Importance of Accounting Techniques and Principles

The assignment discusses the significance of accounting techniques and principles in a company. It highlights the importance of financial statements for stakeholders, such as shareholders, creditors, employees, government, and customers. The document also explores marginal and absorption costing, and identifies suitable costing systems for various businesses, including garage services, construction firms, and car manufacturing industries. Overall, the assignment provides a comprehensive understanding of accounting techniques and principles in a business context.

Introduction to Accounting
part 1 and part 2

Table of Contents
INTRODUCTION...........................................................................................................................2
Part 1................................................................................................................................................3
A) Relevant stakeholders as per conceptual framework..............................................................3
B) Financial statements meeting needs of stakeholders..............................................................4
Part 2................................................................................................................................................5
A) Advantages and disadvantages of marginal and absorption costing......................................5
B) Identifying costing system for various businesses and explaining reasons............................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................6

INTRODUCTION
Accounting is crucial for business in accomplishing objectives. Present report deals with
importance of accounting techniques in company. Various stakeholders are also explained as per
the conceptual framework. The need for seeking financial statements by them is discussed.
Furthermore, costing systems used in different kinds of industry is enumerated. Advantages and
disadvantages of marginal and absorption costing is listed.
Part 1
A) Relevant stakeholders as per conceptual framework
There are various stakeholders of company who have interest in the profit earning
capacity of firm so that enhanced decisions may be made by them in effective way. Types of
stakeholders can be described below-
1. Shareholders
The shareholders are integral part of company as they invest funds in organization and as
such, shares are purchased by them. This means that investments are made by them which help
firm to maintain financial stability as daily operational activities can be accomplished with these
investments. This implies that if more investment is made by the shareholders, then more
effective company can carry out tasks in a better way (Jain, 2017).
2. Creditors
Creditors are the persons who provide loan to firm so that daily operational tasks can be
accomplished by firm in the best possible manner. It clearly shows that business is able to meet
its activities without any difficulty of garnering finance. Creditors are important stakeholders of
the business as they loan and as such, business is required to pay instalment amount along with
interest accrued on the same Warren and Jones, (2018).
3. Employees
Employees also have their interest in the workings of company. The main reason behind
this is that when organization is earning well, then jobs are effectively secure as business is able
to perform well in the market. Thus, morale of workers also strengthens in the best possible

manner. Moreover, employees are motivated to put their hard work and efforts and as such, they
remain dedicated towards firm Petersen and et.al (2018).
4. Government
Government is another crucial stakeholder as profitability position of company is judged
to find out tax obligation. The government comes to know true financial position of firm so that
amount of taxes can be easily computed. This is possible because of financials furnished by the
firm.
5. Customers
Customers are key stakeholders of the business as when customer wants and demands are
satisfied, they become loyal to organization. On the other hand, consumer are disheartened when
low quality products are provided by company Annisette, Cooper and Gendron, (2018).
B) Financial statements meeting needs of stakeholders
The financial statements of company imparts necessary information to stakeholders by
which they can take better decisions. Needs of stakeholders are as follows-
1. Shareholders
The shareholders are benefited by seeking financials as they come to know about earning
capacity of business. Thus, they analyze how much returns would be provided by company on
the shares invested by them and as such, whether adequate dividends will be paid or not.
2. Creditors
Creditors are loan providers and they assess solvency and liquidity position of company
whether it would be able to pay outstanding amount within stipulated time or not.
3. Employees
Employees analyzes profitability position of firm in order to have clarity whether jobs are
secured or not. This is assessed by them by going financial statements Sardina and et.al (2018).
4. Government

Financials are seek by the government to calculate tax obligation of the business on
profits earned by firm. Thus, in accordance to financials, taxes can be computed by them.
5. Customers
Customers also seeks financials as they are affected by profitability aspect of company. If
company is earing well, then needs and demands may be fulfilled by organization Booth, (2018).
Part 2
A) Advantages and disadvantages of marginal and absorption costing
Marginal and absorption costing are important in company so that costs may be analyzed
in the best possible manner.
Advantages of Marginal costing
 This method is useful as it provides relationship existing between volume, cost and price
 Valuing inventory is not influenced by fixed costs of current year.
Disadvantages
 Historical figures are used which is not useful for management to take future decisions.
 It is not good for making pricing decision in long run.
Advantages of Absorption costing
 It takes into account fixed costs in determining production costs.
 Absorption costing is useful in aspect of seasonal sales as exact profit calculation can be
done when production is to be done in future.
Disadvantages
 Fixed cost is included in valuation of stock which is not justified and as such, costs
become vitiated.
 In absorption costing, arbitrary methods are used for apportioning overheads. Thus, costs
of products are not true and unreliable as well Johnstone, (2018).

B) Identifying costing system for various businesses and explaining reasons
1. Garage specializing in servicing cars-
Activity-based costing system is used in the service business. The main reason behind
using this technique is that costs can be easily traceable to various jobs involved in the business.
2. Construction firm in building homes and offices
The construction industry can use Traditional Costing system or Activity-based costing
for ascertaining costs in the best possible manner. Workers’ job costs can be easily ascertained
and as such, expenses may be reduced with much ease Guo and Anderson, (2018).
3. Car manufacturing industry-
Process costing system is relevant in manufacturing firm as various costs can be
accumulated for each process involved in production of cars. Moreover, cost flows are also
traced by shifting production from one unit or department to another. Thus, process costing is
quite appropriate for car manufacturing industry.
CONCLUSION
Hereby it can be concluded that accounting techniques and principles are worthwhile for
the company. Various costing systems are useful for attaining correct costs in the business.
Moreover, financial statements are quite crucial for stakeholders to take enhanced decisions.
Marginal and absorption costing techniques are important in attaining costs in manufacturing
organization. This help business to initiate control over expenses in the best possible manner and
revenue can be injected with much ease.

REFERENCES
Books and Journals
Annisette, M., Cooper, C. and Gendron, Y., 2018. The question of research diversity in “top”
accounting journals.
Booth, P., 2018. Management control in a voluntary organization: accounting and accountants
in organizational context. Routledge.
Guo, S. J. and Anderson, L. B., 2018. Workplace adversity and resilience in public relations:
Accounting for the lived experiences of public relations practitioners. Public Relations
Review. 44(2). pp.236-246.
Johnstone, L., 2018. Environmental management decisions in CSR-based accounting
research. Corporate Social Responsibility and Environmental Management.
Petersen, I.T. and et.al, 2018. Development of internalizing problems from adolescence to
emerging adulthood: Accounting for heterotypic continuity with vertical
scaling. Developmental psychology. 54(3). p.586.
Sardina, V. and et.al, 2018. Assessment of the Pacific Tsunami Warning Center’s Capabilities
for Puerto Rico and the Virgin Islands based on the Computation of Detection and Response
Times Accounting for Seismic Network Topology and Data Latencies. Seismological
Research Letters. 89(2A). pp.424-431.
Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Online
Jain, 2017 Who Are the Key Stakeholders in an Organization? [Online] Available Through: <
https://bizfluent.com/info-8397448-key-stakeholders-organization.html>