Accountancy & Auditing-II Cheatsheet

Cheatsheet Content

Cost & Management Accounting Core Concept Summary: In-a-nutshell Cost Accounting involves the systematic recording and analysis of costs to aid management in decision-making, planning, and control. Management Accounting focuses on providing financial and non-financial information to managers for internal decision-making to achieve organizational goals. Key areas include cost ascertainment, cost control, and strategic decision support through techniques like marginal costing, variance analysis, and budgeting. Relevant Standards & Framework Cost Accounting Standards (CAS): Issued by the Institute of Cost Accountants of India (ICAI-CMA) to standardize cost accounting practices. Accounting Standards for Local Bodies (ASLBs): Issued by ICAI for local government entities. Definitions & Quotes (The 'Value Adders') Authoritative Definition (Cost Accounting): "The application of accounting and costing principles, methods and techniques in the ascertainment of cost and the analysis of savings and/or excesses as compared with previous experience or with standards, together with the interpretation of results." - Chartered Institute of Management Accountants (CIMA) Contextual Quote: "If you can't measure it, you can't manage it." - Peter Drucker. This underscores the essence of cost and management accounting in providing measurable insights for effective management. Key Technical Points Cost Concepts & Classifications: Types of Cost: Fixed, Variable, Semi-variable, Direct, Indirect, Product, Period, Opportunity, Sunk. Elements of Cost: Direct Material, Direct Labour, Direct Expenses, Overheads. Cost Centers & Cost Units: Defined for cost accumulation and measurement. Cost Ascertainment Methods: Unit Costing: For homogeneous products (e.g., in hotels). Process Costing: For continuous production through distinct processes. Job Costing: For specific jobs or orders. Batch Costing: For production in batches. Contract Costing: For large construction or long-term projects. Operating Costing: For service industries (e.g., transport, hotels). Inventory Valuation Methods: FIFO (First-In, First-Out): Assumes oldest inventory is sold first. LIFO (Last-In, First-Out): Assumes newest inventory is sold first (not permitted under Ind AS). Weighted Average Method: Averages the cost of all available inventory. Management Accounting Techniques: Marginal Costing: Focuses on variable costs and contribution margin for decision-making. Break-Even Analysis: Determines the sales volume required to cover all costs. Standard Costing: Compares actual costs with pre-determined standards to identify variances. Variance Analysis: Investigates reasons for differences between standard and actual performance (e.g., material, labor, overhead variances). Budgetary Control: Establishes budgets for various activities and compares actual results to budgets. Types of Budgets: Master, Functional, Cash, Flexible, Zero-Base Budgeting (ZBB). Accounting Systems: Integrated Accounts: Combines cost and financial accounts into a single set of books. Non-Integrated Accounts: Maintains separate cost and financial accounts, requiring reconciliation. Goods and Service Tax (GST) Core Concept Summary: In-a-nutshell GST is an indirect tax levied on the supply of goods and services, replacing multiple indirect taxes previously levied by central and state governments. It aims to create a common national market by eliminating cascading effects of taxes and streamlining the tax structure. The system operates on the principle of Input Tax Credit (ITC) , allowing businesses to claim credit for taxes paid on inputs used in the supply of goods or services. Statutory & Professional Framework Relevant Sections/Acts: The Constitution (One Hundred and First Amendment) Act, 2016: Enabled the introduction of GST. The Central Goods and Service Tax Act-2017 (CGST Act): Governs GST on intra-state supplies. The Integrated Goods and Service Tax Act-2017 (IGST Act): Governs GST on inter-state supplies and imports/exports. The State Goods and Service Tax Acts-2017 (SGST Acts): State-specific laws for intra-state supplies (e.g., The Gujarat Goods and Service Tax Act-2017). The Goods and Service Tax (Compensation to States) Act-2017: Provides for compensation to states for revenue loss due to GST implementation. The Gujarat Goods and Services Tax (Amendment), 2018. Definitions & Quotes (The 'Value Adders') Authoritative Definition (GST): "GST is a comprehensive indirect tax levy on manufacture, sale and consumption of goods and services at a national level." - Government of India Contextual Quote: "One Nation, One Tax, One Market." This slogan encapsulates the primary objective and transformative nature of GST in India. Key Technical Points Constitutional Framework: Prior indirect tax structure (Central Excise, Service Tax, VAT, etc.). Major defects in the pre-GST indirect tax structure (cascading effect, fragmentation). Rationale for GST: Simplified tax regime, wider tax base, improved compliance, common market. GST Structure & Administration: GST Council: Apex decision-making body, comprising Union Finance Minister and State Finance Ministers. GST Network (GSTN): IT backbone for GST implementation. Registration: Mandatory for businesses exceeding threshold turnover. Levy and Collection of GST: Taxable Event: "Supply" of goods or services. "Supply" of Goods and Services: Includes sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Place of Supply: Determines whether a supply is intra-state (CGST + SGST) or inter-state (IGST). Inter-state Supply: Supply where the location of the supplier and the place of supply are in different states. Import and Export: Imports are treated as inter-state supplies and are subject to IGST. Exports are zero-rated. Time of Supply: Determines when tax liability arises. Valuation for GST: Transaction value is generally the basis, subject to specific valuation rules. Key Concepts: Composite and Mixed Supplies: Specific rules for taxing bundles of goods/services. Input Tax Credit (ITC): Credit for tax paid on inward supplies used for making outward taxable supplies. Exemption from GST: Small supplies (threshold exemption) and Composition Scheme for small taxpayers. GST Acts (Specifics): CGST Act: Covers provisions for levy, collection, administration of central GST. IGST Act: Covers inter-state trade, imports, and exports. SGST Acts: State-specific provisions aligning with CGST. Financial Administration Core Concept Summary: In-a-nutshell Financial Administration encompasses the management of public funds, including revenue generation, expenditure, budgeting, accounting, and auditing, to achieve economic and social objectives. It involves the formulation and execution of monetary and fiscal policies to stabilize the economy and promote growth. Key aspects include parliamentary control over public finance and the role of oversight bodies like the Comptroller and Auditor General (CAG) . Relevant Sections/Acts The Constitution of India: Articles related to finance, budgeting, and audit (e.g., Article 112 for Annual Financial Statement, Article 148 for CAG). General Financial Rules (GFRs): Govern financial management in the Government of India. Fiscal Responsibility and Budget Management (FRBM) Act: Aims to ensure fiscal discipline. Definitions & Quotes (The 'Value Adders') Authoritative Definition (Fiscal Policy): "Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, including demand for goods and services, employment, inflation, and economic growth." - Investopedia Contextual Quote: "The budget is not just a collection of numbers, but an expression of our values and aspirations." - Barack Obama . This highlights the socio-economic impact of financial administration. Key Technical Points Monetary and Fiscal Policies: Monetary Policy: Managed by the central bank (RBI in India) to control money supply, credit, and interest rates. Fiscal Policy: Managed by the government through taxation and public expenditure. Public Debt: Government borrowings from internal and external sources. Budget: Types: Union Budget, State Budget, Revenue Budget, Capital Budget, Zero-based Budget. Forms: Performance Budgeting, Outcome Budgeting. Budgetary Process: Preparation, enactment, execution, and audit. Financial Accountability: Ensuring that public funds are used efficiently and effectively, and that officials are held responsible. Public Accounts and Audit: Public Accounts: All public moneys other than those which are credited to the Consolidated Fund of India or the Contingency Fund of India. Audit: Examination of financial records and statements to ensure accuracy and compliance. Budget as a Political Instrument: Reflects government priorities, policies, and allocation of resources. Parliamentary Control of Public Finance: Public Instrument: Refers to government spending and fiscal measures. Public Expenditure: Through various committees like Public Accounts Committee (PAC), Estimates Committee, Committee on Public Undertakings. Role of Finance Ministry: Formulates and implements fiscal and monetary policies. Comptroller and Auditor General (CAG): Constitutional Body: Article 148 of the Constitution. Role: Audits all receipts and expenditures of the Government of India and the state governments. Functions: Ensures financial accountability and propriety in public expenditure. Business Statistics & Data Processing Core Concept Summary: In-a-nutshell Business Statistics involves collecting, analyzing, interpreting, and presenting data to support informed business decisions and problem-solving. Data Processing refers to the systematic operations performed on data to convert it into meaningful information, often using computer applications. These fields equip businesses with tools for forecasting, quality control, risk assessment, and efficient information management. Relevant Standards & Framework XBRL (eXtensible Business Reporting Language): An open international standard for digital business reporting, used for exchanging financial information. Definitions & Quotes (The 'Value Adders') Authoritative Definition (Statistics): "Statistics is a body of methods for making wise decisions in the face of uncertainty." - Wallis and Roberts Contextual Quote: "Data is the new oil." - Clive Humby . This emphasizes the critical value of data and its processing in modern business. Key Technical Points Data Types: Qualitative, Quantitative, Primary, Secondary, Discrete, Continuous. Data Collection and Analysis: Sampling: Process of selecting a subset of individuals from a population to estimate characteristics of the whole population. Need and Methods of Sampling: Random, Stratified, Systematic, Cluster, Convenience. Measures of Central Tendency: Mean, Median, Mode. Measures of Dispersion: Range, Variance, Standard Deviation, Quartile Deviation. Probability Theory: Study of random events, fundamental for risk assessment and forecasting. Probability Distribution: Binomial, Poisson, Normal distributions. Analysis and Interpretation of Data: Drawing conclusions from processed data. Index Numbers: Measure relative changes over time (e.g., Consumer Price Index). Statistical Quality Control (SQC): Uses statistical methods to monitor and control quality in production. Correlation and Regression: Correlation: Measures the strength and direction of a linear relationship between two variables. Regression: Models the relationship between a dependent variable and one or more independent variables. Linear Programming: Mathematical method to achieve the best outcome (e.g., maximum profit, minimum cost) in a mathematical model whose requirements are represented by linear relationships. Time Series Analysis: Analyzes data points collected over time to identify trends, cycles, and seasonality. Data Processing: Elements: Input, Processing, Output, Storage. Data Entry: Manual or automated input of data. Computer Application to Functional Areas: Accounting, Inventory Control, Business Reporting. Cybersecurity: Protection of information systems from theft or damage to hardware, software, or electronic data, as well as from disruption or misdirection of the services they provide. Banking and Financial Institutions Core Concept Summary: In-a-nutshell Banking involves financial institutions that accept deposits, offer loans, and facilitate payments, acting as crucial intermediaries in the economy. Financial Institutions are entities that provide financial services, such as commercial banks, development banks, and regulatory bodies like the RBI and SEBI. The sector has undergone significant reforms, embracing digital transformation and new banking models to enhance financial inclusion and efficiency. Statutory & Professional Framework Relevant Sections/Acts: Reserve Bank of India Act, 1934: Governs the functioning of the RBI. Banking Regulation Act, 1949: Regulates commercial banks in India. The Negotiable Instruments Act, 1881: Deals with legal aspects of instruments like cheques, bills of exchange, and promissory notes. SEBI Act, 1992: Governs the Securities and Exchange Board of India. Definitions & Quotes (The 'Value Adders') Authoritative Definition (Bank): "A bank is an institution which collects money from those who have it to spare and lends it to those who require it." - Crowther Contextual Quote: "Banking is necessary, banks are not." - Bill Gates . This quote highlights the evolving nature of financial services, moving beyond traditional bank branches to digital platforms. Key Technical Points Importance of Banking: Facilitates trade, investment, savings, and economic growth. Functions of Commercial Banks: Primary: Accepting deposits (demand, time) and granting loans/advances. Secondary: Agency services (fund transfer, bill payments) and general utility services (locker facilities, ATM). Types of Banks and their Functions: Reserve Bank of India (RBI): Central bank, monetary policy, currency issuance, banking regulation. NABARD (National Bank for Agriculture and Rural Development): Apex development bank for agriculture and rural credit. Rural Banking: Regional Rural Banks (RRBs), Cooperative Banks. Development Banks: IDBI, IFCI, SFCs, UTI, SIDBI - providing long-term finance. Banking Sector Reforms in India: Initiated in the 1990s, focusing on liberalization, privatization, and globalization. Online- E-Banking: Internet banking, mobile banking, NEFT, RTGS, IMPS. Development of Banking: New Banking Institutions: Payment Banks, Small Finance Banks. MUDRA Bank: Micro Units Development & Refinance Agency Bank, supporting micro-enterprises. The Negotiable Instruments Act, 1881: Legal Aspects: Defines promissory notes, bills of exchange, and cheques. Special Features: Endorsement, negotiation, dishonour. Important Institutions related to Banking and Payments: NPCI (National Payments Corporation of India), UIDAI (Unique Identification Authority of India). Digital Payment and Legal Framework: UPI, Aadhaar Pay, BHIM App, legal provisions to curb fraudulent transactions. Business Economics Core Concept Summary: In-a-nutshell Business Economics applies economic theories and quantitative methods to analyze business problems and formulate optimal strategies. It focuses on understanding market forces like demand and supply , production decisions, cost structures, and market competition. The goal is to help firms maximize profit and minimize cost, operating within various market structures. Relevant Theories & Frameworks Law of Demand: States that, other things being equal, as the price of a good or service increases, its quantity demanded decreases, and vice versa. Law of Supply: States that, other things being equal, as the price of a good or service increases, its quantity supplied increases, and vice versa. Law of Variable Proportions (Law of Diminishing Returns): Explains the short-run production function where, as more units of a variable input are added to fixed inputs, the marginal product of the variable input eventually declines. Definitions & Quotes (The 'Value Adders') Authoritative Definition (Business Economics): "Business Economics is that part of economic science, which helps in the decision making process of a business organization." - Joel Dean Contextual Quote: "The business of America is business." - Calvin Coolidge . This highlights the centrality of business operations and economic principles in national life. Key Technical Points Demand and Supply: Determinants of Demand: Price of the good, income, tastes, prices of related goods, expectations. Movements vs. Shift in Demand Curve: Movement along the curve due to price change, shift due to non-price determinants. Determinants of Supply: Price of the good, input costs, technology, government policy. Movement along a Supply Curve vs. Shift: Movement due to price change, shift due to non-price determinants. Market Equilibrium and Price Determination: Intersection of demand and supply curves. Elasticity of Demand and Supply: Measures the responsiveness of quantity demanded/supplied to changes in price, income, or other factors. Production: Firm as an Agent of Production: Combines inputs to produce outputs. Concepts of Production Function: Relationship between inputs and outputs. Economics and Diseconomies of Scale: Cost advantages/disadvantages from increasing scale of production. Costs: Costs in the Short Run: Fixed costs, variable costs, total costs, average costs, marginal costs. Costs in the Long Run: All costs are variable, economies and diseconomies of scale. Profit Maximization and Cost Minimization: Firms aim to produce at the output level where marginal revenue equals marginal cost and average cost is minimized. Equilibrium of the Firm: Where the firm maximizes profit or minimizes loss. Market Structure: Perfect Competition: Many buyers and sellers, homogeneous products, free entry/exit, price takers. Monopoly: Single seller, unique product, barriers to entry, price maker. Imperfect Competition: Monopolistic Competition: Many sellers, differentiated products, some control over price. Oligopoly: Few large sellers, interdependent decision-making.