Accounting Principles, Financial Statements, Budgets and Financial Ratio Analysis

This report covers the importance of management accounting and financial statements in accordance with accounting principles, conventions and standards. It also discusses how budget planning and forecasting helps to predict future events and corrective actions which are taken to achieve long term objectives of the company. Additionally, it includes the computation of financial ratios with the help of financial accounts and the assessment of the accounting function within the organisation in the context of regulatory and ethical constraints.

PART1 Accounting
Principles Standards
Financial Statements
and Budgets
PART2 Financial
Ratio Analysis
Table of Contents

INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
P1. Examine the purpose of the accounting function within an organisation-.......................3
P2. Assess the accounting function within the organisation in the context of regulatory and
ethical constraints...................................................................................................................5
P3. Compute the financial statements of the company for meeting the accounting principles
and standards..........................................................................................................................7
P4. Computation of financial ratios with the help of financial accounts:..............................8
P5. Analysing the performance of ABC Limited:................................................................10
P6 Calculation of cash budget from given data for an organisation using a spreadsheet....10
P7 Covering the benefits and limitations of budgets and budgetary planning, and control for
an organisation:....................................................................................................................11
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Accounting standards and principles are the general rules and regulations that must be
followed or give guidance to the accountant while reporting and recording financial information
in financial statements (Amel-Zadeh, Meeks and Meeks., 2020). The objective of accounting
standards is to to bring uniformity and comparability to the financial statements, which then
provide assistance to investors, lenders, creditors and other, etc. The standardized set of
accounting principles have been issued by the Financial Accounting Standards Board (FASB).
The organisation which is chosen for this report is Brainslabs which is a data-led marketing
agency, helping businesses build experimentation-led marketing through display, CRO and
analytics in London, United Kingdom. This report includes the importance of management
accounting and financial statements in accordance with accounting principles, conventions and
standards and how budget planning and forecasting helps to predict future events and corrective
actions which is taken to achieve long term objectives of the company.
MAIN BODY
P1. Examine the purpose of the accounting function within an organisation-
Accounting is the method used for business records, organises and understands its
financial information. Accounting works as a big machine in which organisation put information
as raw material form into- records of all its business transactions, taxes, projections etc. which
then tells a true picture of the financial state of business. There are many steps involved in
accounting. The first step is bookkeeping, also known as accounting cycle. It is a process that is
formulated to take in transaction data and spit out consistent and accurate financial reports.
Organisations both big and small, public and private, for profit and non-profit are induced by
numbers. For tracking sales, making payroll, managing inventory, efficient managers know that
keeping tabs on those numbers is important but without a solid accounting function that is next to
impossible. Businesses pursuing a well-rounded accounting function need to consider different
aspects of accounting other than just debits and credits (Duong and Truong., 2021).
The preliminary purpose of accounting function is to keep ongoing financial records. Keep a
check on all types of monetary information such as operational expenses, salaries, capital
expenditures, donations, investments, cash flow, utilities etc. should be tracked on a monthly

basis. The ongoing result is making the financial history of organisation that can be used in many
ways as it gives an assistance to managers to know the financial health and wealth and also for
investors who are seeking to invest in the company (Fauré, Cooren and Matte., 2019).
These are the functions of accounting and their purpose with context of firm Brainlabs are given
below :
 While keeping financial records – For maintaining an accurate and up-to-date record of
the day to day financial transactions of the firm Brainalabs such as purchases, sales,
borrowings, receipts and payments, accounting helps organisation.
 For monitoring financial transactions – Accounting is very helpful for accountants to
get a brief relating to payments due to the Brainlabs company and receipts earned by the
company to ensure it receive the revenue and remains profitable.
 While preparing financial reports – To prepare different types of financial reports,
complete accounting is needed. Accounting involves preparing detailed monthly,
quarterly and annual financial reports about the assets of Brainlabs company, their
borrowings, profits and losses for internal and external shareholders, etc.
 For managing payroll payments – With the help of accounting , the firm Brianlabs can
maintain a clear record of employee welfare fund, statutory provident fund, employee
provident fund, etc. and also make payroll payments every month, issue employee work-
related bonuses or performance bonuses and manage employee benefits too.
 For making bill of payments – The function of accounting also helps in checking
accounts to make sure that bills are properly expensed off and setting dates for payments
and paying the bills that the company bound to pay to various vendors and suppliers on a
fixed date (Haddad, Shibly and Haddad., 2020).
 To prepare budgets or forecasts and financial projections – In the firm Brainlabs, to
check the future profitability of the company, there is a need to prepare forecasts /
budgets of the organisation's financial data. Financial projections are prepared by
analysing the company's available financial resources, expected revenues, future
expenses, etc. and with the use of this information firm can predict future business
expansion and growth.
 For a review of performances - Accounting also helps in performing financial reviews
regularly and to check the performance of different departments, fixing some

performance evaluation criteria and also give rewards to one who fulfil the criteria
efficiently.
 To comply with statutory and legal requirements – The accounting saves the firm
Brainlabs from penalties for non-compliance by complying with all the statutory ad legal
compliances which are applicable to the business with keep on check all industrial and
government rules, regulations and policies related to taxation, financial reporting, and
employee wages related compliances.
 To make available for auditing – With the help of financial record, the auditor of the
company Brainlabs can conduct financial audits of the company, identify discrepancies
and provide corrective solutions (Kelly., 2020).
 For keeping financial resources up-to-date – The accounting functions is useful in
identifying the financial weaknesses and strengths of the business firm Brainlabs,
providing solutions and strategies to overcome the weaknesses and improve strength.
P2. Assess the accounting function within the organisation in the context of regulatory and
ethical constraints
The term “Ethics” is usually stand for determining the difference between wrong and
right. Sometimes its true to say that ethics is conditional term from one to another such as if it is
right for one person then its not mean that is right for the another one. The another factor of
accounting is regulation that helps to maintain the rules and guidelines of an organization. In any
company or organization which used some ethics and regulatory. By running the business there
are several types of ethics are followed such as developing and increasing their position in the
market, gaining trust of consumers and established honesty and fairness while in regulatory the
company need to cover some factors such as analysing accountant nature and work achievement.
They both are the key of accounting function within the organization but these two terms take
more efforts which arises the problem for accountants at the time of performing these activity in
an enterprise (Kharlamova and et.al., 2020). The organization brainlabs appoint most of the
skilled and specialised employees for maintaining the accounts properly. The accountant of
company brainlabs responsible for recording day to day transaction and controlling expenses. At
the time of performing this activity the accountant of an enterprise face several issue in context
of ethics and regulatory are as follows:

 Pressure to manipulate the figures: The brainlabs company has maintain their standard
and position in the market for years in UK but at the time of any imbalance in accounting
or financial statement the company make changes. These respective changes taken place
because of the company do not want to shows their exact condition to external and
internal investors so, the company force to their accountant to balance the books of
accounts showing good financial statements. They have to be done these changes may be
because fear of losing jobs, or clients. The problem is also arise when the accountant was
not doing well in controlling the management or failed to do work ethically and legally
that effect the careers growth (Kholbekov., 2021).
 Sins of omission: The problem of omission arises when the company lie to their investors
by showing them wrong financial statements and market position of the company. The
brainlabs company also uses this trick in front of their client. As the company brainlabs
was deals in Marketing and pr it means they provide loans, advances and interest to their
customers and investors. Sometimes, they misrepresent numbers to their investors by not
giving the full information and risks position of the company. At the end of the day, when
the investor not receive their interest on investment and puts question on company
financial statements.
 Access to information and confidentiality Issues: In every company the accountant
have all confidential information. The UK company brainlabs also share information
about the company to their accountant. But the accountant was failed to secure the secrets
which arise the ethical issues for an accountant. This leads to the stop the growth of the
company and also decreases the market value. If the information was leaked in outside
the organization means in the hand of other competitor company then it create a big issue.
The competitor company takes all advantages by stealing ideas and knowledge about the
company. This issue also arise the regulatory and ethical constraints.
 Conflicts of interest: This issue is not easy to analyse, it takes more time and specialist
to recognize it. The company brainlabs is also create this type of an environment which
effected the company accounts and generate more politics in management. This type of
environment is easy to adopt in any company management but difficult to remove
completely. In this company the generate and sell their shares in the market in higher

prices without knowing their result. The impact arises when the audit take place and the
company do not know what to say.
 Blowing the Whistle: It is also a major issue of ethics when to blow the whistle on a
company management who are generating this problem by misrepresenting numbers and
using unethical way for completing the work. The accountant of brainlabs also do the
same by giving some informations which leads to the huge damaging which impact on
the cost of company stock. The company brianlabs hurt the internal and external investors
and co-workers out of work and into financial danger respectively.
 Lack of creativity: It decrease the accountant creativity because the management of the
company brainlabs control the accountant and not giving the type of data and work that
the accountant is specialised (Lento., 2018).
 Effect of greed: It is also generate a issue of ethics and regulatory when the accountant
change the financial transactions as per the company needs or sometimes for hiding the
false transactions. It is the major drawback of company brainlabs because the person who
are manipulate the company financial statement are responsible for recording brainlabs
accounting day to day transactions.
 Paying additional money: The Brainlabs company is also effect the company investors
and customers by paying extra amount as a penality because the accountants team of the
company do not make a proper and systematic records.
P3. Compute the financial statements of the company for meeting the accounting principles and
standards.
Income statement: This is the second important statement which is also known as profit
and loss account. This statement tells about financial position of the company over a period of
time. Income statement mainly focus on Company's Revenue, expenses, gains and losses. It start
wit the revenue and end with the net profit. It gives full information of expenditures and
incomes. It tells how much a company earn during a specific period.
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: It is a last statement which shows all assets, liabilities and Shareholder's
Equity. This is a very important statement for investor and creditors to evaluate financial positing
of the company for a period of time. Balance-sheet shows what a company owns. Balance-sheet
is used to analyse and evaluating company's financial position and also help in calculating
financial ratios.
Balance Sheet
Liabilities Amount Assets Amount
Capital 180000 Premises 160000
Less: Drawings -12000 Equipment 150000
Shareholder's Capital 168000 Trade Receivables 45000
Net Profit 183000 Inventory 28000
Trade Payables 46000 Cash at Bank 14000
397000 397000
P4. Computation of financial ratios with the help of financial accounts:
1. Current Ratio: Current ratio states a company liquidity position. This ratio help to
calculate how many times a company can able to meet their short term liability or debt with their
current assets (Li and Meeks., 2020). This ratio is comparison of current liabilities with the
current assets.
Current Ratio: Current assets / Current Liabilities
= Stock + Sundry debtor + BR + Cash at bank / Sundry creditors + bills payables

= 200,000 + 100,000 + 10,000 + 40,000 / 100,000 + 50,000
= 350,000 / 150,000
Current ratio = 2.3 : 1
Interpretation: The ideal ratio of current ratio is 2:1. Company's current ratio is 2.3:1 which
shows company doing well and company is working efficiently and effectively.
 2. Quick Ratio: This ratio tells about the short term position of the company. This ratio
give more accurate results from Current ratio. In the calculation of this ratio Inventories
are excluded from current assets.
Quick Ratio: Quick assets / Current liability
= Sundry debtor + BR + Cash at bank / Sundry creditors + bills payables
= 100,000 + 10,000 + 40,000 / 100,000 + 50,000
= 150,000 / 150,000
Quick Ratio = 1 : 1
Interpretation: The ideal ratio of Quick ratio is 1:1 and here company's ratio is also 1:1.
Company has to manage this position and try to improve. Company already in good position.
3. Debt equity ratio: It is a type of leverage ratio which tells about the company have
enough Capital to meet future uncertainties (Mangold, Shima and Yang., 2021). This ratio help
in measuring long term capability of the firm to meet their non-current liabilities with the share
capital.
Debt equity ratio: Debt / equity
= Debenture / Share Capital
= 420,000 / 200,000
Debt equity ratio = 2.1 : 1
Interpretation: ABC limited debt equity ratio is not good which is 2.1:1. Company is mainly
depended on the long term borrowing which is not good for the company's financial structure.
4. Proprietary Ratio: This ratio tells about the portion of the shareholder in the capital
structure of the company. Higher proprietary ratio shows effective management control over
capital of organisation. This ratio also help investors to develop trust over company.

Proprietary Ratio: Proprietors Fund or Shareholders Fund / Total Assets
= (Share Capital + Reserve & Surplus + profit & loss / Total Assets) * 100
= (200,000 + 40,000 + 40,000 / 840,000) * 100
= (280,000 / 840,000) * 100
Proprietary Ratio = 33.33 %
Interpretation: Due to more dependency over long term borrowing Company can face financial
problem in future. Proprietary ratio of company is very low and company has to improve it.
P5. Analysing the performance of ABC Limited:
Performance analysing is the process of studying or evaluating the position of a company
and individual. This is a very important process for a organisation to achieve their future
objective without any wastage of resources. The short-term position of the company ABC
limited is very good but in long term position company mainly depended on long term financing
which is very risky for the company. According to the ratios calculated Company's current assets
are more than twice with the current liabilities. Quick ratio of company is on ideal position
which shows firm is efficiently and effectively maintain balance between current liabilities and
current assets (Martins, Silva and Fontes., 2019). Company's long term position is not good to
meet future financial risk because company is highly dependent over their long term borrowing.
Company has to increase their revenue to decrease these borrowing. Long term debts of the
company is more then twice of its share capital. This situation can decrease the trust and interest
of creditors and investors which harm company's value. Proprietary ratio of company is not
favourable for it because company not able to generate that much of profit to decrease their
borrowings and also not able to increase share capital. Company has high risk of bankruptcy and
increase of interest rate on borrowings. At lastly company's short-term position is good but long
term position is not in favour of it. Company has to take immediate steps to maintain their long
term position.
P6 Calculation of cash budget from given data for an organisation using a spreadsheet.
Cash flow: It is a financial statement which consider all the cash related transaction either
they are inflow or outflow. This statement keeping record of all cash incomes and cash

expenditures. It shows how well a company manage their cash transaction. There are three main
component in the Cash flow statement which are Operating activities, Investing activities and
last Financing activities (Negash and Lemma., 2020).
Particulars
Jan
uar
y
Feb
rua
ry
Mar
ch
Apr
il
M
ay
Jun
e
Jul
y
Aug
ust
Sep
tem
ber
Oc
to
be
r
N
ov
e
m
be
r
Dece
mbe
r
Receipts
Opening
Balance
800
0
160
80
-
3010
0
-
660
50
-
11
67
00
-
144
900
-
132
540
-
175
930
-
216
610
-
23
31
30
-
27
88
20
-
3020
20
Sales
660
00
440
00
4950
0
440
00
55
00
0
660
00
440
00
495
00
715
00
49
50
0
44
00
0
6600
0
Issue of
Shares 0 0 2000 0 0
200
0 0 0 0 0 0 0
Issue of
Debentures 0 0 0 0 0 0 0 0 0
25
00 0 2500
Total (A)
740
00
600
80
2140
0
-
220
50
-
61
70
0
-
769
00
-
885
40
-
126
430
-
145
110
-
18
11
30
-
23
48
20
-
2335
20
Less:
Payments
Purchases
480
00
800
00
8100
0
900
00
75
00
0
480
00
800
00
810
00
800
00
90
00
0
60
00
0
4800
0
Selling &
Administrati
on Expenses
280
0
340
0 1800
100
0
20
00
240
0
250
0
240
0
260
0
26
00
24
00 1500
P7 Covering the benefits and limitations of budgets and budgetary planning, and control for an
organisation:
Budget: Budget is a set of objectives which are predetermined by the organisation. It Is
prepared after examine current revenue and expenditure of the organisation. Budget is allocation
of finance for a specific purpose or Objectives. It is a set of assumptions based on future. It is a
pre-planed process in which company set a goal to achieve. Budget is prepared keep in view of

future market conditions and future uncertainties (Proskurina and Pushkar., 2020). Budget is
made for a specific period of time.
Benefits of budget:
 Budget is helpful in controlling wastage of resources and it has also control expense, so
that company can achieve their predetermined objective in low cost.
 Budget plays a vital role in Decision making process. It remove risk of unwanted or
wrong decisions.
 Budget also help in increasing individuals efficiency to achieve goal. Without setting any
goal individual can not work effectively.
 This is a continuous process which help management to reduce the chances of any
deficiency by tracking activities day by day.
 If budget is prepared after analysing Market conditions, future uncertainties, competition
and financing conditions then there is high chance of success of budget.
 Budget is an important management process which is perform bye the management to
achieve the goal with full accuracy.
Limitation of budget
 Budget is based on assumptions so they are not always correct. A budget is prepared by
evaluating past performance or past market conditions.
 This is a time consuming process. Sometime it is too lengthy for the manager who
prepared it and the interest of manager may reduce while preparing.
 Budgets always followed by predetermined path because they are not flexible in nature. If
the taste or demand consumer change between the budget process then company has no
option to resolve it (Richardson., 2020)(Rosa., 2018).
 In the process of budget many department take part if one department is not able to
achieve its goal then it will damage the whole budget. There is high risk of department
failures to achieve their organisational goal.
 A budget is prepared with the help of professional individuals and specialist which
increase the cost of whole process. Budget increase the operational cost of project so that
profit is minimised.
Budgetary planning: It is the process of building budget and allocation of resources.
Budgetary planning is the approach of setting up goal and preparing complete plan to achieve it.

Budgetary planning includes Creation of policies and procedure, Setting time to achieving
milestone, allocation of resources, Selection of individual departments etc. Planning is a very
important process because without planing a budget can't succeeded (Tang, Srivastava and Liu.,
2020).
Advantages of Budgetary planning:
 This process help in motivating employees to achieving predetermined goal and aslo
help in timely elevating their problems. It also help in managing co-ordination among
the department as well as employees.
 It provide complete knowledge regarding future expenditure which incurred in future.
Planning decrease the waste of resources because their uses are already determined.
 Budgetary planing provide record of all further organisational activities which helps
employee to feel free for their work.
Disadvantage of Budgetary Planning:
 Budgetary planning does not give proper or accurate knowledge about future costs.
 Budgetary planning fails when employees is not able to give their best for the goal.
 Planning is a very long process and taking all things in one process is very difficult which
result some important left behind.
Budgetary Control :
The process of planning and controlling all the functions of an organisation through
comparison and analysis of budgeted numbers to actual results. After getting the comparison
between figures, management will enable to find out disparities and take remedial measures in
due time (Tekbaş., 2022). A budget is a means and budgetary control is the end-result. There are
several types of budgetary control an organisation can implement – operational control, cash
flow control, capital expenditure control.
Advantages of Budgetary Control-
 It is an effective method for measurement of performance of departments, individuals and
research and development department.
 It helps in identifying the areas where cost can be reduced and efficiency will increase.
 Budgetary control helps in introducing incentive schemes and projects on the basis of
performance.

 Helps in profit maximisation of the company with increased efficiency and cost reduction
results.
 The first and foremost target of the company is cost reduction which is entirely focused
by budgetary control.
 It provides better coordination between departments because of interrelation between
costs and results (Terdpaopong, Visedsun and Nitirojntanad., 2021).
 It produces insight for in-depth analysis and corrective action for the disparities.
 It is helpful in achieving the organisation's long term objectives.
Limitations of Budgetary Control -
 Budgeted figures often need revision as environment is dynamic. So, it is difficult to
predict the exact future scenario.
 Preparing budgets is time- consuming and costly process which need people and
resources as well (ZUND, A., 2018).
 The budgetary control can be done only when the departments have a good coordination,
which is actually difficult to get.
 Comparison between budgeted and actual results is destructive to employees motivation.
 It is mostly uses past recorded figures and ignores demographics.
 It does not predict the government policies and tax reforms against transactions and
projects (Yin, Zhang and Han., 2020).
 Natural events like rain, monsoon, climate change and other unforeseen events which
cannot be controlled affect the actual performance of an organisation.
CONCLUSION
From the above project it can be concluded that there are many factors which influence
the day to day activities of the company Brainlabs, which in result affect the financial
performance of it. The impact can be direct or indirect depending upon the nature of the factors.
The firm Brainlabs in this project research is productive and efficient in the sector and also have
a variety of corrective action plans according to the circumstances which may occur in future.
Brainlabs has the potential to deal or work with new features and techniques which is an
important requirement for survival and growth of the business in the cut-throat competition. And

also has the good prediction of future events with consideration of past data with the helps of
budgetary control techniques.

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