Principles of
Accounting &
Financial Management
Detailed, structured study notes for competitive exams
These notes provide a structured, exam-oriented overview of key concepts in Accounting and Financial Management. Designed specifically for aspirants of UPSC EPFO, RBI Grade B, SEBI Grade A, NABARD Grade A, DRDO SAO, BPSC and other regulatory & government exams.
Principles of Accounting
Introduction to Accounting
Definition: Accounting is the process of identifying, recording, classifying, summarizing, and interpreting financial transactions to provide useful information for decision-making.
Fundamental Accounting Principles, Assumptions & Concepts (GAAP)
These form the foundation of all accounting. Questions on assumptions and principles appear frequently in regulatory exams.
Business transactions are separate from the owner’s personal transactions.
Transactions recorded in a stable currency. No inflation adjustment in basic accounting.
Business will continue operating indefinitely. Assets recorded at historical cost, not liquidation value.
Business activities divided into artificial time periods (monthly, quarterly, annually) for reporting.
Assets recorded at original purchase cost. Most objective and verifiable.
Revenue recorded when earned (accrual basis), not necessarily when cash is received.
Expenses matched with related revenues in the same accounting period.
All material and relevant information must be disclosed in financial statements and notes.
Same accounting methods and policies followed across periods for meaningful comparison.
Recognize potential losses early; recognize gains only when realized. “Anticipate no profits, provide for all losses.”
The Accounting Equation & Double-Entry System
Double-Entry Bookkeeping: Every transaction affects at least two accounts. Total debits = Total credits. This ensures the accounting equation always remains balanced.
The Accounting Cycle
The accounting cycle is the complete process of recording and processing business transactions through financial statements.
Financial Statements
Shows performance over a period of time.
Snapshot of financial position at a specific date.
Shows cash inflows and outflows from Operating, Investing, and Financing activities.
Explains changes in owner’s equity during the period.
Principles of Financial Management
Introduction & Scope of Financial Management
Financial Management is the planning, organizing, directing, and controlling of financial resources to achieve organizational goals.
Allocation of funds to long-term assets and projects.
Determining the optimal mix of debt and equity.
How much profit to distribute to shareholders vs. retain for growth.
Maximize the market value of shares (not just short-term profit maximization).
Time Value of Money (TVM)
“A rupee today is worth more than a rupee tomorrow” because of its earning potential.
Financial Statement Analysis & Ratio Analysis
Ratio analysis helps compare performance over time and against peers. Essential for exam case studies.
| Category | Key Ratios | Formula / Insight |
|---|---|---|
| Liquidity | Current Ratio Quick Ratio |
CA / CL (CA − Inventory) / CL |
| Profitability | Net Profit Margin ROE ROA |
Net Income / Revenue Net Income / Equity Net Income / Total Assets |
| Efficiency | Inventory Turnover Asset Turnover |
COGS / Avg Inventory Revenue / Avg Total Assets |
| Solvency / Leverage | Debt-to-Equity Interest Coverage |
Total Debt / Equity EBIT / Interest Expense |
Capital Budgeting
Techniques to evaluate long-term investment projects.
Working Capital Management
- • Cash budgets & forecasting
- • Minimize idle cash
- • Invest surplus in short-term instruments
- • EOQ (Economic Order Quantity)
- • JIT (Just-In-Time) systems
- • ABC Analysis
Accounting vs Financial Management
- ✓ Historical & accurate records
- ✓ Compliance & reporting focus
- ✓ GAAP / IFRS driven
- ✓ Backward looking
- ✓ Forward-looking planning
- ✓ Investment & financing choices
- ✓ Risk-return optimization
- ✓ Goal: Wealth maximization
📝 How to Study These Notes Effectively
Write adjusting entries and see their impact on all three financial statements.
Solve at least 20-30 ratio problems from previous year papers.
NPV and IRR questions are scoring if concepts are clear.
Download 2-3 company annual reports and study their notes & ratios.
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