Manage Project Costs

This document provides information on managing project costs, including a recommendation for selecting a supplier, ways to overcome limitations in management accounting, and the importance of accurate financial reporting. It also includes a report writing checklist, common accounting errors, and the information needed for financial reports. The document emphasizes the importance of accurate financial reporting for stakeholders and provides guidance on communicating financial information to different departments.

Running head: MANAGE PROJECT COSTS
Manage Project Costs
Name of the Student:
Name of the University:
Author’s Note:

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MANAGE PROJECT COSTS
Table of Contents
Activity 2.........................................................................................................................................4
Recommendation:........................................................................................................................5
Activity 5:........................................................................................................................................6
Answer 1:.....................................................................................................................................6
Answer to question 2:..................................................................................................................6
Answer to question 3:..................................................................................................................7
Activity 6:........................................................................................................................................8
Answer A: Negative variance in Personnel Budget:...................................................................8
Answer to B:................................................................................................................................8
Activity 7.........................................................................................................................................9
Activity 8.........................................................................................................................................9
Requirement 1..............................................................................................................................9
Requirement 2............................................................................................................................10
Requirement 3............................................................................................................................11
Requirement 4............................................................................................................................11
Requirement 5............................................................................................................................12
Activity 9.......................................................................................................................................12
Requirement 1............................................................................................................................12
Requirement 2............................................................................................................................12

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Requirement 3............................................................................................................................13
Activity 10.....................................................................................................................................13
Activity 11.....................................................................................................................................14
Question 1..................................................................................................................................14
Question 2..................................................................................................................................15
Question 3..................................................................................................................................16
Question 4..................................................................................................................................16
Question 5..................................................................................................................................17
Project 1.........................................................................................................................................18
Project 2.........................................................................................................................................24
Budgeting Approach in Project Management............................................................................24
Introduction................................................................................................................................24
Areas to which Budgets are Applicable.....................................................................................24
Primary Functions of a budget...................................................................................................25
Supporting Data for Departments..............................................................................................26
Users of the Budgets..................................................................................................................26
Conclusion.................................................................................................................................27
Project 3.........................................................................................................................................28
Profit and Loss Statement..........................................................................................................28
Statement of Retained Earnings.................................................................................................28

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Balance Sheet.............................................................................................................................29
Cash Flow Statement.................................................................................................................29
Reference.......................................................................................................................................31

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Activity 2
Particulars Details Access IT Vision IT Total IT
Quoted price A $84,000 $105,000 $65,000
Cost for technical
support/yr. B $42,000 $0.00 $0.00
Service charges C $0.00 $10,000 $0.00
Hardware cost D $0.00 $0 $22,500
Total cost
(A+b+C+D)=
E
$126,000.0
0
$115,000.0
0
$87,500.0
0
Life span of the Goods
(in Year) F 7 10 5
Cost/yr E/F $18,000.00 $11,500.00
$17,500.0
0
Working Note 01:
Cost of technical support per year in Access IT = $6000
Total life span of the Goods = 7 years
Therefore total cost incurred = (cost of technical support) * (number of years)
= 6000 * 7 = $ 42000
Working Note 02:
Service charges of Vision IT = $500
Number of service per year = 2 times
Total life span of the Goods = 10 years
Therefore total cost incurred = service charge * number of services/ yr * Total life span
= $500 * 2 * 10

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= $10000
Recommendation:
 Safe hand insurance company should select the Vision IT to purchase the AIS, because
the calculation based on the supplier’s quotations addresses that cost incurred per year is
less in Vision IT.
 To, determine the availability of the financial support of an organisation to meet the
uncommitted requirements of an organisation laid on the company’s budget allocation
and resources planning (Henderson et al. 2015). Since, the budget prepares the road map
of expenditure to achieve the needs of an organisation in an efficient manner and the
resources planning assigns key to monitor the financial activity.
 An effective internal control system will significantly reduce the business risk and help in
workout in an effective and efficient manner like a reliable financial statement, complete
and accurate information (Hoyle, Schaefer and Doupnik 2015). Since, insurance is a
complex management system with a lot of paper work, which may hamper the
productivity. To, implement a strong internal control system AIS (Advance Insurance
System) could be the best choice. AIS assist the insurance company in the following
sector-
1. Underwriting
2. Claim processing
3. Financial management
4. Agency management
5. Human resources
6. Risk management

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Activity 5:
Answer 1:
Management accounting is regarded as the effective accounting system and to minimize
its limitation the accountants can perform the following activities;
a. Simplifying the decision making procedure: To overcome the limitations the
management accountant can create a detail technical report with the easy interpretations
(Warren and Jones 2018). This would enable the management accountant to undertake
the appropriate decisions for the company betterment.
b. Cost transparency: The management accountant to overcome the limitation should work
with the IT department more closely. This actions would help in providing cost
transparency to the company.
c. Assisting in the goal completion objectives: The management accountant can help in
attaining the long term goals (Pettigrew 2014). The management accountant can help in
achieving the goals because of the detailed information and the strong as well weak areas
of the company can be highlighted.
Answer to question 2:
The procedure necessary to follow the financial data are given below;
a. To access the financial data of the organization it is necessary to obtain the financial
reports of the company

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b. The access to an organizations interim financial reports can also be made to access the
financial reports of the company (Kaner 2014).
c. Another procedure to gain access to the financial data is to review the key financial
statements based on the context of the relevant accounting standards.
Plans that are necessary for efficient operations of a team:
a. Creating an inspiring working environment where digitally minded people can be
allowed to allow a creativity flow.
b. Fostering the strong company culture by giving the team with small perks such as place
where they can relax while brainstorming.
c. Helping the team to keep the clear mind and focus for maximizing the productivity of day
to day activities.
Answer to question 3:
Participating the workers in the decision-making procedure has contributed in significant
creation of value in several organizations. Below listed are the ways through which employee
participation helps in taking decision;
Participation with the help of suggestive schemes: Encouraging the employees to bring new
and unique ideas can significant contribute to organization success on matters relating to cost
minimization (Kieso, Weygandt and Warfield 2016). This involves developing a full-fledged
procedure which may help in adding value to the functions of organization and creating a healthy
environment as well as work culture.

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Creativity and innovation: Involving the operational staff helps in bringing innovation with a
greater risks bearing capacity and there usually an equal chance of success and failures. Workers
usually lacks the expertise for executing the enterprise that can involve bigger costs.
Participation with the help of job enrichment: This can be done by expanding the job content
and adding additional motivators as well as rewards to the current job profile is a better way of
keeping the operational staff involved in the managerial decision making. The job enrichment
procedure would help in providing the freedom to the employees for exploiting their wisdom and
using their judgement while handling the day-to-day business problems.
Activity 6:
Answer A: Negative variance in Personnel Budget:
Creating employee value: When an organization introduces a proper internal control, a cross
functional environment as well as efficient internal auditing procedure would help in creating an
employee value. This will help in meeting the cultural commitments and would simultaneously
increases the chances that the variance would be unfavourable. This implies that the business
commitments would be favourable in meeting or exceeding the expectations of the employees.
Cost of Direct labour: The labour rate variance information would be incorporated to provide
information to the management regarding the actual price and the price that is paid to the direct
labour at the time of production. This will help in determining the standard costs. This kind of
information would help in planning the budget for the future period and would also work for as
the employee feedback for the purpose of direct labour component for the organization.

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Answer to B:
While reporting the use of evidence is necessary because it supports the matters that is
claimed and ultimately makes it more strong than before. As a matter of fact, the report would be
more convincing if an evidence is provided. Evidence helps in making sure that the appropriate
arguments are claims are made. This signifies that while preparing a report one has adequately
performed research by listing the resources that one has used for obtaining the information.
Activity 7
Certain data needs to consider for an accurate and up-to-date profit and loss report. It
needs to be mentioned that most of the information required for the preparation of profit and loss
report comes from the monthly budget and cash flow statement of the firms. In addition,
estimated computation of depreciation needs to be ensured from the tax advisor. After that, data
related to revenue and other incomes of the firm need to be considered in the profit and loss
report. After that, firms must ensure collecting data for direct cost or cost of goods sold for
reaching to gross. After that, data for expenses need to be collected. In order to make sure that
the collected data are error free and comprehensive, they need to be verified against the actual
sources from where they are collected.
Activity 8
Requirement 1
Report Writing Checklist
Format Format of the report needs to be followed that includes physical
presentation, proper layout, presence of proper headings and subheadings

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and numbering system
Tables and
Figures
Key tables and figures need to be there in the report along with caption of
the tables and figures
Structure Proper structure needs to be followed in the report that consists of title,
executive summary, table of content, introduction, discussion, conclusion
and others
Content Information content needs to be there along with quality discussion and
conclusions
Referencing Report should be properly referenced that involves acknowledging all
sources of information
Technical Complete sentences need to be used along with appropriate voice
Requirement 2
Error of Omission – This error occurs when a transaction is not recorded or completely left out.
Error of Principles– This error takes place when a transaction is recorded against the applicable
accounting principle.
Error of Original Entry – This error occurs when a correct entry is recorded with wrong figure.
Error of Commission – This error or discrepancy can be seen when there is accounting
miscalculation.

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Compensating Error – This error takes place when two or more errors nullify the wrong effect
in the balance sheet.
Requirement 3
The project managers need accurate and timely reports as it helps them in tracking the
current progress of the project. After that, these reports help the project managers in identifying
risks in the early stages so that precautionary measures can be taken. Moreover, these reports
increase the visibility of the project managers about the project that is majorly helpful for
managing the tricky task of project cost management (Kerzner and Kerzner 2017). On the overall
basis, the managers can establish control over the whole project by these timely and accurate
reports.
The project managers require all the cost related information for the project’s finances
such as fixed cost and variable costs of the project. After that, they need the wage related
information of the employees and staffs of the project (Leach 2014). At the same time, they
require the information about the sources of income of the project.
The Project Financial Managers are responsible for the financial management of the
whole projects. They have the responsibility of planning and managing the projects while taking
into account the fact that the projects stay within the budget and the financial standards. At the
same time, they are responsible for overseeing and monitoring the financial operations of the
project.

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Requirement 4
The first step will be double checking all the entries and movements that contributed to
the inconsistencies. The next step will be to discuss about these issues with the managers in the
presence of all the required documents for demonstrating the inconsistencies. There is not any
necessity to report these issue as it is not the case of fraudulent. The last step will be to discuss
about these issues with the person responsible for these errors for ensuring whether it is lack of
knowledge or not.
Requirement 5
Income Statement for the year ended 30th June, 2015

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Activity 9
Requirement 1
The process of finalising the accounts of the business are provided in the financial
management process of project management where appropriate resources are allocated and
financial accounts are maintained by organization. This stage would be involved in the step of
financial management of the company (Grigore 2016). The information which is shown in
financial accounts are important for taking vital financial decisions of the business.
Requirement 2
The process of communication is very important for taking and implementing vital
decisions of the business. The management of the company can use the online medium of using
official mails for communicating the information to different departments or can also conduct a
meeting for communicating information to all departments with the help of presentations and
graphs. The management of the company would be following this communication strategies for
each stage of the project.
Requirement 3
The information which needs to be accumulated from different sections are related to
different financial and operational needs of the management of the company. This information
need to be collected by the management of the company for taking important decisions regarding
the project.

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Activity 10
The maintenance of records for accounting purposes is very important for business
purposes as these contains a detailed record of all income and expenses of the business and on
the basis of the same important decisions can be taken by the business. The following benefits is
available to the management of the company if proper records are maintained by the
management of companies:
 Track flow of expenses and income of the business
 Saves effort, time and accounting costs
 Helps the management of the company to avoid penalties and help in tax assessment and
auditing process.
The management of company can also take vital decisions with the help of such detailed
records of the business regarding future operations of the business. In addition to this,
comparison can be made with past performance of the business with the help these detailed
records. Therefore, it can be said that maintaining detailed records for business can help the
management to improve the efficiency of the business.
Activity 11
Part 1
The analysis of both the options would be done on the basis of cost benefit analysis of
both the systems. As shown in the table, system 2 has lower costs as well as decent benefit
generated from the same. Therefore, it can be said that the management needs to select the 2nd
system as it is more viable in nature.

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Part 2
The table which is provided in the question provides appropriate information in order to
make appropriate choices regarding which system is to be selected by the management of the
company. The table effectively shows costs of the business as well as the benefit which the
business will be deriving in the long run from the use of the system. The table makes it clear that
the useful life of both the system is same which is 5 years and therefore only basis for making
comparison between the two system is by cost-benefit analysis. The management can make
effective estimations regarding the future viability of the system on the basis of cost benefit
analysis of the systems.
Question 1
Particulars Debit Credit
Short term loan
payable $25,000
Prepaid expenses $17,000
Inventory 85000
Long-term loans
payable 42000
Equipment 60000
Paid in Capital 35000
PAYG tax withheld 15000
Accounts receivable 185000
Goodwill 15000
Cash 60000
Retained earnings 50000
Accounts payable 15000
Depreciation 95000
Expenses payable 20000
Capital Stock 15000
$432,00
0
$302,00
0

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Question 2
A service cost analysis is a form of analysis of costs which is related to services which is
provided by the management of the company. Service cost analysis can effectively help
management to forecast the costs which the management is likely to incur and also picture a
projected savings which can be made by the business. Service cost analysis can help businesses
to make decisions which can be profitable for the business in the long run. The analysis basically
provides a linkage between service costs and profitability and effectively tells the management
which services to invest in and which services to avoid. In addition to this, service cost analysis
also has an impact on important decisions which are taken by the management of the company
regarding the services which is provided by the business. An effective method which can be
applied by the management of a company in service cost analysis is by applying operation
costing method which is specially designed for analysing the costs related to service industry.
The method effectively considers cost centres on the basis of which costs are allocated and
computed. This can also be used for taking vital decisions regarding the services which the
business needs to incur and the services which the business needs to avoid.
Question 3
The variances which takes place between the actual performance and the estimated result
is significant for the management of the company for taking vital decisions for the business. The
management of the company can also take vital decisions regarding the main reasons for the
variances and take corrective actions in order to ensure that such variances does not take place in
future for the business. In addition to this, variances in performance of the business also helps the

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management to pinpoint the weaknesses of the business and effectively take action in order to
ensure that such weaknesses are avoided.
Question 4
Cost benefit analysis is an important concept which is used in cost accounting for the
purpose of understanding the costs and benefits associated with an activity. Cost benefit analysis
is also undertaken by businesses for the purpose of taking important management decisions
regarding a project or any other activities of the business. The significance of this analysis is also
one of the major strengths of the analysis and an important factor in decision making process for
a business. The advantages which can be identified for a cost benefit analysis is listed below in
details:
 One of the major advantages of cost benefit analysis is that it provides clarity to the
management when comes to selection of a project or which activities the management of
the company need to undertake in order to maximize its profits.
 It gives the management of the company a chance to identify the expenditure and its
nature in order to take counter actions in case the same can be avoided.
 Cost benefit analysis is a very useful tactics which can be applied by the management of
a company where are multiple project options available to the management of the
company.
The disadvantages which is associated with the cost benefit analysis as a decision-making
tactic are listed below in details:
 The cost benefit analysis only covers a portion of the aspects which is associated with the
activities and therefore the management of the company needs to considers other factors

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as well which can affect the project before any decisions can be taken by the
management. In order words, it can be said that cost benefit analysis does not take into
consideration all the variables which is associated with the project.
 Cost benefit analysis rejects the instincts of an entrepreneur and ensures that the
entrepreneur takes a risk-free approach while taking vital decisions for the business. This
sometimes hampers decisive actions on the part of the management and can make
businesses to lose a chance to earn more revenues.
Question 5
The main purpose of business procurement function in a business are listed below in details:
 Managing the Spending of the Business: One of the major functions which is associated
with business procurement function is that the same helps in managing the spending of
the business and also minimizing the same. The procurement function also ensures that
the spending of the business are utilized in the most effective manner.
 Support Operations: One of the main function which is related to procurement function
is related to supporting the operations department of the business. The procurement
department provides all the assistance which is required by the support department so that
overall efficiency of the business can be enhanced and more revenue can be generated by
the business.
Project 1
Fred’s Shed
Work Breakdown Structure

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Task
Number/
ID
Task
Description
Time Start Finish
Predecessor
relationship
(sequence)
Resources
(people and
materials
required to
complete the
task)
Cost
0
Schedule
preparation
for
Construction
of the Shed
60
days
Tue
3/12/19
Mon
6/3/19
$37,328.00
1
Project
initiation
18
days
Tue
3/12/19
Thu
4/4/19
$6,104.00
1.1
Developing
project steering
committee
3 days
Tue
3/12/19
Thu
3/14/19
project manager $912.00
1.2
Identificati
on of resources
5 days
Fri
3/15/19
Thu
3/21/19
2 resource manager $880.00

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1.3
Gathering
data from the
resources
2 days
Fri
3/22/19
Mon
3/25/19
3 resource manager $352.00
1.4
Assigning
the contract
project team
3 days
Tue
3/26/19
Thu
3/28/19
4
Contractor ,Sub
contractor
$1,560.00
1.5
Analyzing
all the shed
evaluation
criteria
6 days
Tue
3/26/19
Tue
4/2/19
4 business analyst $1,440.00
1.6
contracting
a surveyor to
locate existing
boundaries
2 days
Wed
4/3/19
Thu
4/4/19
5,6
project manager,
resource manager
$960.00
2
Project
planning
phase
35
days
Tue
3/12/19
Mon
4/29/19
$15,336.00
2.1
Procureme
nt plan
implementation
5 days
Fri
4/5/19
Thu
4/11/19
7 project manager $1,520.00
2.2 Time and 2 days Fri Mon 9 business $832.00

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cost details
planning
4/12/19 4/15/19
analyst ,resource
manager
2.3
Selection
of construction
tools and
techniques
3 days
Tue
4/16/19
Thu
4/18/19
10 Contractor $960.00
2.4
Contract to
plumbers and
electricians
5 days
Fri
4/19/19
Thu
4/25/19
11
Plumber
(Bob),Plumbing
cost[1]
$5,480.00
2.5
Contract to
electrician
2 days
Tue
3/12/19
Wed
3/13/19
electrician
(Eddie),electricit
y cost[1]
$6,192.00
2.6
Contract to
business
consultant
2 days
Fri
4/26/19
Mon
4/29/19
12 resource manager $352.00
3
Project
design a
development
16
days
Tue
4/30/19
Tue
5/21/19
$11,888.00

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MANAGE PROJECT COSTS
3.1
Performing
underground
cable services
3 days
Tue
4/30/19
Thu
5/2/19
14 project manager $912.00
3.2
Contract to
raw material
suppliers
2 days
Fri
5/3/19
Mon
5/6/19
16 supplier cost[1] $8,000.00
3.3
Using 3D
printing for
designing the
blueprint
5 days
Tue
5/7/19
Mon
5/13/19
17 Designer $1,120.00
3.4
Taking
approval from
the contractor
4 days
Tue
5/14/19
Fri
5/17/19
18 project manager $1,216.00
3.5
Developme
nt application
and
construction
certification
2 days
Mon
5/20/19
Tue
5/21/19
19 Contractor $640.00
4
Project
closure
9 days
Wed
5/22/19
Mon
6/3/19
$4,000.00
4.1 Stakeholder 2 days Wed Thu 20 Sub contractor, $1,008.00

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signoff 5/22/19 5/23/19 project manager
4.2
Post
maintenance
program
4 days
Fri
5/24/19
Wed
5/29/19
22
Contractor ,Sub
contractor
$2,080.00
4.3
Submission
of final
construction
project draft
3 days
Thu
5/30/19
Mon
6/3/19
23 project manager $912.00
Schedule preparation for
Construction of the Shed
Project initiation
Developing project
steering committee
Identification of
resources
Gathering data from
the resources
Assigning the
contract project
team
Analyzing all the
shed evaluation
criteria
contracting a
surveyor to locate
existing boundaries
Project planning phase
Procurement plan
implementation
Time and cost
details planning
Selection of
construction tools
and techniques
Contract to
plumbers and
electricians
Contract to
electrician
Contract to business
consultant
Project design a
development
Performing
underground cable
services
Contract to raw
material suppliers
Using 3D printing for
designing the
blueprint
Taking approval from
the contractor
Development
application and
construction
certification
Project closure
Stakeholder signoff
Post maintenance
program
Submission of final
construction project
draft
Figure 1: Work Breakdown Structure for the project
(Source: created by author)

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Project 2
Budgeting Approach in Project Management
Introduction
The role of budgets is very important nowadays in any business and especially when the
business is planning to invest or start a new project. Budgeting is an approach where in the
management of the company can effectively estimate costs and revenue associated with the
activity and also set targets which the business would be following in the long run (Shields
2015). The activities of the business can be controlled with the application of budgeting
techniques. The report would be going into details regarding the purpose and application of
different types of budgets in a business and how the same benefits the organization as a whole.
Areas to which Budgets are Applicable
A business which is planning on taking new projects or expanding the operations of the
business requires significant amount of capital. In order to account and estimate for such funds a
master budget is prepared and this acts as a guideline which allows management to make
important decisions regarding procurement of funds and also allocation of resources (Hyndman

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et al. 2014). However, it is to be noted that a budget is applicable and prepared on the basis of
needs and requirements of different departments. Some of the budgets which are prepared by a
business and which are included in the master budgets are discussed below. The discussion
would also be highlighting the department where the budget is applicable.
 Sales department: A special budget is prepared for the sales department as this the
activity which generated revenue for the business. The sales budgets effectively include
estimations made by the management regarding the sales revenue which the business
intends to generated during the period. The sales budget includes targets which are based
on past performance of the business with a slight growth rate.
 Inventory Management: This is another area where management requires a budget which
is direct material budget. This budget portrays the inventory which is used by the
business and is a very effective tool for keeping tabs of materials which is used for the
project.
 Operations Department: This is the area which supervises the entire project and different
stages of the same and is also involved in decision making. The costs budgets are
prepared which overlook the total costs involved in the projects. This department is very
important as they can ensure proper control and budgeting practices would ensure the
same.
 Finance Department: The financial department also prepares a budget which is known a
finance budget and the same effectively portrays the amount of funds which would be
required by the business for the projects (Ahmad 2014). This budget is very important for
estimating how much capital the business would be requiring.

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 Marketing and Administration Department: The marketing and administration
department also requires to prepare a budget and the budget effectively shows how much
the expenses are incurred by such departments.
Primary Functions of a budget
The primary functions of a budgets which can be identified for a business are summarised
below in point form:
 Budgets are generally used by businesses for the purpose of planning the activities and
the funds which would be required for the project.
 Budgets are also used for the purpose of forecasting the expenses and revenue which can
be generated from the projects during the period (Passetti et al. 2014). The decisions
which are taken by the business are based on the forecasts and estimates which are
included in the budget.
 Controlling is another major function which is performed by a budget and helps
businesses to ensure that the objectives and goals of the business is followed.
Supporting Data for Departments
The budgets are prepared for different department and the same are considered for any
decisions which are taken by the management of the company. The sales department considers
the sales targets for the business which is estimated by the management of the company while
the different costs estimates which is contain in budgets such as material budget, operational
budgets and other types of budgets of the business.

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Users of the Budgets
The budgets which is prepared by the management of the company are not only used by
the internal management but also in certain cases used by outsiders to make analysis of the
business situation. One of the external users of budgets which is prepared by the business are
banks. Banks require budgets which reveal costs and revenue on estimated basis for a project on
the basis of which loans are sanctioned by banks to businesses. In addition to this, suppliers and
other businesses also require budgets for estimating the viability for entering into a tie up
agreement with the businesses.
Conclusion
The above discussion makes it clear that the budgeting tool is applied in most of the
business for meeting different objectives of the business. The budgets are prepared by the
business for meeting fund requirements, decision making, planning and forecasting of revenue
and expenses related to the project. Therefore, it can be said that the tool is very significant for
businesses which is entering a new project or expanding its operations.

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Project 3
Profit and Loss Statement
The Profit and loss statement forms a part of the financial statements which is prepared
by the business. The statement effectively shows all the income which is generated by the
business and also the expenses which is incurred during the period. The statement is prepared to
compute the net profit which the business is able to generate from the current level of operations.
The income statement takes into account all the expenses and loss of the business and
systematically presents the same in order to contribute the profitability of the business. The
income statement shows all the costs of the business and the management can take effective
steps for meeting the budgets of costs which is prepared by the business (Minnis and Sutherland
2017). The preparation of the accounting statement uses the concept of matching principle which
states that all expenses should be equivalent to all income which is generated by the business and
it also follows double entry system for accounting. The income statement can reveal to the
management whether the project which is undertaken by the business is performing or not on the
basis of the profits which is generated from the same.

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Statement of Retained Earnings
The statement of retained earnings is a statement which shows the retained earnings
which is kept aside by the management of the company for future use. The retained earnings are
a part of the net profits which is generated by the business during the period. The retained
earnings can be used by the management of the company for the purpose of meeting capital fund
requirements for any new projects. The retained earnings of the business are an indicator whether
the business has financial strength or not and the management always work with the intention to
generate more profits and accumulate more retained earnings.
The retained earnings statement effectively helps in setting targets regarding the
percentage of profits which needs to be kept aside by the business for ensuring that emergency
funds is available to the management. The retained earnings of the business are shown in the
financial statement and is an important indicator of performance of the business.
Balance Sheet
The balance sheet of the business is also a part of the financial statements of the business
and the same is prepared in order to effectively present all the assets and liabilities of the
business. The balance sheet effectively shows the financial position of the business and on the
basis of the business businesses can attract investors and also take loans from banks. The balance
sheet follows the matching principles as well in accounting (Berger, Minnis and Sutherland
2017). The balance sheet shows all the new assets and liabilities which are acquired by the
business during the period for the project. Therefore, the balance sheet can be used effectively
for the purpose of showing the new investments which is being undertaken by the management
of the company. The balance sheet portrays to the external stakeholders regarding the

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advancements in the projects and also what activities are being taken by the business for
fulfilling the project.
Cash Flow Statement
The cash flow statement also forms a part of the financial statements which is included in
the annual report of the business. The cash flow statement is prepared by the business for the
purpose of showing the cash inflows and cash outflows of the business during the period. The
cash flow statement is prepared for showing the liquidity position of the business (Kwok 2017).
The cash flow statement can effectively show how well the project or activities which is
undertaken for the purpose of generating cash for the business. The cash flow statement follows
cash basis of accounting which means that a transaction is only recorded when actual cash is
received or paid by the business. A cash flow statement helps management to keep track of cash
inflows and outflows of the business.

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