INDUSTRIAL APPLICATION ON FINANCIAL ACCOUNTING

Tanya Garg
BBA 1st Year

ABSTRACT
The purpose of the paper was to reveal the directions, challenges and opportunities that arise
in the accounting systems. Accounting follows a major role in running a business because it
helps the industries for tracking incomes and expenditures, and it ensures statutory
compliance and facilitates investors, management and government with quantitative financial
information which helps them in making good business decisions. The main task of industrial
accounting is to define what the production costs of various goods or work orders are by
means of information on the individual activities carried out in the different departments and
their material consumption.

INTRODUCTION
For understanding a business, firstly you have to understand the financial insides of a
business organization and it is studied through accounting, it is also called as the language of
business. In all activities and in all organizations, which requires money, accounting is
necessary for recording the activities. It is an ancient art as well as science of recording
business transactions. In addition, we should also know about what financial accounting is.
According to American Institute of Certified Public Accountants (AICPA), Accounting is the
process of identifying, measuring, recording, classifying, and communicating the economic
information to the users who needs it.
We identify the transactions, and it is an exchange in which each participant receives or
sacrifices value, while an event is happening of consequences to an entity of economic unit and
then measure the transactions in terms of a common measurement unit like Rupee, Dollar,
Pound, etc. Afterwards, recording the concerned financial transactions in an orderly manner in
the proper books of accounts and then classifying them by maintaining the ledger in which
different accounts are opened to which related transactions are posted at appropriate accounts.
For example, all sales are written in one account known as sales account. After classifying the
transactions, we summarise them in a specified manner. It involves the preparation of various
type of statements such as income statement, statement of cash flow, and balance sheet, etc.
After summarising, we analyse with the establishment of relationship between the various
items taken from income statement or balance sheet. The main purpose is to identify the
financial strength or weakness of the organisation then we interpreting with explaining the
meaning of the relationship between various items. The accountant has to explain why it
happened under given conditions. At the end, we communicate with the transmission of
summarised, analysed, and interpreted information for making suitable decisions.

OBJECTIVE OF STUDY
To understand the information contained in financial statements with a view to know the
strength or weaknesses of the company and to make forecast about the future prospects of the
company and thereby enabling the financial analyst to take different decisions regarding the
operations of the company.
RESEARCH METHODOLOGY
This research paper is based on secondary data, through the internet and published data. It will
be beneficial for students, academicians, industrialists, professionals, research scholars and it
is good for the fostering critical thinking and analytical skills through hands-on learning. This
research paper includes information about, how Reliance Industries Limited, an Indian
multinational company, maintained their accounting standards.

LITERATURE REVIEW
• Clinton W Bennett (2020) carried out a research paper titled, “The accountant in
Industry” demonstrates the work of the cost accountant usually leaned more heavily on
accounting than on engineering techniques.
• Susanne Leitner-Hanetseder, Othmar M Lehner, Christoph Eisl, Carina Forstenlechner
(2021) carried out a research paper titled, “A profession in transition: Actors, tasks and
roles in AI-based accounting” demonstrates that with current debates on the digital
transformation of society and the consequent work changes.
• Yannick lemarchand (2019) carried out a research paper titled, “The birth of industrial
accounting in France: some curious paradoxes” demonstrates the progressive
affirmation of an intellectual movement-industrialism-characterised, from the last
quarter of eighteenth century.
• Tuomas Korhonen, Erno Selos, Teemu Laine, Petri Suomala (2021) carried out a
research paper titled, “Exploring the programmability of management accounting work
for increasing automation: An interventionist case study” demonstrates the
management accounting automation by exploring the programmability of management
accounting work.

FINANCIAL ACCOUNTING
As financial accounting is for measuring and assess the business result and financial position
of the organisation and it also indicates the position of business as a whole and the final account
is prepared for the purpose of reporting an overall performance of the business. So, the Indian
Companies Act has made it obligatory for the companies to maintain a system of financial
accounting and became compulsion for every company on account of legal provision.
Financial Accounting have their own Accounting Standards (AS). They are codified as
statements of accounting rules and guidelines for preparing the uniform and consistent financial
statements, these are written policy documents issued by expert accounting body covering such
aspects as measurement and disclosure of accounting transactions in the financial statements.
They are the codified forms of Generally Accepted Accounting Principles (GAAP). They are
designed to harmonize diverse accounting practices. They are the norms of the accounting
policies by means of guidelines to direct as to how the items should be dealt with the accounts.
They are primarily deal with the financial measurements and disclosures used in financial
statements. They are issued from time to time by professional accounting bodies established
for this purpose. They are something less than law but more than the professional guidelines.
Setting up of AS is social decision. Standards place restrictions on behaviour and therefore
must be accepted by affected parties. They are selected set of accounting policies regarding the
principles and methods to be chosen out of several alternative.
GAAP may be defined as those rules of action which are derived from experience and practice
and when they prove useful, they become accepted as principles of accounting. According to
AICPA, the principles which have substantial authoritative support become a part of the
GAAP. If such principles are not followed, there would be a lot of difficulties which will make
the comparison impossible. Therefore, it has been suggested that the common concepts and
conventions of accounting have to be followed. These concepts and conventions have been
commonly accepted by the professional accounting world for preparing financial statements.
Accounting Principles is classified into two types accounting concepts and accounting
conventions. Accounting concepts includes concept of objectivity, double entry system,
revenue recognition concept, going concern concept, money measurement concept, cost or
historical cost concept, matching concept, accounting period concept, business entity concept,
accrual concept and accounting conventions includes consistency, conservatism, full
disclosure, and materiality.
Now, lets take an example of Reliance Industries Limited, and study thoroughly that how they
maintain their financial accounting.

FINANCIAL ACCOUNTING IN RELIANCE INDUSTRIES

Reliance Industries Limited is an Indian multinational conglomerate company, headquartered
in Mumbai. It was founded by Dhirubhai Ambani on 8 May,1973. At present, the chairman
and managing director is Mukesh Ambani. It has diverse businesses including petroleum, solar
energy, petrochemicals, natural gas, retail, telecommunications, entertainment, music, media,
television, financial services, software, telecom, and many more. It is one of the most profitable
companies in India, the largest publicly traded companies in India by market capitalisation, and
the largest company in India as measured by revenue. It is also the one of the largest employers
in India with over 300,000 employees in the world.
At the financial reporting of Reliance Industries Limited, it states that, “We maintain a valuable
relationship and trust with all our stakeholders by ensuring a transparent financial reporting
system. Our superior credit profile is reflected in our relationships with over 100 banks and
financial institutions having commitments with us. Our financial discipline and prudence are
also reflected in our strong credit ratings.”
Let us have a look at the detailed performance review of the company during Financial Year
(FY)2021-22.
Balance sheet as on March 2022
Analysis of Balance sheet
• The company’s current liabilities during FY22 stood at ₹3,807 billion as compared to
₹2,776 billion in FY21, thereby witnessing an increase of 11.2%.
• Long term debt stood at ₹1,877 billion as compared to ₹1,637 billion during FY21, a
growth of 14.7%.
• Current assets fell 7% and stood at ₹3,470 billion, while fixed assets rose 22% and
stood at ₹11,516 billion in FY22.
• Overall, the total assets and liabilities for FY22 stood at ₹14,986 billion as against
₹13,201 billion during FY21, thereby witnessing a growth of 14%.

Income statement 2021

Analysis of Income Statement

• Operating income during the year rose 53.9% on a YoY basis.
• The company’s operating profit increased by 32.4% YoY during the fiscal. Operating
profit margins witnessed a fall and stood at 18.7% in FY22 as against 21.7% in FY21.
 • Depreciation charges increased by 12.1% and finance costs decreased by 31.2% YoY,
respectively.
• Other income declined by 12.8% YoY.
• Net profit for the year grew by 26.9% YoY.
• Net profit margins during the year declined from 13.5% in FY21 to 11.1% in FY22.
Cash flow statement 2021-22

Analysis of cash flow statement

• Cash flow from operating activities, during FY22 stood at ₹1,107 billion, an
improvement of 310.5% on a YoY basis.
• Cash flow from investing activities, during FY22 stood at ₹-1,101 billion on a YoY
basis.
• Cash flow from financial activities, during FY22 stood at ₹173 billion on a YoY basis.
• Overall, net cash flows for the company during FY22 stood at ₹188 billion from the ₹-
135 billion net cash flows seen during FY21.

Per Share Data/Valuations

Comments on current valuations

• The trailing twelve months earnings per share of the company stands at ₹99.9, an
improvement of ₹78.7 recorded last year.
• The price to earning ratio, at the current price of ₹2,613.6, stands at 24.1 times its
trailing twelve months earnings.
• The price to book value ratio at current price levels stands at 2.3 times, while the price
to sales ratio stands at 2.9 times.
 • The company’s price to cash flow ratio stood at 16.1 times its end of year operating
cash flow earning.

CONCLUSION
The company’s overall position is at a very good position. The company achieves sufficient
profit. The net profit of Reliance Industries stood at ₹675,650 million in FY22, which was up
26.9% compared to ₹532,230 million reported in FY21.

REFERENCE
Websites
• Scholar.google.com
• ijmp.jor.br
• ril.com
• en.m.wikipedia.org
• equitymaster.com
• issuu.com
• akconsulting.com