Accounting Principles

This report explains the importance and purpose of accounting functions while also giving an overview of the accounting functions that exists in an organisation. It also evaluates the role of budgets and budgetary control and their advantages and disadvantages and how they can assist to identify problems at business.

Accounting Principles

Contents
INTRODUCTION...........................................................................................................................3
SECTION 1......................................................................................................................................3
The purpose and scope of accounting in complex operating environments................................3
Evaluate the accounting function in informing decision making and meeting stakeholder and societal needs and expectations.
......................................................................................................................................................4
The main branches of accounting and job skill sets and competencies.......................................5
Accounting systems and the role of technology in modern-day accounting...............................5
Issues of ethics, regulation and compliance and the extent to which they are constraints or threats to the organisation. 5
Evaluate role of budgets and budgetary control and their advantages and disadvantages and how can they assist to identify problems
at business....................................................................................................................................6
Calculation of comparative key performance ratios such as profitably, liquidity, asset usage and investment ratios. 8
Critical evaluation of the performance to the business year on year ........................................10
The benefits of contemporary accounting software packages and how they are used preparing financial statements. 12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Accounting as a subject plays a very crucial role in the workings of an organisation as it assists the businesses in tracking upon
the incomes, expenditures, costs and the revenues being generated in the organisation. It helps to prepare and manage the accounting
information’s with the assistance of various accounting functions provided by the business (Yang and et.al., 2021). In this report, the
importance and purpose of accounting functions is explained while also giving an overview of the accounting functions that exists in
an organisation. The report consists of the preparation of various necessary financial accounts of the business such as cash budgets,
financial accounting ratios and the analysis of those financial ratios to provide an overview of the financial situation of the
organisation. The report also consists of preparation of cash budgets while providing an overview of financial situation of business
with these financials. It also consists explanation of budgets and budgetary control while also giving an overview of their advantages
and disadvantage for an organisation.
SECTION 1
The purpose and scope of accounting in complex operating environments.
Accounting is an essential skill for the management and analysis of the financial and monetary resources in the establishment.
The functions of accounting involve a systematic tracking, sorting, analysis, maintenance of records and summarise the financial
statements of a business enterprise. The primary purpose of accounting functions lies in the assistance provided by it to management
and authoritative bodies of organisation when taking up crucial decisions. It also aids authorities in determining areas which are of less
importance or areas which need special attention. With assistance of functions of accounting and fiscal history maintained through, the
company can utilise same data in preparation of quantitative reports, creation of budget, reduction in costs and maximisation of profits
(Anderson, 2020).
The functions of accounting which assist an organisation are:

 Maintaining financial records: Accounting assists organisations in preparation and maintenance of financial records for daily
transactions which takes place in the business. The transactions may include purchase receipts,sales invoices, supply purchases
and documents relating to payments made. Observation of financial transactions: The accountants in an organisation have responsibility of tracking on many multiple
financial transactions of business to make sure that organisation revenue and expenses are all correctly computed. The
accounting function also aims to maintain that business continues to generate profits by regularly checking upon necessary
resources (Arata, Shimogawa and Inohara, 2022). Maintaining digital records: Accountants in business organisation as in form of their accounting functions are responsible for
the purpose of creating, maintaining and updating digital records of business transactions for storing financial data of company
in an effective manner. The maintenance of such digital records benefits organisation by providing them with the credit of
authenticity for maintaining these records and also assisting accounting department of business in easily finding data and
information when needed. Making financial projections: Accounting involves the analysis of the financial data of the businesses for purpose of making
analysis of the company's financial resources and expected incomes so that future business revenues, growth and expansion
opportunities can be predicted (Belesis, Sorros and Karagiorgos, 2020).
 Complying with legal requirements: Accounting functions have a basic purpose of complying with all legal requirements of
company required by law and governing rules and regulations. It should be made sure that company aligns with various rules,
regulations relating to government policies, financial reporting, employee wages.
Hence purpose of accounting functions primarily lies upon above mentioned areas which include: maintenance of financial
records, observation of financial transactions, compliance with legal requirements, maintenance of digital records and making future
business projections (Ehoff and Bouillon, 2019). The purpose of such various accounting functions then lies upon improving the

financial positions and strength of business. Taking necessary actions guided by accounting functions so that business is able to
achieve desired revenues and profits while making an efficient employment and usage of resources of business.
Evaluate the accounting function in informing decision making and meeting stakeholder and societal needs and expectations.
Accountancy supports the process of decision making and taking informed decisions. The primary objective of business
organisation is to accelerate higher profits of the organisation and this is done when the transactions are recorded by the accounting
departments in an accurate manner. After the preparation of financials of company, the organisation receives suggestions regarding the
products that are beneficial for company and services which should be cut down as they are not generating enough incomes for
business (Vedpuriswar, 2021). It assist to provide idea of how the budgets in business should be forecasted and what tasks are
necessary to perform organisational tasks effectively. The shareholders and investors normally utilise the financials to assess the
financial position of business and the profits earned by it. The investors go upon investing in the business only when the financials
show an impressive business positions upon observation. Accounting functions are essential as they are the only way in which
organisation's costs and expenditures along with profits could be measured effectively.
The main branches of accounting and job skill sets and competencies.
The four primary branches of accounting are:1. Financial accounting: It involves recording and categorizing of the business transactions that take place. The data taken into
account is mainly the past data and on the basis of this business data the financials of the concern are prepared.2. Cost accounting: It is primarily used in the manufacturing industry as it involves the maximum cost and resource involvement.
It is concerned with recording and analysing the manufacturing costs for business.3. Managerial accounting: This accounting branch assist to provide the data relating to an organisation's operations to the
management of the business. It involves budgeting, cost analysis and forecasting of data.
4. Tax accounting: This is concerned with the planning of tax returns, their preparations and tax filings. This enables the business
to be compliant of the regulations which are set by the IRS (Radin, 2018).

The job skill sets and competencies that are required in accounting as a subject field are:
 Knowledge of Accounting Practices: The accountant should have enough knowledge regarding all the various accounting
principles that are present and to be followed and implemented.
 Proficiency in Accounting Software: The accountant is supposed to be proficient in the use of various accounting software
that are utilised in the business and its operations. This assist the accountant to record, interpret and analyse the data
effectively.
 Ability to Prepare Financial Statements: The accountant should be very proficient in the preparation and analysis of the
financial statements that are necessary for analysing business performances.
 Knowledge of General Business Practices: All the general business practices which are present in accounting are necessary
to be in knowledge of the accountant as this will help to better understand the issues and financial needs of the customers.
Accounting systems and the role of technology in modern-day accounting.
An accounting systems are a set of accounting processes along with various combined procedures and controls. They are
responsible for recording the business transactions, combining and summarizing them and generate reports which can be utilised by
the decision makers to monitor the performances of the business and improve the results with the help of that analysis (Wallington,
Marques and Maroun, 2021). The accounting systems assist in tracking upon incomes, expenditures, ensuring statutory compliances
and providing investors, management and governing authorities with the necessary and quantitative informations.
Technology plays an essential role in present day accounting methods as it assist to solve various problems which were
previously creating issues for organisations. Technology has transformed the accounting sector with the use of various new and
advanced software's that enable accuracy and reduction in the errors committed while preparing financials. It has also made it very
easy to maintain organisation of the huge block of transactions and details regarding the accounts effectively.

Issues of ethics, regulation and compliance and the extent to which they are constraints or threats to the organisation.
Ethics in accounting are primarily concerned with moral choices with which decisions are made in the area of accounting,
while preparation of accounting statements, disclosure of financial informations and many more. It consists of the specific rules and
regulations that are established to prevent any misuse of financial data or of the management position in the organisation (Mercl and
et.al., 2019).
Regulations in accounting are the various rules, regulations, standards and the laws established and communicated by the
various governing bodies for the purpose of maintained transparency, reliability, consistency and comparability in the financial
statements of various organisations.
The ethical and regulatory issues in accounting which act as the constraints are a follows: Fraudulent reporting of financials: The major ethical issue in accounting is of fraudulent reporting of financial statements of
a business enterprise which is misstatement of financials of company by the management (Hajimoradkhani and Zare Ahan
Panjeh, 2021). This is done to mislead investors and maintain high share prices of company's shares. Although these fraudulent
activities can boost prices of company's shares, they create severe effects on company and its financial health in long term. Violation of data disclosure: As fraudulent activities, the failure in proper disclosure of company's data and information is
also an ethical constraint in accounting. The failure in disclosing such data to investors and key stakeholders of the company
who may use this data for making some crucial decisions, is termed as unethical practise in accounting. Lack of transparency in accounting decisions: It is a regulatory issue in accounting which involves failure in proper
disclosure and transparency in the financial informations of company. As lack in the revelation of financial informations and
accounting data of business results in misappropriation of financials from the company's key stakeholders and investors.
 Tax Evasion: Performance of tax evasion is an illegal activity which is against rules and regulations of governing authorities
of a country. It is a regulatory constraint which affects goodwill of an organisation and is done through a misrepresentation of

company financials (McEnroe and Sullivan, 2018). It is done to deliberately avoid tax liability of company and to save the
money by using this fraudulent activity.
Evaluate role of budgets and budgetary control and their advantages and disadvantages and how can they assist to identify problems at
business.
Budget: A budget is a financial plan for an organisation which is made for a particular future period. It provides for
informations relating to income and expenditures for a certain time period. Budgets are prepared to cover for all functional and
effective areas of business which are responsible for generating revenues and incur expenditures in future (Mohamed and Farhan,
2020). It is a system which is responsible for planning and control in the organisation. A budget is primarily concerned with framing
of necessary policies for business which will be utilised for comparing actual results with standard results that were set by organisation
in future. If actual numbers of business vary with budgeted figures, the budgets needs to be revised appropriately on that basis.
Budgetary control: It involves comparison of estimated expenses of business with actual expenses that were incurred in
businesses working. Also, budgetary control involves placement of responsibilities for failures which occurred in prepared budgets
and actual results. The periodic checking up of income, expenses and business costs related to budget administration is termed as
budgetary control. It is system of management control in which different operations of business are forecasted and planned upon in
advance for the purpose of revising current and future policies of budgets. It provides with outer lines on the basis of which actual
results of company are compared with budgeted results.
Advantages of budgets, budgetary planning and controlling:1. Definite planning: Budgets are developed based on well defined and researched planning. They enable organisations in
knowing what is expected to be done and to be achieved in the future time periods. They guide the business organisations in
prior on the amount that they will spend in future on its activities and the amount that the business may expect to earn in the
future (Mukhtaruddin, and Fuadah, 2022).

2. Efficient and proper communication: Budgets are prepared keeping in mind the feedbacks and the useful informations which
is provided by the subordinates and business employees at lower levels of the organisation. As the individuals at that level
come with direct contact of all the activities and functions performed by the business and hence create an environment of
proper and transparent communications among the management resulting in efficient and fruitful decision making. As each
and every department in the organisation generates their individual budgets hence the flow of communication is very efficient
in between the budget framing staff and the departmental staff.3. Delegation of authority: Budgeting and budgetary control assists and encourages the delegation of authority in an
organisation. It provides the maximum limits in which delegated authority can be utilised (Wen and Wang, 2022). The
subordinates and executives of organisation can produce for initiatives and judgements within the limits of budgetary control.4. Motivation: Budget and the budgetary control acts as an essential and a strong motivator as an incentive to the employees in
the business organisation by motivating them in fixing their business performances to attain the targets that are set by the
management of the business.5. Uniform Policy: The preparation of budgets and budgetary control equally in business divisions and departments assists in
making a uniform policy for all departments of business without generating any disadvantage to any of the departments like an
authoritarian type of business organisation.
Disadvantages of budgets, budgetary planning and controlling:
1. Future uncertainty: Since budgets are prepared keeping in mind the future predictions for the business hence it can sometimes
fail to predict for a future situation. As sometimes a change in the future situations may create a difference in predicted budget
and actual budget hence reduces utility of the budgetary control system.
2. Constant revisions necessary: Since the budgets are prepared keeping in mind some future predictions and assumptions, any
variation in the predictions necessitate the situation for revising the budgets of the company (Saleh, Al-Shaghdari and Ali
Hakami, 2023). The frequent revisions then reduce the importance and effectiveness of budgets.

3. Problem of Co-ordination: The success of the budgetary control entirely depends on the coordination among the various
departments of the business. As the performance and results achieved in one department affects performance of another. Hence
budgets needs to coordinate among various departments in an effective manner so that best outcome could be achieved with
the utilisation of those budgets.
4. Conflicts among departments: Preparation of budgetary control may induce conflicts among the various departments of the
organisation. As every departmental head tries upon to benefit their own department by allocation of maximum resources in
their departments which results in conflict in between the departments and sometime loose upon effectiveness of budgetary
control.
5. Support of top management: The budgetary control and the preparation of budgets requires the support from the top
management of the company. As efforts initiated by the top management assess quality and effectiveness of budgets prepared
for the company (Rao, 2021). In situations if business lacks support from top level management, entire system for preparation
of budgets collapses.

SECTION 2
Calculation of comparative key performance ratios such as profitably, liquidity, asset usage and investment ratios.
Financial ratios- Ratio is a mathematical expression which establishes relationship between any two individual accounting
figures. It is utilized by business managers, investors and creditors of an enterprise . Ratio aids to ascertain fair prices of the shares of
an organisation. By using ratios, financial analysts discover the strength and weakness of a business. The various types of ratios are:
 Current Ratios: Current ratios assists an organisation to measure its ability to fulfil for the short term liabilities or obligation
of enterprise which are due to be paid within the time limit of one year. The favourable current ratio is 2:1 for a business.
 Quick Ratios: Quick ratio is a form of liquidity ratio that helps to measure the short-term liquidity of an enterprise (Hassani,
2019). It differs from current ratio in a way as it only include those current assets which are highly liquid in nature and does
not includes the stock and inventory of the business. An Ideal Quick ratio for a business stands at 1:1.

 Proprietary Ratios: This ratio refers to the stake of shareholders in the company’s capital. High Proprietary Ratio displays a
strong financial position of the company and the creditors in the business feel highly secure about their funds. Whereas a low
proprietary ratios shows that the company does not holds a strong position for the funds that are invested in the business.
 Debt Equity Ratios: This ratio is a computation of the combined involvement of the creditors and the shareholders or owners
of the business organisation in the capital employed in business (Nicholls, 2020). It is a Leverage ratio. It shows whether
company's capital structure is decent enough to complete the future financial crisis or uncertainties of the business.

Critical evaluation of the performance to the business year on year .1. Current ratio Interpretation- The current ratio compares upon the current assets and current liabilities for the business. The
ideal current ratio for a business is 2:1. From the ratio calculations in the report above, it can be concluded that the current
ratio of the business is 2.3:1 which shows the excess of current assets over the current liabilities of the company. This shows
that there is no shortage of cash and cash equivalents within the company.2. Quick ratio Interpretation- From the above calculations for quick ratio and comparisons with the ideal amount of quick ratio
of 1:1 it can be seen that the company has the ideal quick ratio and concludes upon the fact that it has perfect balance for
current liabilities and liquid assets of organisation. This means for all current liabilities of the business, there exists equal
amount of liquid assets (Silva, 2018).3. Proprietary ratio Interpretation: From the above proprietary ratio computed of the organisation at 32.16%, it can be
interpreted that the ratio is lower when compared to the ideal ratio of 60%-70% in organisations. The stronger ratio suggests
that business is dependent less on external factors and has higher control on funds invested as higher ratio gives worth of
shareholders equity in the business. Since ratio of the organisation is lower hence it shows that business is more dependent on
debt financings for running the business.4. Debt equity ratio Interpretation- The ideal debt to equity ratio is between 1.5 to 2 in some financial and capital intensive
companies. In this organization, ratio is 1.56:1 which concludes that the company has £1.56 of debt for every £1 of the equity

invested in the company. This ratio states that the company has £1.56 of debt amount for every £1 of money invested as the
debt of the company is higher as compared to the equity of the company's shareholders.
Overall Business Performance Analysis:
From the various financial ratios calculated above, overall position of the company explains that business has a strong liquidity
position as current ratio and quick ratio of business are in ideal position or better than the ideal position. The proprietary ratio suggests
the level of contribution made by contribution made by the shareholders in the assets of the business and when the ratio is around 60%
to 70% it is considered to be good but since it is as low as 32% hence the worth of shareholders equity in the company's equity is very
low and the business sis dependent more on external; factors for its working and financing. The debt to equity ratio shows the relative
proportion of the debt and the shareholders equity utilized for financial the requirements of the company. The debt to equity ratio
above is 1.56 to 1 which is a good ratio and shows a good balance between shareholder's equity and the external debts.

The benefits of contemporary accounting software packages and how they are used preparing financial statements.
The advantages of using contemporary accounting softwares are:
 Access Accounting Data Any Time: By using the omputerized accounting software and cloud accounting software, the
business can access the data necessary wheneever the need aruises. As the size of enterprises in today's times is huge, the data
expands hevaily and can let to high confusion and unavailability of information at the right time if the data is not available at
the right time (Xolbekov and Eshonkulov, 2019).
 Improved accouting security: the cloud based accounting software assists to keep the accounting data extremely safe and
secure on the cloud. This means that the data is encrypted and is covered under layers abd will help the business to keep
necessary information secured within the organisation.

CONCLUSION
From the above report, it can be concluded that accounting functions are an essential part of an organisation as it assists the
business to store, record, maintain all the valued information and keep its privacy intact. It also briefly concludes by explaining
various ethical and regulatory constraints faced by businesses and how organisations can learn from these issues top effective impact
their performances in a better manner. From calculations made above in income statement and preparation of cash budget of the
company, financial position of business can be easily interpreted. The report also concludes by explaining budgets and budgetary
control while also giving an overview of the advantages and disadvantages proposed by the preparation of budgets and performance of
budgetary control.

REFERENCES
Books and Journals:
Anderson, K.L., 2020. Accounting Principles and Corporate Fraud. In Corporate Fraud Exposed. Emerald Publishing Limited.
Arata, E., Shimogawa, T. and Inohara, T., 2022. A Game Theory-based Verification of Social Norms: An Example from Accounting
Rules (No. 2022-007). Institute for Economics Studies, Keio University.
Belesis, N., Sorros, J. and Karagiorgos, A., 2020. Financial Market Data Versus Accounting Data: Which Better Explains Stock
Returns?. International Advances in Economic Research, 26(1), pp.59-72.
Ehoff, C. and Bouillon, M., 2019. Accounting for Goodwill: Still Crazy After All These Years. Journal of Accounting, Ethics &
Public Policy, 20(3), pp.411-419.
Hajimoradkhani, H. and Zare Ahan Panjeh, Z., 2021. How to Use Monopoly Board Game in Accounting Principles Courses. Journal
of Accounting and Social Interests, 11(1), pp.107-126.
Hassani, M., 2019. The Impact of Accounting Information Disclosure Procedure on the Information Content of Stock Price and Stock
Price Risk in the Banks Listed in Tehran Stock Exchange. Quarterly Journal of Islamic Finance and Banking Studies, 4(11),
pp.151-172.
McEnroe, J.E. and Sullivan, M., 2018. An empirical analysis of an alternative model of Financial Accounting Standard no. 128:
Earnings per share. Accounting Research Journal.
Mercl, L., and et.al., 2019, August. Infrastructure Authentication, Authorization and Accounting Solutions for an OpenStack
Platform. In International Conference on Mobile Web and Intelligent Information Systems (pp. 123-135). Springer, Cham.
Mohamed, S.A. and Farhan, K.A., 2020. The Role of the values of accounting culture in maximizing financial performance-A field
study in a sample of Iraqi banks. journal of Economics And Administrative Sciences, 26(119).
Mukhtaruddin, M. and Fuadah, L.L., 2022. International Financial Reporting Standards Convergence and Quality of Accounting
Information Evidence from Indonesia (Peer review 1 Nomor 23).
Nicholls, J.A., 2020. Integrating financial, social and environmental accounting. Sustainability Accounting, Management and Policy
Journal.
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Saleh, A.O.H., Al-Shaghdari, F. and Ali Hakami, T., 2023. Shariah and Accounting Principles for Calculating the Actual Cost of
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pp.564-571.
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ANNEXURE-1
PROBLEM 1
Cash Budget:
particular JAN FEB MARCH APR MAY JUN JUL AUG SEP OCT NOV DEC
Receipts
opening balance 8000 10400 -14030 -29581 -48481 -45895 -6515.7 7741.33 30943.7 65750.6 104921 184822
sales 60000 66000 72600 79860 87846 96630.6 106294 116923 128615 141477 155625 171187
Issue of shares &
debenture 0 2000 2000 2500 2500
total 68000 76400 60570 50279.5 39365.1 52735.6 99778 124664 159559 209727 260545 358509
less payment
purchases 48000 80000 81000 90000 75000 48000 80000 81000 80000 90000 60000 48000
selling&admin 2800 3400 1800 1000 2000 2400 2500 2400 2600 2600 2400 1500
marketing
expenses 5000 5500 6050 6655 7320.5 8052.55 8857.81 9743.59 10717.9 11789.7 12968.7 14265.6
property/rental 1800 1530 1300.5 1105.43 939.611 798.67 678.869 577.039 490.483 416.911 354.374 301.218
total 57600 90430 90150.5 98760.4 85260.1 59251.2 92036.7 93720.6 93808.4 104807 75723.1 64066.8
closing cash 10400 -14030 -29580.5 -48481 -45895 -6515.7 7741.33 30943.7 65750.6 104921 184822 294443

PROBLEM 2
Financial Statements:

Balance Sheet: