Business Finance and Economics: Importance of Accounting, Financial Statements, and Management Accounting

This article discusses the interlinkage between business finance and economics, including the main determinants of macro or micro economic factors, the importance of accounting for reporting and decision-making, the difference between financial statements, and how to evaluate ratios using balance sheet and income statement. It also explains the concept of management accounting and its importance for planning, controlling, and decision-making within an organization.

Business Finance
&
Economics

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
1. Explanation about the main determinants of macro or micro economic factors to showcase
the business performance in impact with the competitive environment.....................................3
2. Defining the importance of accounting within an organisation with respect to both reporting
and decision-making...................................................................................................................4
3. Difference between the main financial statements and explain the layout & terms used
within the Statement....................................................................................................................6
4. Evaluate & Interpret the following ratios by using balance sheet and income statement:......8
5. Explain management accounting and discuss its importance for planning, controlling and
decision-making within an organisation.....................................................................................9
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Organization finance and economies are the interlinkage between the financial and
economical criteria. Financing is focused upon the accounting system and economies is centred
on the assumptions which basis on the outcome of companies relative formulation(Aisy,
Mulyono and Susilowati, 2017). The company is also showing the different factors of economy
which will put down impact upon its competitive advantages. The company is also showing it
roles & importance over the accounting per-forma and management accounting with the proper
layout and calculation of resources of the major financial statements.
TASK
1. Explanation about the main determinants of macro or micro economic factors to showcase the
business performance in impact with the competitive environment.
Organisation is performing based upon various inclusion of the components in the
marketplace either with positive or negative impact. This supposed to be in the
controllable or uncontrollable environment for influential decision-making power. The
major determining factors in regards with firm performance are as follows:
1. Customers: Business has inclination of the large scaling individuals which can be B2B,
B2C, domestic or global recognized. They are majorly impacted upon the running
concern by taking their decisions of purchasing from the outside world. These are the
micro-economic factor because it can be controllable in nature by fulfilling their taste &
preferences without delay.
2. Suppliers: This determinant is consisting the control nature in the market-area to
establish their identification with various business. If supplier-person is setting up the
monopoly in the field by covering largest area, they can brought up impact upon the
performance of enterprise(Arnold, 2018). Because their products & services become core
and necessary for the business entity.
3. Demographics: This is the concept of considering various segmenting & targeting
market strategies which includes the age, region, culture, lifestyle and other factorization.
If the company is choosing right target market with different allocation strategy, this
means they are in the block of stable performance.

4. Political: Every business are under the eye-lock of the governmental & political power,
rules & regulation to legally optimize and running the enterprises in the smooth manner.
If entity is also not properly follows these cautions and obligations, this means they are
infringing the laws. This is showing the negative impact on the business performing
activity.
Economic Factors that affects competitive environment:
These facets having connection with the goods, services and cash-movement. This
determinants are showing the financial status of the company (Bikfalvi, 2017). These includes
some of the major objectives of the scenario which are:
1. Interest rate: It is vary from place-to-place along with individuals. These ratings amount
specially shown in the banking institutions for different transactions on money movement
for large loans for domestic as well as global companies. These type of rates for various
nations are impactful for its competitive benefit.
2. Exchange values: This scaling is based upon the export & import dealings fluctuation in
the market. It is focused on the present timing rates of transactions. Any kind of changing
values at the time of exporting & importing will directly affect the company's competitive
advantages because of high & low amounting in the marketplace.
3. Recession: It has the potentiality to change the buying behaviour of the customers based
on their demanding & supplying. If recession increases, companies have to drop out their
pricing level. It become highly impacted positive or negatively upon the beneficiary area
of the organization (Birch, 2017).
2. Defining the importance of accounting within an organisation with respect to both reporting
and decision-making.
Accounting system is using for the measurement and summarization of the monetary
funding. It is helpful for taking beneficiary judgements and to make improvement in the financial
positioning in the system by doing better placements of given information. Business also
recorded their data in the Statement of financial position and income portfolio. This reporting of

data procedure has been disclosed the overall position and annual performance of the
organization.
Importance of accounting reporting & decision-making:
1. Amendment of beneficiary decisions: It is helpful for making concise, expert and
trending scenarios while compiling the informative judgement. It only gives knowledge
when the tracking of proper records has been done.
2. Transparency in nature: Company has been showing its financial position and profit-
loss scenario at the time to influence the shareholders and stakeholders (Borg, 2019).
This can be only possible when they are presenting transparent nature.
3. Statutory compliances: Accuracy and standardization in the financial reports of industry
has been considering the full support with the government norms. Because they have all
the legal compilation of financial structure.
4. Managing Debt-obligation: These accounting system and alignment of the company
structure has been providing the direct impact on its assets & liabilities transactions. It
become valuable for the effective & efficient management of the outstanding obligations
in the current and future time period.
5. Taxation policies: Corporation is also defining the tax portion deduction within the
revenue generation. It is conceptualize the rational risk-breaking decisions of the system
in against with the governing norms. It cannot take any burden from filing the tax-returns
because they are comes under the legislative theory (Cruz and Miranda, 2021).
6. Future assessment: The enterprise is also taking advancement & grabbing opportunities
about the future assignments in the firm. If their concept of futuristic goals and objective
are clear in mind, then it will be beneficial for them.

3. Difference between the main financial statements and explain the layout & terms used within
the Statement.
These structures are the integral portioning of the accounting system. It is helpful for
evaluating the profitability, positioning and performance to make the further decisions
(Grossmann, Mooney and Dugan, 2019). The comparison between these are as follows.
BASIS BALANCE SHEET PROFIT & LOSS STATEMENT
1. Definition It is defined as the part of the
companies fiscal position that has
inclusion of assets, liabilities and
other shareholder's equities at a
particular period(Atems and
Shand, 2018).
It refers to the organizational
revenues and expenditures occur in
the accounting system periodically.
It is showing the exact valuation of
the firm's facets.
2. Preparation It is prepared on the last day of
the running year.
It is preparing for the fiscal year.
3. Information
inclusion
It has included the assets,
liabilities and capital of the
company.
It is involving income, expenses,
gains and losses.
4. Accounts This accounting does not loose
their identity after prepared
instead they can carried out its
balancing for the further year as
opening amount.
These accounts are being closed
and ceased to have existence in the
environment.
5. Sequence It is making after the profit & loss
account.
It is establishing before the balance
sheet.
→ Layout and terminologies of balance sheet:
In this structure, it is generally prepared in a vertical format of the equation scenario. This
gives a concise framework to user about the total assets which is always been equal to liabilities
& capital side. It is normally producing at the end of fiscal year and presents the financial

perspective on the last day (Macellari and et. al., 2021).There are different terms which has been
used by XYZ Ltd while making this, which are as follows:
1. Non-current Assets: These are the facility which is being converted & used in money
for the long-periodical(Manzur, 2018). The company included the property,plant &
equipment; Land & buildings and fixtures & fittings in the particular format.
2. Current Assets: It is presenting the conversion of company's facets into money within a
short-period. This includes the inventories, trade-receivables and cash-at-bank.
3. Shareholder's Equity: It has involved the equity shares, retained earnings and reserve &
surplus which shown the capital base of the companies.
4. Non-current Liabilities: It has the pay obligations time-period after one year or more.
This only includes the borrowings at 9% loan notes as long term liability (McGaughy and
Reza, 2018).
5. Current Liabilities: It has a payable obligations only in the short period within quickly
changeable scenarios. The organization entitled trade payables, taxation and short-term
borrowings in the less-pay ability periodic.
→ Format and terms of the profit-loss statement:
This layout has been shown in the vertical order-wise which simply connected with the
revenues made, evaluate gross profits as the base of direct expenses and net-margins with the
bases of indirect incomes & losses. It has been created to analyse the company performance over
a specific period. It is key basis of other financial structures.
1. Sales-revenue: It is the benefit which received by the company from the selling of
products & services. Business has defines the net-sales of the company.
2. Gross Profit: It simply means the deduction of incurred production costing with the sales
amounting is being brought up as gross income.

3. Operating Expenses: These workings are the establishment of the key functional
expenditures within the company (Modell, 2020). It is also known as direct expenses.
These are impactful for the gross-marginality activity.
4. Non-operating expenditure: In this criteria, the coverage of administrative, selling &
distribution has been included. It is also known as the indirect costing. These shows the
impression on the net-benefits of the organization(Wang and et. al., 2020).
5. Net Margin: It is the overall performance after deduction of all the cash-outlays,
taxations, depreciation and other values which has the greatest impact upon the net-
valuation of the system.
4. Evaluate & Interpret the following ratios by using balance sheet and income statement:
a) Return on Shareholder's Equity: (Profit after Taxes / Total Equity) * 100
Year 2019 = (167 / 675) * 100 = 24.74 %
Year 2020 = (12 / 645) * 100 = 1.86 %
Interpretation: This is known as financial ratio's that shows the higher efficiency of the
equity funding. XYZ Ltd is having two year equities with them and their approximate margin for
2019 is 24.74% and for 2020 is 1.86%. The 2019 capital management presents the much high
efficiency in system instead of 2020 ratio.
b) Return on Capital Employed: Net operating profit before interest and tax / Capital
Employed
Year 2019 = 240 / 925 = 0.25 times
Year 2020 = 35 / 995 = 0.04 times
Interpretation: The income from capital employed shows the generated operating
benefits for each capitalism invested. XYZ Ltd has more functional capital return in 2019 of 0.25
times rather than 2020 of 0.04 times. So, it clearly seen that year 2019 is more favourable for the
company.
Working Notes:
Capital Employed = Fixed Assets + Current Assets – Current Liabilities

2019 = 520 + 595 -190 = 925
2020 = 600 + 690 – 295 = 995
c) Operating Profit Margin: (Operating Income / Net Sales) * 100
Year 2019 = (240 / 2500) * 100 = 9.6%
Year 2020 = (35 / 2750) * 100 = 1.27 %
Interpretation: It shows the how much a company can earn after deducting all the direct
& indirect expenses with the basis of sales percentage(Douarin and Havrylyshyn, 2021). In 2019,
the firm is occurring 9.6% profit-margin as high compared with 2020 which is 1.27% only. It
presents the expenditure control in overall scenario.
d) Current ratio: Current Assets / Current Liabilities
Year 2019 = 595 / 190 = 3.13
Year 2020 = 690 / 295 = 2.33
Interpretation: It simply means high obligations payouts capabilities in the firm with the
larger ratio of short-period assets. Year 2019 is having paying debts responsibilities which is 3
times than its liabilities and year 2020 is also having 2 times paying obliged situation which is
also great. But 3.13 condition is much profitable because XYZ ltd pay high amount of
outstanding in one time.
e) Earnings per Share: Net profit / Number of outstanding shares
Year 2019 = 167 / 800 = 0.21 per share
Year 2020 = 12 / 800 = 0.015 per share
Interpretation: This consist of shareholder's yielding proportionality having the highest rated
payouts and earnings to each one of them(Falcone, 2020). In year 2019, maximum 0.21 per share
income has been distributed to equity holders instead of year 2020. It simply means, there are
less proficiency criteria in the current year.

5. Explain management accounting and discuss its importance for planning, controlling and
decision-making within an organisation.
Managerial accountancy is the process of collection, formative, measurement, modify
and transmission the financial activity of the firm to explicate the organisational placement and
objectives. Company is also represents the important facets to the top executives, stakeholders
and shareholders for the purpose of transparency in the organization. They are aiming for the
informatory estimation in return of fruitful outcome. This has engagement of only the internal
individuals not the externals. Enterprise is doing customization of structure for the useful usage
of the statements.
Importance of management accounting:
 Planning: In the system, company uses the collected data for the development of the
particular objectives and preparing strategical plan for the future orientation. It is also
important that all the information should be knowledgeable, properly maintained and
having maximize utilization of resources like budgets (Opute and Madichie, 2017). This
budgeting processing is also helpful for executives by providing the estimate effects of
the ability to achieve desired goals.
 Controlling: It is the monitoring, measuring and evaluating the actual outcomes of the
enterprises to manage the fulfilment of the desired returns. It has the accomplishment
with the usage of the proper reviewing and feedback(Martina, 2020).
 This review is again measured in some circumstances to check that the working
procedure is in the correct form or not. It is also helpful for the company to stay with
these kind of operations or wind up all the unnecessary activities. If somewhere, remedial
action happens the task can be continue in nature and control over them.
 Decision-Making: It is the procedure of choosing one option from various alternatives
with the highly beneficial, competitive advantage and also social responsible.
Organisations are also doing the same while chosen of some important judgement in the
system for maintaining the specific day-to-day activity along with future perspective.
This process of working is the most important assets for the overall organization
(Rugman, 2019).

→ Thus, it is the technique through which company can plan, decide and controllability
over them to analyse and satisfy with the functionality.
CONCLUSION
It is concluded that firm is functioning in the linkage of finance as well as economies. By
doing this, they have coverage and excellent power to acknowledge about the overall financial
and economic scenario. This comes with lots of theories and concepts to observe the exact
situation within the organization.

REFERENCES
Books and Journals
Aisy, H.R., Mulyono, I. and Susilowati, K.D.S., 2017. Compilation of Financial Statements and
Financial Analysis for Non Profit Organizations. Jurnal Mahasiswa Akuntansi
Manajemen. 3(1).
Arnold, V., 2018. The changing technological environment and the future of behavioural
research in accounting. Accounting & Finance. 58(2). pp.315-339.
Atems, B. and Shand, G., 2018. An empirical analysis of the relationship between
entrepreneurship and income inequality. Small Business Economics. 51(4). pp.905-922.
Bikfalvi, A., 2017. History and conceptual developments in vascular biology and angiogenesis
research: a personal view. Angiogenesis. 20(4). pp.463-478.
Birch, K., 2017. Financing technoscience: Finance, assetization and rentiership. In The
Routledge handbook of the political economy of science. (pp. 169-181). Routledge.
Borg, A., 2019. Financial statements .(2017 and 2018).
Cruz, C. and Miranda, E., 2021. Damping ratios of the first mode for the seismic analysis of
buildings. Journal of Structural Engineering. 147(1). p.04020300.
Douarin, E. and Havrylyshyn, O. eds., 2021. The Palgrave Handbook of Comparative
Economics. Springer Nature.
Falcone, P.M., 2020. Environmental regulation and green investments: The role of green
finance. International Journal of Green Economics. 14(2). pp.159-173.
Grossmann, A., Mooney, L. and Dugan, M., 2019. Inclusion fairness in accounting, finance, and
management: An investigation of A-star publications on the ABDC journal list. Journal
of Business Research. 95. pp.232-241.
Macellari, M. and et. al., 2021. Exploring bluewashing practices of alleged sustainability leaders
through a counter-accounting analysis. Environmental Impact Assessment Review. 86.
p.106489.
Manzur, M., 2018. Exchange rate economics is always and everywhere controversial. Applied
Economics. 50(3). pp.216-232.
Martina, R.A., 2020. Toward a theory of affordable loss. Small Business Economics. 54(3).
McGaughy, K. and Reza, M.T., 2018. Recovery of macro and micro-nutrients by hydrothermal
carbonization of septage. Journal of agricultural and food chemistry. 66(8). pp.1854-
1862.
Modell, S., 2020. Accounting for institutional work: a critical review. European Accounting
Review. pp.1-26.
Opute, A.P. and Madichie, N.O., 2017. Accounting-marketing integration dimensions and
antecedents: insights from a frontier market. Journal of Business & Industrial
Marketing.
Rugman, A.M., 2019. From globalisation to regionalism: The foreign direct investment
dimension of international finance. In Shaping a new international financial system.
(pp. 203-219). Routledge.
Wang, Z. and et. al., 2020. Evaluation of the effects of Hg/DOC ratios on the reduction of Hg
(II) in lake water. Chemosphere. 253. p.126634.

Aisy, H.R., Mulyono, I. and Susilowati, K.D.S., 2017. Compilation of Financial Statements and
Financial Analysis for Non Profit Organizations. Jurnal Mahasiswa Akuntansi
Manajemen. 3(1).
Arnold, V., 2018. The changing technological environment and the future of behavioural
research in accounting. Accounting & Finance. 58(2). pp.315-339.
Atems, B. and Shand, G., 2018. An empirical analysis of the relationship between
entrepreneurship and income inequality. Small Business Economics. 51(4). pp.905-922.
Bikfalvi, A., 2017. History and conceptual developments in vascular biology and angiogenesis
research: a personal view. Angiogenesis. 20(4). pp.463-478.
Birch, K., 2017. Financing technos