Business Finance and Economics: Role of Accounting and Decision Making

BUSINESS FINANCE AND
ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................3
1) Determinants of business performance....................................................................................3
2) Role of accounting and its importance in reporting and decision-making..............................3
3) Major financial statements.......................................................................................................4
4) Ratio Analysis..........................................................................................................................6
5) Management accounting and its importance in planning, control and decision making within
an organization.............................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
The current project is associated with the concepts of business finance and economics
that are applied in the routine operations of the organization. The report shall be showing the
various micro and macro factors that govern the performance put by the business organization.
Further it shall be highlighting the importance of accounting function in respect of preparation of
the financial statements, corporate reporting and based on that the decision making process is
undertaken. The report shall be demonstrating the various financial statements that represents
different positions as to the health and well-being of the company. Lastly it shall be describing
the concept of management accounting and its assistance in formulating decisions.
MAIN BODY
1) Determinants of business performance
The business performance of any company depends on some micro and macro
environmental factors that are significantly impacting the business performance that is generated
by the company. The micro factors are one which are directly associated as well as has a direct
impact on the performance of the business. Some of the micro factors that have been contributing
in determining the success and performance in the organization are its customers, suppliers,
competitors and the general public at large who function effectively to position and shape the
brand image of the company. The change in the behavior of these factors shall be directly posing
impacts on the business.
Apart from that there are some macro environmental factors that belong to the external
environment of the business and have been posing various threats that are to be minimized and
the opportunities that are to be capitalized by the organization (Klopotan, Zoroja and Meško,
2018). These can be competitive environment, demographic environment, social, economic and
the environmental concerns of the business.
The competitive environment of the business is also affected by the change in certain
economic factors like the interest rates, inflation, recession, level of employment, foreign
exchange rates etc. If the business has a competitors who is exposed to the exchange rate risk
then company can capitalize and build competitive advantage in the market. If the company has

growth prospects and is planning for the expansions and within that time if the interest rates fall
then they can borrow at cheaper rates and finance the expansion programme. Whereas on the
contrary in the same situation there is highly depressed economy then the growth programmes
shall be failing.
2) Role of accounting and its importance in reporting and decision-making
Accounting plays the significant role in the organization as it records and summarizes all
the financial transactions of the business and then further assists in the preparation of the
financial statements that are disclosing the necessary information related to the operations. The
accounting function of the management involves two type of accounting one is the financial
accounting and the other is the management accounting. The prior is concerned with the
formation of the financial statements recording, summarizing and interpretation of the financial
activities that are undertaken in the business. These financial statements shall be depicting the
financial position and profitability of the business. This shall then be communicated to the
managers of the company who will formulate decisions based on these statistics and the past
trend that is followed by the company (Hertati and et.al., 2020). These decisions are further
informed to the subordinates in the form of goals and objectives of the business that are to be
achieved by following a common path and coordinating the efforts in the same direction.
Accounting comprises of a fixed procedure that is to be followed from the recording and
posting of the financial events in the primary books of accounts. These transactions are then
further summarized and interpreted in the secondary books of accounts which interprets the
results regarding the profitability, efficiency, liquidity and the future growth prospects of the
business. This data is also used by the internal and external users of the financial statements to
formulate the decision in respect of investment, supplier relations, customer loyalty etc. and the
management of the company uses these statements to form the budget which are then used to
forecast the financial data. Also, these statements show that the company has been following the
policies and procedures that are defined, fulfilment of the corporate social responsibility,
statutory compliances, green accounting and the evaluation of the performance of the business
entity.
The major importance of these financial statements can be felt in respect of the reporting
requirements that it meets in respect of disclosing the financial results of the company. Apart