 Hello, learners. I welcome you to this video lecture. Today's topic of discussion is accounting for manager. This is the course of MBA first semester. And this particular lecture session will touch upon the first three units of block one of the course accounting for manager. So, besides serving the purpose of MBA learners, this will also serve the purpose for MCOM learners, the learners of BICOM, as well as the learners of BBA programs. And this will also relate the daily life that relates to accounts of general people. So, let us begin with some examples. Generally, when we use the term account, it comes to our mind that it is something related to business. But believe me, this is not only related to business, it is also related to our daily life. So, the first example is when you take out cash by inserting your debit card in ATM, a message immediately comes to your mobile that your account has been debited. Let us go to the next example. Suppose you have purchased fuel, petrol or diesel and you paid by using your card. After a few days, you will get a message in your mobile that your account has been credited with such and such amount. So, this debit and credit relates to account and you are also aware about this debiting your account or crediting your account. So, all of us in some way or the other relates to accounting and the whole accounting process. Your passbook have some columns, particulars, date, then debit column, credit column etc. So, again there is debit and credit. So, all of us relates to these accounting terms and these accounting terms that is debit and credit relates to the accounting system and these are the part and parcel of the entire accounting process. So, we know something about debit and credit. If our account has been debited, means the amount that we have in our account has been reduced by a certain amount. Means that reduction is indicated by the term debit or debit. On the other hand, when our account is credited, the bank balance amount that we have in our bank account increases by a certain amount. It means the account has been credited means our bank balance has been increased. So, this is accounting. Let us go to another example. This example relates to the grocery shop near your home or the shop where you usually go for your purchasing the daily requirements. If you have noticed, when you purchase something, the shopkeeper writes on a piece of paper something. What is that? He writes the amount that he has received from you or from other customers. So, for the whole day, he will make some sale and he will write the amount that he has collected from the customers on that piece of paper. At the end of the business hour, at night, he will count the physical cash that is he got from the sale. He will count the cash and tell you this with the record that he has maintained throughout the day. It means the records that he has maintained while selling the goods during the business hours and the cash at the cash box should match. If there is any discrepancy, it indicates that there is something wrong. It may be that he has written wrongly or it may be that he collected the laser amount from the customer. Anything may happen which results in not matching of the cash, physical cash and the records that he has maintained. So, in this way, he makes a record of the transactions or in simple terms, he makes the records when he makes a sale. But the shopkeeper not only makes a sale, he also makes some purchases. He purchases from the wholesaler in a lot. In that case, he paid from his account. He paid out of his cash. Besides that, there may be some credit sale. So, a business runs not only on cash sale, the business also goes for credit sale. Means he has sold the goods right now, but he will get the cash for that sale in a future period of time. Maybe within a week, a month or within three months, etc. So, a business makes different types of transactions. It may be in terms of cash, in terms of credit, etc. It may be a sale, it may be a purchase. Again, by further discussing the example of grocery shop, see there are some other expenses. Like he paid salary to the staff that he has appointed. The electricity that he has to pay, any advertisement, he has to pay the money, phone bills, etc. All these are expenses and the shopkeeper has to make a payment. So, whenever he makes the payment, he gets some receipts. And this receipts serves as some information to calculate his amount of profit or the amount of loss. So, these are all accounting information. If we put this information into the accounting system, then it will result into some accounting statement that is known as financial statements. Means the whole process of accounting is just like putting some information into the system. It will process and accordingly it will produce some results and that result will be in the form of financial statements. These financial statements will serve the purpose of understanding his business position, his profit, his laws, his assets, or the liabilities, his stock, etc. As we are discussing about the term stock, stock means the items that he deals with. So, when he makes a sale, he gets the cash and on the other hand, the stock, the items that he deals with reduces to that extent. If he makes a purchase, then the stock will increase. On the other hand, he has to pay cash. So, whether it's a purchase or whether it's expense, the stockkeeper pay out of his cash or buy check. All these informations together form the information, accounting information for him. If he feeds this information into the accounting process, accounting system, then the system will give him some results in the form of financial statements that we have discussed. Now what is this accounting system or accounting process? This system has certain steps. The number one step is identification of transaction. So what is transaction? First of all, this is the main thing that we have to identify whether we will record this particular fact or not in the accounting system. So how to identify a transaction? For example, suppose the share on which you are sitting right now costs Rs. 5000. It means you have purchased it for Rs. 5000. So this is one point and second point is that the share for you, the share is very comfortable. Now, the comfortability cannot be expressed in monetary terms, but you can express the cost of the share in monetary terms. That is Rs. 5000 that you have spent on purchasing the share. So these both are important because share must be comfortable. And it has cost you Rs. 5000. Both these events are important, but for accounting purpose, for the purpose of putting the information into accounting process, we will choose the cost that we have expressed in terms of money. In case of the example, it is Rs. 5000. But we cannot measure the comfortable level of the share in terms of money. So we will use that particular information, the cost of the share is Rs. 5000, and we will process it further through the accounting system. So that will be recorded in the accounting system. So if we want to identify a transaction, means whether we will put this particular information into the accounting system or not, we have to see whether it can be expressed in monetary terms or not. If it can be expressed in monetary terms, it can be recorded in the accounting system. If it cannot be expressed in terms of money, then it will not be recorded in the accounting system. So this is all about a transaction. So whenever you face some difficulties, you think whether I can express this in terms of money or not. If you can express this in terms of money, you can put the information into accounting system. Then the next step in the accounting process is recording the transaction in the primary book. So this is the first book of account that the transaction will be recorded. This is known as journal book. Every transaction that takes place, transaction means for accounting purpose, anything that we can express in terms of money. So that will be recorded in the primary book, known as journal book, and the journal book is a record of transactions on the basis of dates that they have occurred. So if today a certain transaction occurs, for example in case the example of our fourth example, the shopkeeper example, so he will record all the transactions, all the sell transactions, all the purchase, all the payment or expense transactions, date wise in the journal book. Then third step is we will transfer the transactions from the journal book, that is from the primary book to another book that is known as secondary book. Secondary book is also known as laser book. So the transactions will move from primary book, journal book to secondary book, the laser book. In the laser book, we will balance the lasers, means we will calculate the amount of lasers. Again it will be in terms of debit and credit. So after this, we will prepare a trial balance. A trial balance is simply a list of laser balances, but it has some significance in the whole accounting process. After preparation of trial balance, the next step is preparation of final accounts. We will prepare the final accounts, means final accounts composed of certain statements, certain financial statements that will show the result of the business for the accounting period. So these are the steps in the accounting process and whenever a transaction takes place, it moves from the very first step to the last step. So first of all, we will identify it whether it is a transaction or not and whether we will record it or not. Then it is recorded in the journal, then it is posted from journal to laser, then a trial balance will be prepared and finally the final accounts composed of certain financial statements will be prepared. This way the whole accounting process runs. Now how to record these transactions? Any transaction in the accounting system, it is recorded on the principle of the double entry system. According to the double entry system, each transaction has two aspects. Let us go back to our example number four, the example of the shopkeeper. The shopkeeper sold goods to you. He writes something on the piece of paper. He got the cash from the customer. On the other hand, his stocks has been reduced. So a single transaction means when you have purchased, for you it is purchased and for the shopkeeper it is sale. So when the shopkeeper sold some items, on one hand he got the cash from you and on the other hand his stocks has been reduced. So that particular transaction, sale transaction has two effects, have two sites. One is receiving cash, number one and number two, the going out of stock, stock has been reduced. So both these two aspects will be recorded in the accounting system through all the steps, journal, laser, trial balance and finally the final accounts. So these two aspects will be recorded in the accounting system and this is done according to the principle of double entry system. So these two aspects, receiving cash and outgoing of the stock will be recorded in terms of debit and credit that we have discussed in the first part of the discussion. So again debit and credit, so it is related not only to our business, it is related to our daily life also. You will get an idea of debit and credit if you see your mobile phone when you receive the SMS for taking out money from ATM or if your account has been credited. Because of purchase by card you will fill, so in that case an amount will be credited. So whenever the transaction changes the form or nature your debit and credit will change. At the same time for the customer, so for you when you purchase something the debit and credit will be different and for the seller the debit and credit will be different. So when you record something you must think whether or how that particular transaction affects your business. So effects have to be recorded in terms of debit and credit keeping in mind for whom you are recording the transaction. If it is for your business the debit and credit will be different when the other party, the party that deals with you will record the same transaction using the same double entry principle that is in the terms of debit and credit. So all the parties will record their transactions in the different books of accounts by following the principle of double entry in terms of debit and credit or in simple form in terms of recording in the books of accounts by following the procedure of journal, ledger, etc. We are also discussing the final accounts. Let us see what is final account. Final accounts composed of certain financial statements. These statements are very important. Number one trading account or manufacturing account. If it is a trading business buying and selling is the main activity then the account that will prepare is trading account. But if it is a manufacturing organization it is a factory then we can prepare the manufacturing account. So this is the first statement under the final accounts trading account or manufacturing account. Number two profit and loss account. So this is another statement under the final accounts that we prepare. So this particular statement will give you results in terms of net profit or net loss. The earlier one the trading account will give you result in terms of gross profit or gross loss. Then the third statement under the final accounts is balance sheet. Balance sheet will give you information regarding the assets and liabilities and capital of the business. All these are prepared by following the principles of double entry system. And all these financial statements will give you indication regarding the functioning of the business. So there may be gross loss but there may be net profit. Again the balance sheet will show the position of your business in terms of the assets of the business and in terms of liabilities of the business and in terms of capital of the business. So all these systems, all these statements will be tied together to provide certain information about the business position and by preparing these statements you will be able to analyse what you are required to done for your business or how to make more profit, how to reduce losses etc etc. So the information, the accounting information that the subkeeper have used by writing on the piece of paper we can convert it into the scientific system of double entry. So as his business is very small he may be writing on a piece of paper the amount that he have collected by sale the amount that he have paid, the expenses that he have paid. But it is very difficult for him to produce the entire results. So if we follow the double entry system, means recording a transaction in terms of debit and credit it will give you the information that you need for further expansion of the business or for further improvement of the business. So this is the accounting process that helps all of you to know about the business. So another aspect is that when we record the transactions by following the double entry system we have to follow certain principles, these are known as accounting principles. By following those principles we standardised the process of recording the transactions. So let us give one example. As we have mentioned that we record those transactions which can be expressed in terms of money and those transactions which cannot be expressed in terms of money are not recorded in accounting. So this actually based on a principle that is the money measurement concept. According to this concept we record the business transactions, only those transactions which we can express in terms of money. Accordingly there are some other concepts like business entity concept. According to this concept the business and the business men are two different entities. So there may be a transaction between you and your business just like the transaction between you and the shopkeeper. Though you are the owner of the business for the purpose of accounting business and the business men are considered to be two separate entities having separate identities and therefore there may be a transaction between the two parties. For example the capital contributed by you for starting the business that is a transaction between the two parties. The parties are you the business owner and the second one is the business. Again if you withdraw some cash or goods for your personal use that is a transaction between the business owner and the business. So that is withdrawal of goods that is known as drawings or withdrawal of cash. So that drawings is an example of the transaction that may takes place between the two identities you and the business that is your business. So these have to be recorded in the books of accounts by following the same principle of double entry system and this is based on business entity concept. So today we have discussed the very simple form of debit and credit, the steps in the accounting process, the components of final accounts and two important concepts business entity concept and money measurement concept. So hope this will serve the purpose. Again there are various concepts are there. So we will discuss this in the next lecture and let us stop here for today. Hope this will serve your purpose. Thank you. Thank you very much.