Accounting For Managers

ACCOUNTING FOR MANAGERS

GOLDEN RULES OF ACCOUNTING

In the case of Personal Accounts:

Debit the Receiver
&
Credit the Giver

In the case of Real, Property or Asset Accounts:

Debit what comes in
&
Credit what goes out

In the case of Nominal or Fictitious Accounts:

Debit expenses & losses
&
Credit Incomes & gains

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 Accounting For Managers

Accounting Process
Stage A – Recording Business
Transactions (Book Keeping)
STEP 1: Identifying the Accounts
STEP 2: Identifying the Types of
Accounts
STEP 3: Identify the accounting treatment
STEP 4: Recording the Transition
(Journal)

Stage B – Classifying the

Recording Transactions
Step-1: Ledger
 Posting
 Balancing
Step-2: Trial Balance

Stage C – Summarizing the

Transactions
STEP – 1 Preparation of Trading & P/L
A/c
STEP- 2: Preparation of Balance Sheet

Stage D – Analyzing and

Interpreting Financial Statements

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 Accounting For Managers

Types of Accounts

Types of
Accounts

Personal Real Nominal

Account Account Account

 Personal Account:Personal Account refers to any account in the name of person – either
natural or artificial

 Real Account: Real account refers to account of any asset or property –whether tangible
or intangible

 Nominal Account: Nominal account is an account for an expense or loss and income or
gain.

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 Accounting For Managers

HORIZONTAL FORMAT

Trading Account for the year ended……………….

Particulars Amount Amount Particulars Amount Amount
To Opening Stock XXX By Sales XXX
Less Sales Returns XXX XXX
To Purchases XXX
Less Purchase Returns XXX XXX By Closing Stock XXX

To Direct Expenses By Profit & Loss Account

( Expenses relating to (Gross Loss transferred to
purchase and production) Profit & Loss Account) XXX

To Carriage Inwards or
Freight charges XXX

To Wages XXX

To Manufacturing
Expenses or Factory XXX
Expenses

To Custom Duty or XXX

Clearance Charges
XXX
To Coal, Gas, Water,
Power Fuel etc.

To Profit & Loss Account

(Gross profit transferred to XXX
profit & loss Account)
Total XXX Total XXX

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 Accounting For Managers

Profit & Loss Account for the year ended……………….

Particulars Amt Amt Particulars Amt Amt

To Trading Account (Gross loss By Gross Profit b/d xxx
from Trading Account) xxx
Operating Incomes
Operating or xxx By Commission received xxx
AdministrativeExpenses xxx By discount received xxx
To offices salaries xxx xxx
By appreciation of assets
To office rent, rates & taxes
To Printing & Stationary xxx By reserve of discount on
To Postage , telephones & xxx creditors xxx
Telegram xxx By miscellaneous income xxx
To repair and maintenance
ToOffice Insurance xxx Non – Operating Incomes
To Office lighting &heating audit xxx By Rent received xxx
fees xxx By Interest Received xxx
To Legal charges xxx By Interest on Drawing xxx
To Bank charges xxx By Interest on Investment xxx
To Depreciation xxx By Profit on sale of assets xxx
To Miscellaneous expenses etc.

Selling & Distribution Expenses By Capital account

To Trade expenses xxx (Net loss c/d transferred to
To advertisement xxx capital account) xxx
To travelling expenses xxx
Tocommission paid xxx
To packing charges xxx
To carriage outwards xxx
To Discount allowed xxx
To Entertainment expenses xxx
To Bad Debts
Add: New reserve for doubtful
debts
xxx
Less: Old reserve for doubtful xxx
debts
To Reserve for discount on
debtors etc. xxx
xxx
Non – Operating Expenses xxx
To Interest on capital xxx
To Interest Paid xxx
To Loss on Sale of Assets xxx
To Capital Account
( Net Profit c/d transferred to
capital a/c) xxx
XXX XXX

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 Accounting For Managers

A general format of Balance Sheet in the order of permanence is given below

Liabilities Amt Amt Assets Amount Amount

Capital Fixed Assets
Opening Balance xxx Goodwill xxx
Add: Additional Capital xxx Land xxx
Interest on Capital xxx Building xxx
Net Profit xxx Plant and Machinery xxx
xxx Furniture and Fixture xxx
Less: Drawings xxx
Interest on Drawings xxx Investments
Net Loss (if any) xxx xxx xxx In Shares xxx
In Bonds etc. xxx
Long-term Liabilities
Loan xxx Current Assets
Closing Stock xxx
Current Liabilities Accrued Income xxx
Income received in advance Pre-paid Expenses xxx
Sundry creditors xxx Sundry Debtors xxx
Outstanding expenses xxx Bills Receivable xxx
Bills Payable xxx Cash at Bank xxx
Bank Overdraft xxx Cash in hand xxx
Total Liabilities xxx Total Assets xxx
General form of Balance Sheet in the order of Liquidity is shown below:

Liabilities Amt Amt Assets Amount Amount

Current Liabilities Current Assets
Income received in advance xxx Closing Stock xxx
Sundry creditors xxx Accrued Income xxx
Outstanding expenses xxx Pre-paid Expenses xxx
Bills Payable xxx Sundry Debtors xxx
Bank Overdraft xxx Bills Receivable xxx
Cash at Bank
Capital Cash in hand
Opening Balance xxx xxx
Add: Additional Capital xxx Fixed Assets xxx
Interest on Capital xxx Goodwill
Net Profit xxx Land
xxx Building xxx
Less: Drawings xxx Plant and Machinery xxx
Interest on Drawings xxx Furniture and Fixture xxx
Net Loss (if any) xxx xxx xxx xxx
Investments xxx
Long-term Liabilities In Shares xxx
Loan xxx In Bonds etc. xxx
Total Liabilities xxx Total Assets xxx

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 Accounting For Managers

VERTICAL FORMAT

Trading and Profit and loss account

Particulars Amount Amount Amount

A) Net Sales
Sales (gross) xxx
(-) returns xxx xxx

B) Cost of goods sold

Opening Stock xxx
(+) Purchases xxx
(-) Returns xxx
(+) Direct expenses, carriage, cartage, freight,
wage and salary xxx
(-)closing stock xxx xxx
XXX
C) GROSS PROFIT (A-B)

D) Operating Expenses
Administrative Expenses
Salaries xxx
Rent, rates and taxes xxx
Printing and stationery xxx
Postage, telegrams, telephone xxx
Repair and maintenance xxx
Insurance xxx
Audit fee xxx
Legal charges xxx
Bank charges xxx
Depreciation xxx
Miscellaneous expenses xxx
Selling and Distribution expenses
Trade expenses
xxx
Advertisement
xxx
Carriage outwards
xxx
Travelling expenses
xxx
Commission paid
xxx
Discount allowed
xxx
Entertainment expenses
Bad debts xxx
Add: New reserves for doubtful debts xxx
xxx
Less: Old reserve for doubtful debts
Reserve for discount on debtors etc. xxx xxx xxx
xxx

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 Accounting For Managers

Add:Operating Incomes xxx

Commission received xxx
Discount received xxx
Appreciation of assets xxx
Reserve for discount on creditors xxx
Miscellaneous Income xxx

E) Operating Profit(C- D) xxx

xxx
F) Add: Non- operating Incomes xxx
Rent received xxx
Interest on Drawings xxx
Interest on Investment xxx
Profit on Sale of Assets xxx

Less: Non- operating Expenses xxx

Interest on Capital xxx
Interest Paid xxx
Loss on Sale of Assets xxx

G) Net Profit/ Net Loss [transferred to capital

account] (E- F) XXX

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 Accounting For Managers

Balance Sheet

Particular Amount Amount Amount

Capital and Liabilities
Capital
Additional Capital xxx
Interest on Capital xxx
Current year Net Profit xxx

Less: Drawings xxx

Interest on Drawings xxx
Net Loss xxx xxx xxx
Adjusted Capital
Non-Current Liabilities
Long-Term Debts
Secured Loans xxx
Unsecured Loans xxx
Current Liabilities
Sundry Creditors xxx
Bills Payable xxx
Bank Overdraft xxx
Accrued Expenses xxx
Income Received in Advance xxx xxx
Total xxx
Assets
Non-Current Assets
Fixed Assets
Goodwill etc. xxx
Furniture and Fixtures xxx
Plant and Machinery xxx
Land and Buildings xxx
Patents and Trade Mark, Copy Right, etc. xxx xxx
Investments: xxx
Current Assets:
Stock or Inventory xxx
Sundry Debtors xxx
Bills Receivable xxx
Cash at Bank xxx
Cash in Hand xxx
Pre-paid Expenses xxx
Accrued Incomes xxx xxx
Total
xxx

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 Accounting For Managers

INCOME STATEMENT

Particulars Note.no Amount

Revenue from sale xxx
(-)Cost of Goods Sold 1 xxx
Gross Profit xxx
(-) Cash operating expenses and losses 2 xxx
EBITDA xxx
(-)Depreciation and Amortization 3 xxx
EBIT xxx
(-) Interest and Borrowings 4 xxx
(+/-) Non-Operating incomes/gains or expenses/losses 5 xxx
EBT xxx
(-) Tax 6 xxx
EAT xxx
(-) Divident and Appropriation 7 xxx
Retained Earnings xxx
(+)Operating Balanceof P/L a/c 8 xxx
Closing Balance of P/L a/c xxx

Balance Sheet representing Assets and Liabilities

Particulars Note Amount
LIABILITIES
Shareholders fund
Share Capital 7 xxx
Reserves and Surplus 8 xxx

Non-CurrentLiabilities
Secured loans 9 xxx
Unsecured loans 10 xxx
Current Liabilities 11 xxx
Total XXX

ASSETS/
Fixed assets 12 xxx
Investments 13 xxx
Current assets 14 xxx
Total XXX

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 Accounting For Managers

Balance Sheet representing Sources of Fund and Application of Fund

Particulars Note Amount
SOURCES OF FUND
Shareholders fund
Share Capital 7 xxx
Reserves and Surplus 8 xxx

Non-CurrentLiabilities
Secured loans 9 xxx
Unsecured loans 10 xxx
Total XXX

ASSETS/ APPLICATION OF FUND

Fixed assets 11 xxx
Investments 12 xxx
Current assets 13 xxx
Loans and advances 14 xxx
(-) Current Liabilities 15 xxx
(-) Miscellaneous expenses and losses xxx
Total XXX

Working Notes:

1. Cost of Goods Sold

Particulars Amount
Opening Stock xxx
(+) Purchases xxx
(-) Purchase Return xxx xxx
(+) Direct Expenses (includes, carriage,
cartage, freight, wage and salary) xxx
xxx
(-) Closing Stock xxx
COST OF GOODS SOLD XXX

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 Accounting For Managers

2. Cash Operating Expenses and Losses (Net)

Particulars Amount Amount

Administrative Expenses
Rent, rates, taxes, etc xxx
Salaries xxx
General Expenses xxx
Audit Fees xxx
Directors Fees xxx
Establishment Expenses xxx
xxx
Selling and Distribution Expenses
Travelling expenses xxx
Carriage Outwards xxx
Advertisement xxx
Discount Allowed xxx
Warehouse Charges xxx
Sales Commission xxx
Bad Debts xxx
Add: New reserve for Doubtful debts xxx

Less: Old reserve for Doubtful debts xxx

Other expenses (Preliminary expenses written off) xxx xxx
xxx
Less: Operating Income and Gains (Commission
xxx xxx
received, discount received, etc.)
XXX
CASH OPERATING EXPENSES & LOSS (NET)

3. Interest on Borrowings:

Particulars Amount Amount

Interest on Mortgage loans xxx
Interest on Debentures paid xxx
Add: Outstanding interest on Debentures xxx xxx
Total XXX

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 Accounting For Managers

4. Dividends and Appropriations

Particulars Amount
Dividend paid xxx
Interim Dividend paid xxx
Proposed Dividend xxx
Corporate Dividend Tax xxx
Transfer to General Reserve xxx
Transfer to Reserve Fund xxx
Transfer to Sinking Fund xxx
Transfer to Other Reserves xxx
Total XXX

5. Share Capital

Particulars Amount Amount

Authorized Capital xxx
Issued Capital xxx
Subscribed Capital xxx
Call – up Capital xxx
Less: Call – in Arrears xxx
xxx
Add: Share for future xxx xxx
Paid up Capital xxx
Call – in advance xxx
Total XXX

6. Reserves and Surplus

Particulars Amount
Capital Reserve xxx
General Reserve xxx
Reserve Fund xxx
Sinking Fund xxx
Securities Premium xxx
Other Reserve xxx
Profit and Loss Account (Surplus) xxx
Total XXX

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 Accounting For Managers

7. Secured Loans

Particulars Amount Amount

Mortgage Loans xxx
Debentures xxx
Add: Outstanding Interest on Debentures xxx xxx
Total XXX

8. Unsecured Loans

Particulars Amount
Bank Loan xxx
Loans from Subsidiary Companies xxx
Fixed Deposits from Public xxx
Total XXX

9. Current Liabilities and Provisions

Particulars Amount
Sundry Creditors xxx
Bills Payable xxx
Bank Overdraft xxx
Unclaimed Dividend xxx
Outstanding Expenses xxx
Incomes Received in Advance xxx
Provisions for Tax xxx
Proposed Dividend xxx
Corporate Dividend Tax xxx
Total XXX

10. Investments

Particulars Amount
Investments in Government Securities xxx
Investments in Approved Securities xxx
Investments in Shares xxx
Investments in Debentures xxx
Others xxx
Total XXX

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 Accounting For Managers

11. Other Non-Current Assets (Miscellaneous Expenditure)

Particulars Amount Amount

Preliminary Expenses xxx
Less: Written Off xxx xxx
Underwriting Commission xxx
Discount on Issue of Shares and Debentures xxx
Profit and Loss Account Debit Balance xxx
Total XXX

12. Current Assets, Loans and Advances

Particulars Amount
Cash in Hand xxx
Cash at Bank xxx
Sundry Debtors xxx
Bills Receivable xxx
Inventory xxx
Outstanding Incomes xxx
Pre-Paid Expenses xxx
Tax Deducted at Source xxx
Loose Tools xxx
Advances xxx
Total XXX

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 Accounting For Managers

CASH FOLW STATEMENT

Particulars Amount Amount

CASH FLOW STATEMENT FROM OPERATING ACTIVITIES:
Net Profit before Tax OR Closing balance of Profit and Loss Account xxx
Less: Opening balance of Profit and Loss xxx xxx
A/c
Add: xxx
 Transfer of Reserve xxx
 Provision for Taxation made during the Current Year xxx
 Proposed Dividend made during the Current Year xxx
 Interim Dividend paid during the year xxx
 Any Extra Ordinary Expenses, debited to Profit and Loss A/c
Less: xxx
 Refund of Tax xxx xxx
 Any Extra Ordinary Income, credited to Profit and Loss A/c
Add: Non-Operating Expenses / items: xxx
 Depreciation on Fixed Assets xxx
 Loss on sale of Fixed Assets xxx
 Preliminary Expenses, Discount on issue of Share and Debenture xxx
 Goodwill, Patent, Trade Mark Amortized (write off) xxx
 Interest on Long Term Borrowing (including Debenture)
Less: Non-Operating Income / Items xxx
 Dividend and Interest Received xxx
 Profit on Sale of Fixed Assets xxx xxx
 Rental Income xxx
Operating Profit before charging Working Capital
xxx
Add: Decrease in Current Assets xxx
Less: Increase In Current Assets xxx
Less: Decrease in Current Liabilities xxx xxx
Add: Increase in Current Liabilities
xxx
Operating Profit after charging Working Capital
xxx
Less: Income Tax paid (Net of Tax Refund received)
Operating Profit before charging Extra Ordinary Items xxx
Add/Less: Extra ordinary Items
Net Operating Activities / Net Cash Flow from Operating Activities / Profit xxx
from Operation (A)

CASH FLOW FROM INVESTING ACTIVITIES:

Add: Proceeds from Sale of Fixed Assets including Intangible Assets (i.e. xxx
Goodwill etc.) xxx
Add: Dividend and Interest Received (For Non-financial Companies only) xxx
Less: Purchase of Fixed Assets including Intangible Assets xxx xxx
Add/Less: Extra Ordinary Items

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 Accounting For Managers

Cash from Investing Activities (B)

CASH FLOW FROM FINANCING ACTIVITIES:

xxx
Add: Proceeds from Issue of Share and Debenture
xxx
Add: Proceeds from Other Long-term Borrowing
xxx
Less: Final Dividend paid
xxx
Less: Interim Dividend paid
xxx
Less: Interest on Debentures and Long-term Loan paid
xxx
Less: Redemption of Share and Debenture
xxx
Less: Repayment of Other Long-term Loan
Add/Less: Extra Ordinary Items xxx
Cash From Financing Activities (C)
xxx
A+B+C
xxx
Add: Opening Cash and Cash Equivalents
xxx
Add: Cash in hand
xxx
Add: Cash
xxx
Add: Short-term Deposit
xxx xxx
Add: Marketable Securities
Less: Bank Overdraft xxx
xxx
Closing Cash and Cash Equivalents
xxx
Add: Cash in hand
xxx
Add: Cash
xxx
Add: Short-term Deposit
xxx
Add: Marketable Securities xxx
Less: Bank Overdraft
xxx

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 Accounting For Managers

COMPARATIVE FINANCIAL STATEMENT

(I) A Comparative Income Statement

(II) A Comparative Balance Sheet

Format of Comparative Income Statement

Comparative Income Statement of ……………for the year ended ………………

Particulars Previous Current Absolute Percentage

year year Change Change
A. Net Sales xxx xxx xxx xxx
B. Less: Cost of Goods Sold xxx xxx xxx xxx
C. Gross Profit (A – B) xxx xxx xxx xxx
D. Less: Operating expenses
Office and Administrative Expenses
xxx xxx xxx xxx
Selling and Distribution Expenses
xxx xxx xxx xxx
xxx xxx xxx xxx
xxx xxx xxx xxx
E. Operating Profit (C – D)
xxx xxx xxx xxx
F. Add: Non-Operating Incomes
xxx xxx xxx xxx
G. Less: Non-Operating Expenses xxx xxx xxx xxx
H. Net Profit Before Tax (E+F-G) xxx xxx xxx xxx
I. Less: Tax xxx xxx xxx xxx
J. Net Profit After Tax (H-I) xxx xxx xxx xxx

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 Accounting For Managers

Format of Comparative Balance Sheet

Comparative Balance Sheet of ……………for the year ended ………………

Particulars Previous Current Absolute Percentage

year year Change Change
EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital xxx xxx xxx xxx
(b) Reserves and Surplus xxx xxx xxx xxx
2. Non-Current Liabilities
Long-term Borrowings xxx xxx xxx xxx
3. Current Liabilities
Trade Payables xxx xxx xxx xxx
Others xxx xxx xxx xxx

ASSETS
1. Non-Current Assets
(a) Fixed Assets xxx xxx xxx xxx
(b) Non-Current Investments xxx xxx xxx xxx
(c) Loans and Advances xxx xxx xxx xxx
(d) Others xxx xxx xxx xxx
2. Current Assets
(a) Investments xxx xxx xxx xxx
(b) Inventories xxx xxx xxx xxx
(c) Trade Receivables xxx xxx xxx xxx
(d) Cash & Bank xxx xxx xxx xxx
(e) Loans and Advances xxx xxx xxx xxx
(f) Others xxx xxx xxx xxx
xxx xxx xxx xxx

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 Accounting For Managers

COMMON MESURE STATEMENT / COMMON SIZE STATEMENT

I) Common Size Income Statement

II) Common Size Balance Sheet

Common Size Income Statement of ………. for the year ended …………

Particulars Previous year Current year

Amount % relation Amount % relation
to sales to sales
A. Net Sales xxx xxx xxx xxx
B. Less: Cost of Goods Sold xxx xxx xxx xxx
C. Gross Profit (A – B) xxx xxx xxx xxx
D. Less: Operating expenses
Office and Administrative Expenses
xxx xxx xxx xxx
Selling and Distribution Expenses
xxx xxx xxx xxx
xxx xxx xxx xxx
xxx xxx xxx xxx
E. Operating Profit (C – D)
xxx xxx xxx xxx
F. Add: Non-Operating Incomes
xxx xxx xxx xxx
G. Less: Non-Operating Expenses xxx xxx xxx xxx
H. Net Profit Before Tax (E+F-G) xxx xxx xxx xxx
I. Less: Tax xxx xxx xxx xxx
J. Net Profit After Tax (H-I) xxx xxx xxx xxx

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 Accounting For Managers

Format of Common Size Balance Sheet

Common Size Balance Sheet of ……………for the year ended ………………

Particulars Previous Current Absolute Percentage

year year Change Change
EQUITY AND LIABILITIES
1. Shareholders’ Funds
(c) Share Capital xxx xxx xxx xxx
(d) Reserves and Surplus xxx xxx xxx xxx
(Net figure i.e., after deducting
Miscellaneous Expenses)
2. Non-Current Liabilities xxx xxx xxx xxx
3. Current Liabilities
Short-term borrowings xxx xxx xxx xxx
Trade Payables xxx xxx xxx xxx
Other Current Liabilities xxx xxx xxx xxx
Short- term Provisions xxx xxx xxx xxx
XXX XXX XXX XXX
ASSETS
1. Non-Current Assets
(a) Fixed Assets:
i. Tangible Assets xxx xxx xxx xxx
ii. Intangible Assets xxx xxx xxx xxx
(b) Non-Current Investments xxx xxx xxx xxx
(c) Long-term Loans and Advances xxx xxx xxx xxx
(d) Other Non-Current Assets xxx xxx xxx xxx
2. Current Assets
(a) Current Investments xxx xxx xxx xxx
(b) Inventories xxx xxx xxx xxx
(c) Trade Receivables xxx xxx xxx xxx
(d) Cash & Bank xxx xxx xxx xxx
(e) Short-term Loans and Advances xxx xxx xxx xxx
(f) Other Current Assets xxx xxx xxx xxx
XXX XXX XXX XXX

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 Accounting For Managers

MARGINAL COSTING AND COST VOLUME PROFIT ANALYSIS

Formulas

1. Contribution

 Contribution = Sales – Variable Cost ( C = S - V)

 Contribution = Fixed Cost + Profit ( C = F + P )

 Contribution = Fixed Cost – Loss ( C = F – L)

 Contribution = Sales × P/V ratio

 Contribution = (Sales at BEP in Rs/Units ×P/V ratio) + Profit

 Contribution = (MOS ×P/V ratio) + Fixed cost

2. Marginal Cost Equation

 S–V=F+P

Sales – Variable Cost = Fixed cost + Profit

3. Profit – Volume Ration (P/V Ratio)

P/V ratio = Sales – Variable Cost

Sales

P/V ratio = Contribution

Sales

P/V ratio = Change in Profit

Change in Sales

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 Accounting For Managers

P/V ratio = Fixed Cost

× 100
BEP

P/V ratio = Profit

× 100
MOS

P/V ratio = 100 – Variable Cost as a % of Sales

4. Break Even Analysis

Break – even point (in Units) = Total Fixed Cost F

=
Contribution per unit S–V

Break – even point (in Rupees) = Total Fixed Cost F×

S
× Sales =
Contribution per unit S–
V

Break – even point (in Rupees) = Total Fixed Cost

P/V ratio

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 Accounting For Managers

5. Sales for Desired Profits :

Sales for desired profit = Fixed Cost + Desired profit

P/V Ratio

Sales for desired profit = Fixed Cost + Desired profit

Contribution

6. Margin Of Safety (M/S):

Margin of Safety = Actual Sales – Break Even

Sales

M/S = Profit
P/V Ratio

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 Accounting For Managers

BUDGETORY CONTROL

I Cash Budget

Particulars Jan Feb March Total

Opening Balance of Cash
Receipts:
Cash Sales
Debtors
Any other Receipts
Total Receipts

Payments:
Creditors
Wages
Expenses
Other expenses
Total Payments
Closing Balance (Receipts – Payments)

II Fixed and Flexible Budget

1. Calculation of Total Cost showing Variable Expenses and Fixed Expenses

Particulars Amount
Variable Expenses xxx
(+) Fixed Expenses xxx
Total Cost XXX

2. Calculation of Total Cost showing Variable Expenses , Semi –Variable Expenses and Fixed
Expenses

Particulars Amount
Variable Expenses xxx
(+) Semi- Variable Expenses xxx
(+) Fixed Expenses xxx
Total Cost XXX
3. Calculation of Total Cost showing Prime cost and Work cost.

Particulars Amount
Prime Cost xxx
(+) work Cost xxx
(+) Office/ Administrative Cost xxx
Total Cost XXX

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