Accounting Functions and Budgeting: Purpose, Ethics, Financial Ratios, Cash Budget, and Advantages and Disadvantages - Desklib

This report covers the purpose of accounting function, functions of accounting with respect to regulatory and ethical constraints, financial ratios, cash budget, and advantages and disadvantages of budgeting for an organization.

Unit 5

Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
PART 1............................................................................................................................................3
Determine the Purpose of Accounting Function.........................................................................3
Examine the functions of accounting that are required in an organisation with respect to the
regulatory and ethical constraints................................................................................................4
Show the contrast of the financial performance for satisfying the conditions of the financial
ratios............................................................................................................................................5
Prepare a cash budget from given data for an organisation using a spreadsheet.........................6
Explanation of the advantages and disadvantages associated with the budgets and budgetary
planning, and control for an organisation....................................................................................7
Maintain budgetary control solutions and their effect on firms decision making to insure
efficient and effective preparation of resources..........................................................................9
PART 2..........................................................................................................................................11
Present the financial statements in order to meet the accounting standards and principles......11
P4. Evaluation and analysation of fiscal ratios:.........................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
The term accounting may be referred as the process of recording and summarising the
business and financial transactions along with undertaking certain activities such as
analysing, verifying the reporting results. As the business world is expanding day by
day and it becomes complex to remember the transactions so it becomes important to
record written records of financial transactions thus, leads to development of accounting
(AGĂNENCEI and et.al., 2021). So, to ascertain the current performance of the
organisation it is needed to prepare financial statements. This project report will cover
the purpose of accounting function along with assessing with the context of regulatory
and ethical constraint. It will also cover the formulation of financial statements from
trial balance. In addition to that it will calculate the financial ratios and cash budget. At
last, it will include the benefits and limitations of the budget and budgetary planning in
order to control organisation.
TASK
PART 1
Determine the Purpose of Accounting Function
It is very important to take effective decisions in the business organisation in order to
boost growth and development. It is the process by which an individual can handle, record and
summarise the financial transactions. It plays a crucial role in sustaining the business. It is
important to know and understand the functions in order to carry out functions smoothly.
Following are the purpose of financial accounting (Hsieh and et.al., 2019.).
 To make the available records for auditing – It is needed to have proper financial records
at the time of examining the audit and company can identify the accounting discrepancies
in order to provide corrective solutions.
 To keep financial records up to date – The accounting functions can be used for assessing
the weakness and the strength of the company and by providing effective strategies and
solutions in order to concur the weakness and enhance strength.

 For a review of performance – Accounting helps in performing regular reviews in order
to ascertain the correctness of functions. Each department's performance is measures so
that it helps in assessing the profitability of the company.(Cowling, 2021) By measuring
its performance, it helps in increasing the productivity by comparing previous data from
current data.
 To comply with legal and statutory requirements – The accounting department ensures
that all the activities are complying with legal and statutory compliance which are applied
to entity. It also checks all the rules and regulations that are applicable to business
enterprise such as tax policies, regulations related to taxation, wage related compliances
in order to save business from penalty for non- compliance of such activities.
 To ascertain profit and loss – Every business wants to earn profit and it can be said that
profits are the backbone of business. The financial statements are keen to know the
whether the company is in a sound financial position or not to meet its upcoming
requirements of a business entity.
Examine the functions of accounting that are required in an organisation with respect to the
regulatory and ethical constraints.
Accounting plays a very crucial role in the different field of commerce, the market and
the cultures. Because there are many users of such information who are dependent on
them for making reliable and accurate decisions. So, for this purpose, various
accounting principles have taken place or originated. The accounting principles are
universally applicable and they are framed according to the different locations or
countries in the world. There are many countries that abide by the rules and principles
of such mechanism. The accounting standards are formed to order to get the clear
understanding on the reliability and consistence of book- keeping in a particular
business organization and they have the equivalence in the corporate or not. However, it
can be assessed that there have been many frauds and cheatings in the accounting
practices which has spoiled the image of many enterprises. Even, there are many
auditing teams and firm that does not follow the correct accounting procedures and do
not withstand with them. In this case, effective rules and regulations shall be imposed to
make fit to the marketplace or economy which is in a developing process. While
executing any accounting tasks, it shall be performed through the moral and ethical

practices. Many companies force the chartered accountants and auditor by paying high
fees for generating fake income reports (G'iyosov., 2019). These reports are the reason
that the company’s actual financial health cannot be seen and this leads to the chances
of sharp practice and cheating against the external users of the financial records. The
investors, creditors, suppliers and financial institutions gets influenced by the fake
financial reports that a business concern shows to them. In today’s scenario accounts are
created for the satisfaction and personal interest of the business owners to get good
returns and for opting a good share in the market place. The Cpas Concept of
Practitioners obligation, creates ethical and moral principles for the practitioners of
accounts to assist them in using their superior attentions, tactics and knowledge. The
constitution’s major impression is the structures and formation of the duties, public
welfare, fairness in law and autonomy, and the proper control of the country’s
authorities. By abiding with the guidelines can help in making safe and professional
choices which will result in the aid of difficulties of their jobs and factors that come
along with it. By following the guidelines accounting experts are expected to improve
the businesses, societies image and sectors.
Show the contrast of the financial performance for satisfying the conditions of the financial
ratios.
The monetary results for the business enterprise reflects the efficiency, effectiveness,
liquidity and profitability of the company at the end of the financial year. Aforesaid
calculations on the financial ratios and interpretations of them has helped in gaining the
useful insights on the financial performances. For improving the liquidity position a
business do not need to take any step in this case as the current assets are 350000 and
current liabilities are 150000 sequentially. This reflects the derivation is in the favour of
a firm because the company has enough assets to meet its current commitments. It is
obvious that maintaining the cash balance is very important and crucial part for any
business to meet up the future uncertainty and for the proper management of operational
activities. The stock of the company is 200000 which is same as the working capital
balance and it also symbolises that the company is financially sound. But as far as the
last evaluation of debt to equity is concerned, it can have negative consequences and
impact on the company’s image and working as well. The statement that justifies the

same is the company has more debt than its equity, so it must reduce its debts, control
the cost and unnecessary expenses. From the above evaluation, it is seen that the
business has much efficiency and effectiveness and it can survive in a market for long
term. All it needs to do is to make improvements in the areas of its fiscal procedures.
(Jorge, Nogueira and Ribeiro, 2020)
Prepare a cash budget from given data for an organisation using a spreadsheet.
Particula
rs
Janua
ry
Febru
ary March April May June July
Augus
t
Septe
mber
Octob
er
Novem
ber December
Receipts
Opening
Balance 8000 16080 -30100 -66050
-
116700
-
1449
00
-
13254
0
-
175930
-
21661
0
-
23313
0 -278820 -302020
Sales 66000 44000 49500 44000 55000
6600
0 44000 49500 71500 49500 44000 66000
Issue of
Shares 0 0 2000 0 0 2000 0 0 0 0 0 0
Issue of
Debenture
s 0 0 0 0 0 0 0 0 0 2500 0 2500
Total (A) 74000 60080 21400 -22050 -61700
-
7690
0
-
88540
-
126430
-
14511
0
-
18113
0 -234820 -233520
Less:
Payments
Purchases 48000 80000 81000 90000 75000
4800
0 80000 81000 80000 90000 60000 48000
Selling &
Administr
ation
Expenses 2800 3400 1800 1000 2000 2400 2500 2400 2600 2600 2400 1500
Marketing
Expenses 5500 4620 3300 2750 4400 3080 2640 4620 3080 2750 2640 3300
Property /
Rental
Expenses 1620 2160 1350 900 1800 2160 2250 2160 2340 2340 2160 1350
Total (B) 57920 90180 87450 94650 83200
5564
0 87390 90180 88020 97690 67200 54150
Closing
Cash 16080 -30100 -66050
-
116700
-
144900
-
1325
40
-
17593
0
-
216610
-
23313
0
-
27882
0 -302020 -287670

Explanation of the advantages and disadvantages associated with the budgets and budgetary
planning, and control for an organisation
By making the proper planning and procedure of money aids the organization to build up
their efficient policies in terms of finance and its authority. Forecasting is one of the processes
which come under the master plans. The policies are framed for an organization in order to
ensure that all the departments like, sales finance, operations etc. Have enough money so that
desired goals could be achieved and accomplished. In addition to this, planning helps in bridging
the gap between where the company is at the position and where it will reach in the future.
When all plans are accomplished then the next step is that the plans can be accepted by the
higher command and best approaches to be taken to attain the desired goals of the firm. If the
firm has a good management strategy, then it can keep a track on its activities from where it is
generating revenue and where it is making the expenses. When the ideas are made for the
execution of a plan it should be kept in mind that the long- term goals can be achieved with the
best outcomes which can help in organization growth. The budgetary system is that which
provides a path where to spend the money and how to gain the target goals. It keeps an eye on
every task an organization follows to achieve the desired goals. Forecasting is the layout where
all the tracks can be identified and how different sectors perform their duties on account of their
responsibilities which are handed over to them. These all activities help a corporation in
incentive and directions. The daily wage earners are the persons who encounter all these
activities with their best outcome are awarded with the prizes and promoted. Drafting allows
keeping all the things in mind about costs incurred and helps firms to venture.
Advantages of Budgeting:
 It helps in framing the plans for the execution of activities: Budgets are helpful to the
organization because they assist in the standards of performances for the different time
frames. The company can make a budgeted plan and can match the actual performance
with the planned one. From these variations can be found out and the reasons for those
deviations. As this result in taking corrective measures for the difference in a timely
manner.
 Budget provides the base for planning: As it contains the amount that a business concern
has to spend on the different departments. This gives the company a ground to make the

accurate and reliable plans for the various departments. Budget is framed in a flexible
manner so that changes can be made with the differentiations in the activities. All these
elements help the business to make a good optimization of its available resources.
 It also aids in delegating the responsibilities: It promotes in the delegation of work and it
controls the activities that are to be done by the low – level managers and higher- level.
 It gives a ground for coordination: The various department heads are involved in the
process of budget creation so this coordinates the activities of different departments.
Suppose, a sales budget is created, and it has needs to be looked with the purchase
budget. This then further is matched with the manpower and machine budget. So, the
managers at all levels get familiarize with the budgets and work accordingly to get the
desired and stated objectives.
 Facilitates future prediction: It helps in forecasts the influence of future on the day-to-day
business activities of a firm. Company can function with the changes in the environment
by preparing the budgets.
Limitations of Budgeting:
 Over Spending: It happens in some cases that the company frames policies for even those
areas that does not require any planning. So, in these cases the amounts remain un-
utilized (McCosker., 2021).
 It leads to inflexibility: Budget allocates the amount that needs to be spent on the
different particulars. If managers do not have the scope to make changes for the changes
in the situation than this might lead to the over- spending and under- expenses in some
grounds.
 As it provides the basis for future projections, so there may be the scenarios where the
predictions can go wrong. This might affect the profitability of business enterprise and
functioning as well.
 Over focusing on the budget goals: As the manager formulates the budget, then it only
centres on the areas that are located in the plan. In short, it can be said that the managers
become bounded on their thinking abilities. Because they ignore the other factors that
might lead to the generation of profits.

The limitations can be overcome by investing more time and thought while creating a budget. In
order to make a effective by inviting the valuable recommendations from the employees and by
not depending on the estimation of past.
Maintain budgetary control solutions and their effect on firms decision making to insure
efficient and effective preparation of resources.
The budgetary system management is process to maintaining track of all incomes and
expenditures. Confirm that the actual receipts and paying out are relative to which was truly
forecasted. If any alterations are needed, this is the time to create them. Individual in control of
budgets can utilize it to assist themselves remain or course. Various kinds of consolidate tabs of
the company's earnings to see if it's on the side of going out of money. It’s up to the
administration, not organization, to perform out how to acquire resources for those technologies
that the business can't spend enough money. Budgeting constraints are used by individual. It
could occur if people start waste money before the duration is end. Depending on the matter, one
may be instigated to go further than expenditure (Huang and et.al., 2021). Budgeting are needed
to save anything from occurring again. Internally businesses performance following is an aspect
of budgetary process. Individual may observe, for example that importantly more cash is being
used because it was expected. It could provide everybody sample time to accept where they
might break expenses or earn more money until the things goes really terrible. Persons are
adequately making individual employment plans once their resources are under control. The
advertisement manager is in obligation of declining promotional paying out when it has become
immoderately more. Person may be inability to do anything about it due to the factors both
indoor and outdoor of its influence. Peoples can use budgetary administration equipment’s to
determine how much money the company has to pay. The success can be rare till the
management really provides a answer to the issue. The predicting technique essentially a
continuous project of how tasks have fluctuated overtime. A 25% overpayment changes is okay
once in a while; if it happens on a very common stage, there might have been an mistake or
failure in the paying procedure. It’s very hard to really impose financial limits if an entity does
not have exposure to correct truth. As the company develop its possibility that other departments
may engage with projected budget details in different techniques. Various alternatives may

involve tables and charts, internet applications and outdated programs. Many of the companies
determine it difficulty to combine the overall of their technologies.

PART 2
Present the financial statements in order to meet the accounting standards and principles.
Income Statement
Income Statement
Particulars Amount
Sales 400000
Less: Opening Inventory 32000
Less: Purchases 158000
Add: Closing Inventory 28000
Gross Profit 238000
Rent & Rates 10000
Energy 6000
Wages & Salaries 34000
Bad debt 8000
Provision for doubtful debts 5000
Net Profit 175000
Balance Sheet
Liabilities Amount Assets Amount
Capital 180000 Premises 160000
Less: Drawings -12000 Equipment 150000
Shareholder's Capital 168000 Trade Receivables 45000
Net Profit 175000 Inventory 28000
Trade Payables 46000 Cash at Bank 14000
Accrued Expenses 3000
Provision for Doubtful Debts 5000
397000 397000

P4. Evaluation and analysation of fiscal ratios:
 Current Ratio: This is the financial metric which is used by the business firm to check the
position of its current assets and current liabilities. These indicates whether the company
is able to meet its day -to- day operations in a smooth manner or not. In short, the ratio of
this kind assist in the calculating the liquidity position of a company. (Hassan, Aliyu and
Hussain, 2022).
Current ratio = Current assets / current liabilities
Therefore CR = 35000 / 15000
CR= 2.33:1
Interpretation: It determines the liquidity position of the company. The ideal current ratio
for any organisation is considered to be 2:1, which symbolise that the company must have
current assets that are double to its current liabilities. The CR and CL given in the case is
35000 and 15000 respectively and the CR ascertained out of these two is 2.33. This shows
that the company has good financial health, and can meet its short – term obligations
without facing any hurdles. With this it also reflects that the business has sustainability for
the upcoming events.
 Acid Test Ratio: This kind of measure that computes the potential of a business to pay its
short- term obligations without selling its inventories.
Quick Ratio= (Current assets – Inventory) / Current liabilities.
Hence, QR = (35000 – 20000) / 15000
ATR= 15000 / 15000 = 1 : 1
Observation: It is evaluated that the liquidity ratio of the company is 1:1. And the ideal
acid test ratio for any company is said to be 1:1. From the above scenario, it is very clear
that the company has exact figure which is equal to the ideal one. This depicts that the
company holds the capability to repay its current commitments or obligations without
selling its stock.
 Inventory to working capital = It could be explained as a tool to represent what part of the
business’s stock is funded from its available cash. It has its huge significance on the
business which have inventories and to live on the cash supplies.
Inventory to working capital= Inventory / working capital

Thus, Inventory to working capital = (20000 / 20000)
ITWC = 1:1
Result: The good ratio for the same is between 1.5:1 to 2. In this scenario is the evaluated
at 1:1 that shows it will be complex and difficult for the company to meet its future
requirements. It also represents that the company does not have the strong or sound
financially in terms of liquidity.
 Debt to equity ratio: The ratio of this kind is used in the evaluation of financial leverage
of the business enterprise. It is evaluated by dividing the total liabilities by shareholder’s
equity.
Debt to equity ratio = Debt / Equity
DTER: 570000 / 200000
Therefore, debt equity ratio = 2.85 :1
Analysis: An ideal debt equity ratio must be less than 2. In this case it is seen that the
firm’s ratio is derived for the same is 2 which is not the good sign for a company. It means
that the company has more liabilities than its assets. The lower the debts, the more good a
firm is.
CONCLUSION
As it is concluded from the above report that the kinds of variables that effect the business's
financial results in both directly and indirectly, its shows very difficult to evaluate and know all
of them in a broad and timely direct and control such that they could carry advantages to the
firm. The company portfolio in this research is OLC Eatery, which is efficient in the sector and
that they have the potential to add a few of the natures that will permit it to execute all of its
competitors in the place of market for a higher time duration.

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