials that can be directly traced to the production
process and constitute a significant portion of the total cost. They are integral and
identifiable parts of the finished product.
Example:
In manufacturing wooden furniture, timber, nails, and glue are direct materials. The
cost of these materials is directly attributed to the finished table.
Indirect Material
Indirect materials are materials used in production but are not directly traceable to
the final product. They are necessary for the production process but do not become
a part of the finished product.
 Elements of Cost
Labour
Direct Labour
Direct labour refers to the workforce directly producing goods or delivering
services. Direct labour costs can be explicitly traced to specific products or services.
Example:
In an automobile assembly line, the workers assembling the cars are considered
direct labour. Their wages are direct costs associated with the production of each
vehicle.
Indirect Labour
Indirect labour entails the personnel who support the production process but are not
directly involved in producing goods or services. The salaries of maintenance staff,
supervisors, and quality control inspectors in the automobile assembly plant are
indirect labour costs.