Accounting Principles and Financial Statements for Decision Making

This report discusses the importance of accounting principles in complex operating situations, how accounting functions help in decision making and satisfying stakeholders and societal needs, and the branches of accounting and job roles. It also covers ethical issues, financial statements, and cash budget using Excel. Subject: Accounting | Course Code: Unit 5 | Course Name: Accounting Principles | College/University: Not mentioned.

Unit 5 Accounting
Principles

Table of Contents
INTRODUCTION...........................................................................................................................3
Section1............................................................................................................................................3
Explain the objective and scope of accounting principles in complex operating situation....3
Describe how the accounting function are helpful in decision making and to satisfy the
stakeholders and societal needs..............................................................................................4
Describe the branches of accounting and job role of the individual......................................5
Ethical issues that take place in an organization are as follows:............................................7
Section 2...........................................................................................................................................8
Present financial statement and Cash budget using Excel and also interpret the ratios.........8
C. How Digital software is used preparing financial statements..........................................10
Identification of the problem and solution in the Cash Budget as well as impact led by the
same on the organisation......................................................................................................12
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
In this report it discusses about the accounting significance and range in the composite
functioning of environment and work job ability needed in every accounting branch (Alexander
and Fasiello, 2021). They also include some explanations on how accounting assists the team of
shareholders to create advised decisions. Also, it contains the communication of accounting
approach and connection of innovative technology in present day accounting. It also describes
the ethics related problems, ruling and adherence in what size the reason to threat the firm. It
stays with the composition of budgetary cash flow for 1 year and influence to the definite
situation. The financial report includes income statement and the balance sheet of the firm
village wide catering business. However, it carries the justification of this financial document
which truly based upon the liquidity, profitability, solvency and efficiency with the help of the
calculation of some financial ratios.
Section1
Explain the objective and scope of accounting principles in complex operating situation
Every organization need accounting function to run and expand its business operations.
Accounting include several types of activities that are collecting, recording, summarising,
characterising and examining. It is all based on company day to day transactions of income and
expenditures (Paolone, 2020). The recorded data from accounting is also shows a accurate and
proper framework and these collected data are always present in the form of qualitative and
quantitative method. There are several function of accounting which are as follows:
 To keep a record of each and every transaction: Accounting play a major role in every
sector for recording a transaction history of a specific period of time. Due to this business
is helpful in analysing the correct financial position of the company at the end of the year.
It is also helpful at the time of comparing the two or more years’ performance of the
company.
 Helpful in decision making: After analysing the recorded data company is helpful in
taking the right decision for future forecasting or planning. Future decision making
includes what types of practice are useful to maintain the company efficiency. The
business organization also prepare the budget of every department for controlling the
expenditure and increasing the profits.

 Convey results: The top ranked business enterprises generally arises its share in the
market and these share are collected by the potential stakeholders. These stakeholder
refers as outsider of the business but they are connected from this business directly.
Stakeholders include investors, shareholders, employees, customers and providers
(Raхimova, 2020). All these are wanted to know the financial condition of the company
and it is possible only because of accounting.
 Fulfil the legal necessity: The books of accounts always shows the right value of assets
and liabilities at the end of the financial or accounting year. It is directly control by the
accounts department of the business. It is also helpful in analysing whether the
organization are accurately and legally fulfilling the requirement of the business or not.
Describe how the accounting function are helpful in decision making and to satisfy the
stakeholders and societal needs
The department of accounting is always play a huge role in entire organization because
its main focus in the organization is to record the daily transaction. It is also focus on cost cutting
for generating the more profits in a business organization. The books of accounting include
journal, ledger, cash flow statement and income and statement (Sarathchandra and Munasinghe,
2018). It further help the organization and shareholders to collects the useful and valuable
information. The various different aspects are as follows:
 After observing and interpretating of the financial reports, the company is helpful in
taking the right decision on behalf of the company success and expansion. It is implement
by the company through eliminating unnecessary business activities and perform the task
which are necessary for the company growth and development.
 After preparing the financial, business get suggestion about what type of product or
services are useful for the company and what are not by maintaining the company cost. It
provide the idea of making the forecast budget for the business which contain what type
of practices are useful for the organization to perform the task effectively and efficiently.
 The main motive of the business is to increase more and more profit of the company and
it is taken place only when the transactions are recorded by accounts department
accurately. If the organization is not recorded its transaction accurately then it effects the
company profit or sometimes it resulted the loss in a particular period of time.

All these above report is explained the importance of accounting in the business organization. In
the below report how accounting helps the shareholders and society are explained:
 The shareholders and investors of the company generally uses the financial statement to
analyse the company financial position and profit at the end of the financial year. The
Investors invest the money in the company shares that why they observe the financial
statement of the organization. The investor or shareholder only invest on the business
which are profit making and high goodwill (Scepanovic, 2019). After analysing the
report, the investor takes a decision of investing in a particular project or business.
 The analyses of the accounting are only done by the accountants or company CA after the
order of the company manager and founder. The manager is used this data for controlling
and motivating the employee and the owners used for analysing the company profit and
standard.
 Every company have creditors and suppliers which asses the monetary transaction of the
business to analyse the loan amount is occurring and how much time period is taken by
the company to repay its short term debts (Siddiqui and Ahmed, 2020). The creditors are
only give goods and services to company when the company pay them its credits on
timely basis.
 It can be saying that without accounting the business organization is failed because it is
the only way to analyse the company cost and income and the company credit and debts.
The investors or business are both depended on the company accounting records.
Describe the branches of accounting and job role of the individual.
The financial accounting is defined as the art of recording, classifying, interpreting and
summarizing the various statements of the organization which occurs on the daily basis in order
to conduct business operations (VASILE and CROITORU, 2021). This is the way which helps
the business enterprises in order to analyses the business transactions and financial statements in
the effective way.
• Job skills and competencies- it is very important for an individual to know about the
fiscal accounting in order to read and record the transactions. It is very important for the
organization to be aware how to prepare reports. It is very essential to have a good knowledge
of the various accounting software in order to analyses the recorded data. This impact in the
decision making for the company.

• Management accounting- it is very important for the managers to have management
accounting in order to perform the various functions effectively. There are various key elements
for the managers to perform such as monitor and control over the flow of money within the
business enterprise. This helps the organization to eliminate the risk of the overflow of cash
within the organization. It is important to stop the unnecessary the use of the resources to
manage the functions effectively and efficiently.
Cost Accounting: this accounting measures the cost of the production, owners and managers of
the company. It considers the factor of production which suggests the cost that is linked with the
project.
Accounting professional needs to have accountability, flexibility, good communication,
simplicity and so on.
Auditing: This helps in analyzing and ascertaining he financial records of the origination. It is
prepared in the standard format which includes information of the company such as tax
liabilities, etc. The internal auditor of the company is not authorized to do such audits of the
company.
This accounting focuses on the critical thinking, empathy, curiosity, business ethics and
knowledge of taxations. Standard policies show that the auditor should not be biased with the
decision of a company.
Detailed accounting system and the role of technology in modern- day accounting
The system of accounting is the technique which is mainly utilize to maintain the track record of
the financial task that are executed in a company business. In already include in the company
business to maintain the track record of their buying, selling, sales revenue, income and receipts,
assets and debts, etc. it also able to create the statistical information that assists the company and
outsider clients to create illuminated decisions. The approach of accounting handles
expenditures, funding and invoices (Bęczkowska, 2019). The under included parts provide an
justification on how the technology function take a main part in present situation:
 Cloud-based approach: The internet get the important necessity in the present time period
and the company should understand to create overall utilization . It also include some
various business of accounting that are utilizing cloud-based approach to elaborate their
information. Due to which the firms can approach its information anytime by a easy

procedure of login and retrieve the files whenever required. It gives along with backup,
safety security and proved to be mainly advantageous for the firms.
 Better executed customer proceedings: Coming digitally is not really helpful for the
company along with their customer. The customer and accountant they both try to save
its time period and accomplish on-site for the consulting . These both of the clients
analyse, edit and approach the actual time information in the similar point of time by
utilizing meetings and video conferencing.
 Mobile Accounting: Today generation massively using mobile phones and there are wide
verity of the mobile applications that are used in accounting and they fulfil all needs of
accounting like creation of bills, sending important information with the privacy.
 Specialized accounting software: There are many software are formed in the market that
they can done accounting process in very less time with proper accuracy. These software
can make accounting very easy and they also reduce the cost of firms (Bini and Bellucci,
2020).
Ethical issues that take place in an organization are as follows:
 Discrimination: This is a situation when an employee treated different from the other
employee and it is a major problem in any organisation. All employee and workers have
equal rights and they have to treated in equal manner. It is illegal to create discrimination
among the employees on the basis of their cast, religion , age, gender etc. This may lead
to the mental harassment of any worker and can lead to the negative consequences.
 Unethical Accounting Practices: Accounting is presented on the basis of accounting
standards and it is necessary to follow them. Some companies not using these standards
or regulations in order to prepare fake reports to attract investors or to present more
profitable position of the company. Company influence accountant to prepare fake
reports it is a illegal to prepare fake reports. It will damage the image of the company. In
some situation, the business leaks the financial information to the third of other institution
and it shall not do so until and unless very necessary and higher authorities have asked
for it (Boolaky, Mirosea and Singh, 2018).
 Abuse of Leadership Authority: There are some top level managers or employees, they
uses their power in the inappropriate manner. This may lead a firm to conflicts and create
misunderstanding among the manager and sub ordinates.

 Corporate Espionage: Company always store its data in secure hands but some worker or
employees also misuses the information by selling it to its competitors or other parties.
This may take company to bad situations or it can suffer from losses.
Section 2
Present financial statement and Cash budget using Excel and also interpret the ratios.
Financial statements are the statements that shows an organization's financial condition in
a particular financial year. These are the written reports that helps the organization in decision
making process and in forecasting the future plans by analysing the past performance. These
statements are used by the analysts, investors, and financial planners. With the help of these
statements an organizations can analyse the financial health of the company.
Types of Financial Statements
 Balance Sheet
 Income Statements
 Cash Flow Statements
Statement of profit and loss
It is also known as Profit and Loss account, the statement which shows the revenue and
expenses or profit and loss of an organisation in an accounting period. It provides the
information to the lenders, investors that whether the company is in profit or loss during the
financial year. The equation is used to find out the net income is Net Income = Revenue –
Expenses. The income side of statements consists of operating revenue (income from services
charges, commission received) and non-operating revenue (sale of assets, interest received). The
expenditure section includes cost of goods sold, advertisement expenses, depreciation or
amortization. It is also called earning statement, revenue statement, financial performance
statement. It helps the creditors and investors in finalizing the capability of the organization of
generating profit or income in future. Income statement help in calculating accounting ratios
such as earning per share, price-earnings ratio.

Balance Sheet of the Wide catering company
A balance sheet shows a company's assets and how the company financed these assets
whether through equity or debt. The equation used for balance sheet is Assets = Liability +
Shareholder's fund, on the left side of the balance sheets assets are shown and on the right side
liabilities and equity funds. Assets consists of- cash, cash equivalents, closing stocks, short and
long term investments, sundry debtors (person who buys services and goods on credit from a
firm and is liable to pay in future) , patents (intangible assets), accrued income (the income
which is earned but not yet received), plant and machinery, goodwill (reputation of an
organization). The liabilities includes sundry creditors, bills payable, outstanding expenses (the

amount which is not paid yet), long-term loans, reserves, unearned income. Balance sheet is used
in calculating the financial ratios and it shows the liquidity of the company.
C. How Digital software is used preparing financial statements.
Digital software like Quick Books used by the organisation to prepare the financial statement of
the businesses by the help of which the organisations can evaluate and measure the performance
of their operation and it also helps in estimation of the future growth of the organisations. Quick

books prepare financial statements such as profit and loss account, Balance sheet, and cash flow
statements.
Profit and loss statement of Quick books: All the transactions related to Incomes and
expenditures which are recorded by the organisations through digital software like quick
books, then the software prepare profit and loss statement automatically and done all the
calculation by itself and reduce the burden of organisations. The accounts department just
have to record their business transaction accurately. Profit and loss account include
transactions related to income and expenditure only.
Balance sheet of quick books: Quick books also help in preparing the balance sheet of the
organisations. Balance sheet contains all Assets and Liabilities of the business which help
the organisation to determine their financial position. It also includes the Owner's Equity
which show on the liabilities side of the balance-sheet. It is a statement not an account.
Cash flow statement of quick books: Cash flow statements shows the inflow and outflow of
cash in the organisation, it helps the organisation to evaluate the profit which they earn by
investing their cash in other activities. It requires many calculations to prepare but quick books
make it easy by calculating all by itself and reduce the wastage of time of the organisation.

Cash budget for the company for 12 Months
Cash flow statements deals with the cash inflow and cash outflow of a company from its
operations and financial activities. It shows how efficiently a company is managing its cash and
cash equivalents, and helps in managing the liquidity of the company. It helps in analysing how
much cash they need for future activities and from where they generate the cash. It has three
sections: - Operating activities, Investing activities, Financing activities. Operating activities
shows how much cash is generated by selling goods and services, these activities includes-
interest payments, rent payments. Investing activities includes the cash generated by long term
and short term investments. Financing activities includes cash generated from both debt or
equity.
Identification of the problem and solution in the Cash Budget as well as impact led by the same
on the organisation.
 Credit Policy-The reason for decreasing of cash in the organisation is the credit sales
policy of the organisation because generally organisations provide credit facility to their
consumer in the organisation for increasing their sales but the time period of the credit

policy given to the consumer is generally one month so the consumer will pay their
money to the organisation after one month but the expenses of presiding month is paid
by the organisation in the current month which leads to decrease in cash in the
organisation. So to tackle these kinds of situations companies have to reduce the time
period of credit sale given to the consumer.
 Expenditure on Fixed Assets- The next reason for increasing and decreasing of cash is
expenditure which is incurred on fixed Assets of the organisations because Fixed assets
are one time investment and contain huge amount of money and organisations pay that
money at one time which leads to decreasing in cash of the businesses so to rectify the
situation the organisation have to prepare a proper plan and divide in amount in small
parts and pay that money in the instalment at the end of each month which leads to
reduction in the burden of cash in the organisation. And increase the cash of the
organisation.
Organisations are not able to generate revenue and struggling in maintaining of their
position in the market, to bring back the position again then, the organisations have to reduce
their costs and increase the efficiency of the business which leads to increasing in profit margin
of the organisations.
Ratio Analysis:
Ratio Analysis is the systematic way to understand the financial statements so that the
strong and weak point of a organisation or its past and current performance can be find out. Ratio
can be figured out by comparing of two related items so ratio can also be defined as a relative
figure which shows the relation between the two related items.
Liquidity ratio:
Liquidity ratio determine the short term position of the company or any firm. Liquidity
ratios consist of two ratios that are current ratio and quick ratio (Costa Oliveira and Rodrigues,
2018).
Current ratio:
Current ratio refers to the comparison of current assets with current liabilities and it
measure short-term solvency position of the company.

Interpretation: there is a fall in current ratio from the previous year due to increase in the short
term liabilities but current assets of company continuously increasing which is a good sign for
the company. Company can easily meet their short term obligations (Coucom, 2018) (Dichev
and Zhao, 2021).
Quick ratio: this ratio also measures the short term performance of the company but it gives more
accurate results as compare to current ratio by excluding company stock form current assets.
Interpretation: There is a decline in the ratio because current liabilities are increase more
as compare to the current assets. Company has to decrease their current liabilities in order to
sustain in the market.
Profitability ratio: this ratio help a firm to measure its profit percentage on its revenues.

Gross profit ratio: this ratio tells about the profits percentage generated on the gross profit to
sales.
Interpretation: According to the above calculation gross profit margin is increased in year
2021, there is a hike of almost 10% which states that company is efficiently working in order to
generate profits (Hassan and Mollah, 2018).
Net profit ratio: it is the ratio that help a firm to measure its profits on the amount of total
sales. It consider profit before interest and tax.
Interpretation: the above calculation shows decline in the net profit ratio. The reason
behind this fall is low level increase in the profits as compare to sales.
Turnover ratio : It shows the amount generated by the assets or liabilities on the total sale
amount. It shows the efficient of a firm to utilise its assets (Krismiaji, 2021).
Fixed Assets Turnover Ratio: it is used to measure the amount generated by sale of fixed assets.
It shows the efficiency of a firm to generate maximum profits on its fixed assets.

Interpretation: according to the above calculation it states that company is not able to
generate profits in year 2021 as compare to previous year.
Inventory Turnover Ratio: it shows the capability of the firm to convert its stock into sale.
It shows how much times a company sale its available stocks.
Interpretation: there is a decline in the ratio of inventory turnover, the reason behind this
fall is increase in average inventory. This shows company is less efficient in selling their assets
as compare to year 2020.
Solvency ratio: This ratio help in measuring the long term solvency position of the firm.
This also tells that company is able to meet its future uncertainties or not(Maama and Appiah,
2019).
Debt Equity Ratio: It shows the capability of the firm to meet its long term debts by
shareholders fund if any problem arise (Maulana, Rohman and Prabowo, 2022).
Interpretation: the ideal ratio of debt equity ratio is 2:1. according to the calculations
company is not able to manage its debts and equity. Both the year has low debt equity ratio as
compare to previous year. Company is more risky to invest in the eyes of investors.

CONCLUSION
The above report concluded that the main part of each and every business firm to have
advance and better knowledge and ability to know the accounting for the various of divisions.
The upward statement provide the exposition for the working of accounting and the big role in
the firm. Along with this they also illuminate he inequality, unethical practices of accounting and
harassment these are the very big ethical problems that company need to be come up.

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