Preparation of Financial Statements

Running Head: Accounting For Managers
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Accounting for Managers
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Accounting for Managers
Contents
INTRODUCTION................................................................................................................................2
JOB 1....................................................................................................................................................2
1. Accounting Concepts and Conventions.............................................................................................2
1.1 Role and aim of financial and management accounting and accounting regulations.....3
1.2 Nature of business and accounting information...................................................................4
1.3 Users of Accounting and Financial Information....................................................................5
JOB 2....................................................................................................................................................6
2. Preparation of financial statements..................................................................................................6
2.1 BOOKS OF ORIGINAL ENTRY.............................................................................................6
A.JOURNAL ENTRIES......................................................................................................................6
B. GENERAL LEDGERS ACCOUNTS..................................................................................................8
2.2 TRIAL BALANCE...................................................................................................................10
2.3 FINAL ACCOUNTS/FINANCIAL STATEMENTS...............................................................11
A. INCOME STATEMENT...............................................................................................................11
B. BALANCE SHEET.......................................................................................................................11
C. CASH FLOW STATEMENT.........................................................................................................12
2.4 ADJUSTMENT ENTRY.........................................................................................................12
JOB 3..................................................................................................................................................13
3. Assessment of Financial Performance.............................................................................................13
3.1CALCULATION OF FINANCIAL RATIOS OF THE COMPANY.......................................13
3.2 CATEGORISATION OF FINANCIAL RATIOS..................................................................................13
3.3 FINANCIAL PERFORMANCE OF McDonald’s Corporation............................................14
JOB 4..................................................................................................................................................15
4. UK Regulatory Framework...............................................................................................................15
4.1 Role of UK Regulatory Framework in the field of Accountancy and Finance.................15
4.2 Impact of International Regulations on UK’s business Entities........................................16
Conclusion.....................................................................................................................................16
References.....................................................................................................................................18
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Accounting for Managers
INTRODUCTION
The concepts of accounting are usually employed by the management of every company, to
make relevant and informed decisions with nominal errors. There are various financial
records prepared by the accountants of an entity, to assist the stakeholders like creditors,
suppliers, employees, government etc. in drawing the proper conclusions. Also there are
various financial ratios which are calculated in order to understand the actual performance of
the company and plan accordingly. Current report will now study the significance of financial
accounting for the company.
JOB 1
1. Accounting Concepts and Conventions
The financial information needs to be well understood by the external users so that they can
make the required decision without any hurdle or difficulty. These information should be free
from biasness and unethical practices.
Generally Accepted Accounting Principles (GAAP) - GAAP came into the picture over
many years back. It is a collection of accounting rules and regulations the organisations have
to strictly follow while preparing their financial records. It tells us the way to represent the
financial information. There are certain concepts and conventions given by GAAP which
have been discussed below-
ACCOUNTING CONCEPTS AND CONVENTIONS-
i. Accrual Accounting- This convention says that revenue and expenses are recorded as
and when they are earned and incurred respectively, no matter whether or not the cash
has been actually received from the debtor or paid to the creditor.
ii. Business Entity- This convention says that business and the owner of the business are
two different entities. Hence, business should maintain a proper separate record of its
transactions.
iii. Consistency- According to this convention, the business entity should try to follow
the same accounting policies and methods from year to year.
iv. Historical Cost- This convention informs that whenever an asset is purchased by the
business it should be recorded at the actual price in the books of accounts that is, the
price at which it is purchased and not at the price it carries due to inflation, deflation
or any other factors.
v. Full Disclosure- As per this convention, no information should be hided from the
stakeholders which can resist the users from making a wise decision.
vi. Going Concern- This convention states that every business owner operates with the
view of carrying the business for indefinite period of time and has sufficient resource
to carry on the business successfully in future.
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Accounting for Managers
vii. Matching- This concept requires the business to make proper match between the
revenue earned and expenses incurred during the same year or period of time.
viii. Materiality- It states that those informations, which have a mere impact on making of
the financial statement and will actually not hamper the quality of decisions taken by
the external business users can be ignored.
ix. Revenue recognition- This makes the business to consider the revenue to be earned
only when the services/products have actually been delivered to the purchasing party.
x. Stable Monetary Unit- The monetary information should be communicated or
recorded in fixed unit of currency.
xi. Money Measurement- This concept says that only those transactions are recorded in
the books of accounts which could be easily stated in terms of money and non-
monetary transactions are not taken into account.
xii. Conservatism- This says that accountants are always pessimistic about their business
and therefore record for all possible losses and never record the possible gains in
forthcoming period of time.
xiii. Objectivity- This states that each transaction recorded should have supporting
document which may be, invoice, sales order, credit card receipt etc.
1.1 Role and aim of financial and management accounting and accounting regulations
Accounting is an orderly process of recording, classifying, analysing, summarising and then
reporting the end result to the stakeholders of the company for the better decision making.
The information fetched from the financial records aids the company in making efficient and
effective plans.
In short, accounting is the method which helps the organisation in achieving the ultimate
objective of earning profit.
Branch of Accounting
I. Financial Accounting- It is a way with the help of which companies record, classify,
analyse, summarise and report the financial information like income, expenditures,
accounts receivables to the external users of the company.
Roles & Aims of Financial Accounting-
i. It helps to uphold accuracy in recording with the help of double- entry
bookkeeping, wherein each transaction is recorded twice
ii. According to the Companies Act, every company is required to maintain a proper
record of their revenues and expenses and share the annual reports consisting of
financial information with the shareholders
iii. Tax laws also requires the detailed information of the company’s income and
expenditure
iv. It also helps the owner of the company to know the actual profit earned or loss
incurred on the capital invested
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