Importance, Functions and Roles of Accounting and Finance in Business Entities

This report discusses the importance, functions, and roles of accounting and finance in business entities. It also includes the computation of financial ratios of Panini Ltd and recommendations on its performance. The report covers topics such as keeping financial records, making budgets, analysing performance, developing strategies, and sources of finances for small businesses. The financial ratios computed include gross profit margin, operating profit margin, current ratio, quick ratio, return on capital employed, stock turnover ratio, debtors collection period, and trade payable period.

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Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Critically discussing the importance of Accounting and Finance functions, duties and roles
within a business entity...............................................................................................................3
TASK 2............................................................................................................................................7
Compute the financial ratios.......................................................................................................7
By Using the financial statements of Panini Ltd estimate the ratios highlighted on page 4 and
recommendations on the performance of the organisation.........................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decisions are that decisions which are taken by managers take in relation to the
financial decisions of the company or any businesses. These are the most crucial decision for the
growth of the company. These decisions are in linked with raising funds, daily operations and
expenditure of management, acquisition of the assets. Panini ltd is a medium capitalisation
enterprise which is involved in the production of bread for super markets in the UK. The is
company founded in the year 2016. The business is planning the expansion of its area of
operations due to the success growth in last few years years (Clinton and Whisnant, 2019). In
this report, significance,obligations & roles and the functions of accounting and financing are
included.
TASK 1
1.1Critically discuss the significance of accounting and finance functions, obligations and roles
within a business entity.
It is the main aspect when controlling a business. If there is no proper management of the
inflow and outflow of cash where it is being utilised than it will be impossible to gain a proper
control over the business. When entity manages its source of income and knows where it is doing
the expenditure than there will be a very strong chances to potentially grow the business. This
can also help in making better strategies for the expansion of the growth of the business and it
can also help in unexpected financial downturns.
IMPORTANCE OF ACCOUNTING & FINANCING :-
Keeping financial Records - Accounting is necessarily a documentation or recording of data of
the financial activities of the company. The books of records is where accountants and
owners of the small scale business keep track of their expenses and income of day to day
activities (Davidson, 2018).
Avoid legal problems - Keeping all the records of finances of the company helps in following
certain important business laws. Slighting a minor detail could have big issues on the tax
management. The people who manages finance need to learn when to pay taxes, what
expenses to deduct and how much taxes to pay. Weak recording of financials of a company
can lead the way of unwanted legal trouble.
Making a budget - Using the records of finance and considering the cash flow can help in
creating the budget and it is the most essential component to keep the business on track. A

budget gives a exact presentation of finance and helps to directing the future growth of the
business and development. When executing the income of the budget, expenditures,
standards and unwanted consideration of adjustments takes place.
Analysing the performance - Successful owners of the businesses always keep a track on their
business. An entity can evaluate their financial position by screening their previous and
current records of assets and liabilities and other financial records. Owners of the businesses
use these information to track the business activities (Dibrell and Memili, 2019).
Developing the Strategies - Good accounting and good management of finance indirectly leads
to a good strategy. Once the budget is developed and in detail analysis of the data, it will be
easier to have a clear understanding for the development of the strategy to achieve the
desired targets. After examining the financial records it will be more enhanced to make
better decisions related to finance on each and everything like staffing to management of
supply.
External communication - When providing the financial information it very important to
communicate clearly with the external parties. When the management of finance is good it
make easier to provide financial statements to its existing shareholders. When accounting
and finance management is very much clear than it can be useful in getting loans from the
bank easily or attracting the potential investors (Gray, 2019).
Internal communication - Report of financial statements also helps the owners of the business
to communicate information properly with the existing shareholders. Financials records also
helps the owners to communicate the weakness and strength of the businesses. This type of
information is very much applicable to the employees who are interested in compensation
based on stock or profit sharing basis.
FUNCTIONS OF ACCOUNTING & FINANCING :-
Observing Financial transactions- An analyst has to track many events or transactrons which
are incidental to the payments that is due to the company to ensure that it receives the
revenue on time and maintains its profits.
Payment of salary of employee- All the organisations use accounting methods for the payment
of the salary of employees from the funds available to the company for such purpose and
carry out the advantages and issues the bonus of the employees.

Scrutinizing of finance- Accountants have to carry out financial audit of the organisations
which assists them to recognise variances and applicability in the accurate solutions.
Decisions related to investment- It is the most crucial role of finance and it assist in wisely
diversification of capital to long term assets and investments. It can also be referred as
capital budgeting. The two essential factors of investment are estimation of every new
investment in context of profitability, distinguish between the cut off rate of the prior
investment and existing investment (Hirschmeier and Yui, 2018).
Financial decision- It is also another essential function which is undertaken by the financial
manager. It is used adequately to take decisions regarding when, where and how a business
should obtain its funds. The firm favour to provide advantage most when the marekt value
of the entity's share reached its top point this shows that the waelth of the stakeholders has
also increased.
Decision related to dividend- The main aim of the business is to earn profit. But the significant
function a finance manager undertakes is to understand whether to distribute all the profits
to the stakeholders or to recover all the profits and invest in the organisation.
Management of treasury- Management of risk can be created by the organisation at any point
of time. The treasury department functions are controlled by the assistant finance ,manager
while on the other hand, the finance manager manages the financial aspects of accounting.
Investment appraisal- In the field of accounting and finance by applicability of capital budgeting
tools and investment appraisal methods which helps the entity in success of every big
project through some tests to ensure that it will worthy (Jensen, Hedman and Henningsson,
2019).
ROLES & DUTIES OF ACCOUNTING AND FINANCE:-
Obeying the Law: When accounting practices are sufficiently good enough it can have a
practical merit that it keep the consent of the company with the law. Without the help of
accounting any company can violate any laws, like not paying the sufficient amount of
taxes.
Creating budgets and financial records - By knowing the inflow and outflow of the money
through your business with proper practices of accounts budgeting can be done. In

budgeting, estimate of the revenues and knowledge to make the decisions about the
expansion of the business.
Analysing the financial performance - It is difficult to improve the business if there is no
mean to understand from the past experiences and learn from it. By going through the
financial records of the company, one can easily determine that what kind of good work or
performance the company has given in the long run (Kaplan, 2018).
Developing Business strategy - The motive of most of the companies is to make big profits, but
the road to get there is build by the management of the company itself. Financial data of the
company comprises one of the main component in setting up the landscapes of the market.
Essential for any company/entity - To design the cost of goods and services in the business,
and accomplishing a budget for functions and operations of the business and presentation of
financial reporting for the decision of the business and all the areas of accounting. Reports
can be presented in a way to provide specific information of financial management approach
for the individual or different sectors of the business.
SOURCES OF FINANCES FOR SMALL BUSINESSES
Equity- It is the sum of capital which is invested by an individual of the entity. This is derived
by the comparison among asset and liabilities which are noted down in the balance sheet of
the entity. It's importance is totally dependent on current market value of the share or the
price it has provided to its shareholders and investors. It can also be termed as the
shareholders equity. There are two values of equity book value and market value
(Khodjayev, 2021).
Book value is the value which is listed in its book value and it can be calculated by the records of
financial statements and the equation of the balance sheets. The equation is used to calculate
the book value of equity is – EQUITY = ASSETS – LIABILITIES.
Equity is represented as the market value in the world of finance, which can be sometimes higher
or lower than the book value. The market price of the equity is the aggregate market
capitalisation of the stocks of the entity. Market price of equity is estimated by multiplying
total number of stocks of the entity listed per current market price.
Venture Capital - It is the framework of equity and kind of financing that the investors serve to
the startups and different kinds of small businesses that have the potential to grow in the long

period of time. Venture capital is usually generated from potential investors,investment bankers
and some other kinds of financial institutes. Although, it does not always come in the monetary
form sometimes it comes in managerial and technical forms also (Kreutzer, 2021).
TASK 2
Compute the financial ratios.

By utilising the final accounts of Panini Ltd estimate the ratios and recommendations on the
performance of the organisation.
 Gross profit margin- From the given estimation of gross profit margin, it is been
observed that the profit margin of the year 2019 has decline by 7.61%. The reason being
the cost of goods sold of the organisation has increased in the income of the entity Panini
Ltd.
 Operating Profit Margin- The operating income and revenue are indirectly
proportional, as the operating income reduces the revenue of the business upsurges. In the
year 2018, the estimated margin is 27.65% and in the year 019 the margin rose to
20.04%. It shows that operating costs and the expenses which are non operating are
expanded in the organisation. So for acquiring the margin and up surging the expenses
which are not required in the business should be declined (Powers, 2019).
 Current ratio- The optimum current ratio for any entity is ratio 2:1. In the year 2018, it
was 1.21:1 and in 2019 it was 4.12:1 which clearly shows that in 208 the entity Panini
Ltd does not have sufficient assets to fulfil its needs but in the year 2019 the organisation
has enough amount of resources to fulfil each and every needs and commitments of the
entity. The reason being the decreases in the resources in the year 2018 which can result
in inventory errors. Furthermore, the entity has a authorized principals of receiving the
cash from its account holders. The main reason of the growth of the company in the year
2019 could be because the company has decreased the cost and sold the resources which
are pointless and not very useful. Panini Ltd has raised its capability for generating the
capital and to meet temporary advances.
 Quick Ratio – The most ideal quick ratio should be 1:1. In the year 2018 it was below 1
and in the year 2019 it was around 2.80:1 which clearly shows that the entity was not
doing that great in terms of liquidity on the other hand, in the year 2019 the company
commercial is doing great. The turnover percentage is declined in 2018 because in some
cases there is a requirement of structure of the entities for the provisional commitments to
resolve their problems. On the other side of the coin, there is a need of the more earning
potential in the entity (Schneider and Clauß, 2020). The increase in the volume of
transactions is because of the limited technology, promotions and many more. It shows

The organisation with more existing resources which assists in managing its existing
roles without selling the shares of the organisation.
 Return on capital employed – A problem which is incidental to the reduction in the
capital return employed may be that the business has upsurge it's rules and obligations for
a specific period of time. The intention is to adjust the situation is that organisations will
focus on those factors that will assists in increasing the productivity of the organisation.
If panni start to decline its commitment than it will definitely assist in the growth of the
business. The situation points that the organisation is using its capital assets in the
business. It clearly represents that Panini Ltd is wasting its capital resources. Businesses
should be adequately be done strategy wise to take full benefits of its assets and to
accomplish the most desirable targets of the organisation (Van Looy, 2019).
 Stock turnover ratio – Growth can be recorded, and the purpose is that the business has
to sell more inventory. There are many causes for the same, the first reason will be the
organisation become huge and powerful in beneficial domains to manage stocks
efficiently. The second reason is that there is no stock which assists such an expensive
transaction. From above explanations, Panini Ltd. should have to support the old
transactions of the stocks and sell its shares utilising the estimation techniques.
 Debtors collection period- The growth of the change period supply which states that the
entity was not able to obtain the cash from its debtors on timely basis. For the reduction
of the number of days businesses can provide their consumers with the policies of
instalments payments and made some easy time frame for the customers.
 Trade payable period - A decline, which concludes that organisation can pay off its
debts on timely basis. This can be helpful to organisations as a more limited instalments
within a limited structure can assists in organisations to make more better preferences
based on financial bankers,suppliers and banks. By this manner,organisations can easily
apply for advances and assets without any hesitations.
CONCLUSION
The above stated report, concludes that functions of accounting are essentially utilised in
all the entities which are related to the operations of business concerns. In addition, rules and

roles of accounting and finance are discussed in detail in the above report. Moreover, financial
ratios are being estimated along with remarks on the presentation of the organisation.

REFERENCES
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