How Business Operates: Importance of Accounting, HR Department Functions, and Financial Statements

This report discusses the importance of accounting in business, the role of the HR department, and the significance of financial statements. It covers topics such as the different functions carried out by the HR department, key features of employment legislation, and the components of balance sheets, income statements, and cash flow statements.

HOW BUSINESS
OPERATES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 2............................................................................................................................................3
Importance of accounting in business..........................................................................................3
Different functions carried out by the HR department................................................................3
Key features of employment legislation-.....................................................................................4
TASK 3............................................................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
This report will be discussing the importance of accounting in business and will be addressing all
the three accounting statement. Further, report will also be discussing the role of human resource
department in the company.
MAIN BODY
TASK 2
Importance of accounting in business.
Accounting is defined as the systematic recording of all the financial transactions that will help
owners, investors and suppliers of the company. Every business focus on accounting by keeping
separate department of finance as this financial records summarizes every transaction of the
business. Further, this will also analyse all the business accounts and will help company knowing
about the profits and losses of the company.
Accounting in business involves-
Income statement
Balance sheet
Cash flow statement
Importance of accounting in business is as follows-
 Accounting helps company to organize things in order.
 This also helps in taking important decisions for the company.
 This will help company in measuring financial performance of the company and form
new and different strategies.
 This provides back for the tax return claims.
 Accounting helps shareholders to be accountable for the losses if occurs in the company.
 Without it company will not be able to take loans and any other investment.
Different functions carried out by the HR department.
HR department carries various functions that are important for the organization. No organization
can run and achieve its goal on timely basis without the role of HR department (Stone, Cox, and
Gavin, 2020). This department is managed by human resource manager whose main role is to
provide effective human resources to the organization. The different functions carried out by the
HR department are as follows-

 The most important role of HR department is to recruit and hire employees and to fill the
vacancies in the organization.
 Training and developing employees in order to achieve goals of the organization is
another important functions that will be carried by the HR department.
 To maintain the good culture In the company that will benefit the employees in the
organization is also necessary as more the employees gets benefits, the more will they
work towards the goal of the organization.
 Making rules- regulations that need to be followed by all the employees in the
organization is another duty of HR department.
This can be said that HR department works for the goal for the company not directly but
indirectly in a way that they are the ones who select best employees for the departments that
works in other departments (Macke and Genari, 2019).
Key features of employment legislation-
There are various laws that needed to be complied by all the businesses. It does not depend on
what type of business it, these are key principles that must be followed by all the organization
operating in UK. Employment Rights Act of 1996 is one such act that has laid down many rules
and regulation. Not following these rules can create a major complication for the businesses that
are operating under this business. All the laws and key feature of employment act of 1996 is as
follows-
 The main feature of this act is to describe all the terms of employment to the employee.
There should be proper document or written statement that demonstrates rights of the
individuals working in the organization.
 Act also covers discovers rules regarding disclosure of company's private policy to
outsiders.
 These acts have clearly defines that Sunday off is right of an employee and its is
responsibility of employee that he considers this off and does not charge amount of week
end.
 The notice period is required to be given to the employer by the employee at the time of
leaving service. 3 weeks notice period is must.

 Unfair dismissal is not allowed on the side of employer. He is accountable and should
specify proper reason before dismissing someone from the company.
Benefits of applying employee legislation at the workplace-
 This provides security to employee while working in organization and safe and secure job
motivates employee more to work towards the goal of the company.
 The employee legislation also help employee in maintaining their position in the market
by maintaining their secret policies.
 More motivation in employees help company to achieve its goal on time.
 Policy of flexible working hour on request also helps individuals to balance their work
and professional life.
 The laws regarding retirement also benefits employee to secure some amount for future
as well.
TASK 3
Accounting statement covers following three things and detail discussion of this statements are
as follows-
Balance sheet- balance sheet is define as the financial statement that are important for the
company as they address assets, liabilities and the equity of shareholders (Pavlovich and
Vasilyevna, 2019). This is one of three core financial statement that is used by the company in
order to evaluate the financial position of the company. Importance of balance sheet and its
impact on the performance of the company is as follows-
 The balance sheet helps company to understand the financial position of the company.
 This also determines the growth of the company in market.
 The liquidity position of company can be understood by viewing balance sheet.
 This is necessary document for obtaining any kind of business loan.
 This also identifies different sources of funding like the debt funding and equity funding.
Components in balance sheet-
The components of balance sheet includes -

Assets- Assets is classified in current and non- current assets that determines the liquidity
position to the company. It also defines cash-in-hand, trade receivables and other account
receivables.
Liabilities- liabilities is also divided into the current liabilities and non current liabilities. This
examines the obligations that the company has to fulfil. It also includes long term debt of the
company.
Income statements-
The income statement is defined as the financial statement that helps company to address the
income and expenditure of the company. This helps company to identify the profits of the
company or loss of the company in given period. The income statement is one of three
statements that examines financial health of the company (Cioca 2020). The importance of
income statement is as follows-
 This assist company in better decision-making process. Incomes statement of the
company helps to address the financial footing of the organization. This figures of profit
and loss helps to make wise decisions whether company should invest or not (Easton and
et.al.,., 2018).
 Its is the best tool to examine the profitability of the company. The profitability of
company is provided to the owners, shareholders and all the stakeholders that are
dependent upon the company and on its financial position.
 This is one of essential report that needs to comply by every business as its is the only
source of tax because tax is charged on the profits of the company.
Component of income statement-
The three component of income statement is
Revenue - The revenue section is most important part of the income statement. This is all those
amount that has been earned by the company in the last one year.
Profit - Profit is that amount that has been generated by the company in last one year. Profit=
revenues of the company - expenses of the company. Profits all has been divided into two types
of profit gross profit and the net profit. Gross profit is profit before all interest and tax while the
net profit is the profit after interest and tax that has been paid by the company.
Expenses- The expense section is another important section of the income statement which
defines all the amount that has been paid by the company in last one year of the company.

Cash flow statement-
This is referred to the financial statements which are made by a company in order to
summarize its cash equivalents and regular movements of the cash. This statement measures the
ability of company against its cash position I.e. how properly the company is funding its
expenses and generating cash for the purpose of paying its debt. CFS complements both, income
statement and balance sheet. Here are some advantages and limitations of the cash fl;ow
statement:
ADVANTAGES
 It helps in ascertaining the profitability positions and liquidity of a company.
 It helps in analysing the optimum balance of cash.
 With CFS a proper management of cash can be done in a company and also leads in
effective decision-making for the future.
 It helps to facilitate the decisions related to the capital budgeting.
 It is more effective than the accrual accounting.
 It helps in planning and coordinating different activities in a company.
 It keeps track on over all inflows and outflows of a company.
LIMITATIONS
 It fails in presenting the net income of the company.
 CFS fails in assessing the solvency position and liquidity of the company.
 It does not act as a substitute for the income statement or for the fund flow statements.
 It cannot assess a company's profitability.
 CFS cannot assess any future cash flows.
 It fails in comparing inter industry.

CONCLUSION
The above report has discussed how business operates in the market. The report has discussed
role of accounting and role of Human resource department in the organization. At last report has
addressed financial statements of the company and its benefits that company has.

REFERENCES
Books and Journals
Pavlovich, D.A. and Vasilyevna, U.I., 2019. THE IMPORTANCE OF INFORMATION AND
LEGISLATIVE SOURCES IN THE FORMATION OF THE BALANCE SHEET.
ХУМАНИТАРНИ БАЛКАНСКИ ИЗСЛЕДВАНИЯ, p.50.
Stone, R.J., Cox, A. and Gavin, M., 2020. Human resource management. John Wiley & Sons.
Macke, J. and Genari, D., 2019. Systematic literature review on sustainable human resource
management. Journal of cleaner production .208. pp.806-815.
Easton, P.D.,and et.al.,., 2018. Financial statement analysis & valuation. Boston, MA:
Cambridge Business Publishers.
Cioca, I.C., 2020. The Importance Of Financial Statements In The Decision-Making
Process. Annales Universitatis Apulensis Series Oeconomica, 1(22), pp.73-83.