Role of Finance and Accounting in an Organization: Evaluating Financial Performance

PROJECT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Evaluating the role of finance and accounting in an organisation...................................................1
TASK 2............................................................................................................................................6
a) Calculation of the following ratios for Alpha Ltd for two years.................................................6
b) Evaluation of financial performance of ALPHA Ltd..................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial decision making refers to taking decisions that improve the financial
capabilities of the organisation. It is concerned with taking decisions related to the finance. It
involved identifying the decision relating to the various sources through which finance could be
raised and the amount of capital raised for short term and long term. Management of the
organisation is required to analyse all the sources and to choose the best option. It extends to
roles of managing the internal finance of company for effective use of the financial resources.
Present report is based on British house- building company Persimmon plc. It is concerned with
evaluating the role of accounting and finance in the organisation. This will also cover the
analysis of financial statements using the ratio analysis. This shows the actual financial health
and position of the organisation. Study will enhance the understanding about the importance of
finance and accounting in the organisation.
TASK 1
Evaluating the role of finance and accounting in an organisation.
Accounting
Accounting refers to process used for recoding the financial transactions that pertains to
the business. Process of accounting includes recording, summarizing, analysing and reporting the
transactions as per the given reporting frameworks. These financial statements are related to
regulators, agencies and taxation authorities. Financial statements are used in accounting as the
summary of the financial transactions over the accounting period. There are mainly three types
of financial statements that are income statement, balance sheet and cash flows.
Accounting is the key aspect or function of the organisation. Accounting transactions are
recorded by the accountants as per double entry book keeping systems and following the
accounting standards issued by accounting boards (Melé, Rosanas and Fontrodona, 2017).
Accounting consists of various branches that accost accounting and management accounting.
These accounting provide important information to the management for business decision
making in Persimmon plc.
Types of Accounting and their importance in the organisational context.
Financial Accounting
In accounting financial accounting perform the function of preparing financial statements
for company. They are important for business as they represent the summarized information of
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all the events and transactions carried out by the organisations. These financial statements are
inspected by the auditors every year for identifying any errors or mistakes. They ensure that the
financial statements prepared are free from material misstatements and present true and fair view
of the financial position of the company(Ryszawska, 2016). Financial accounting is used by
external user of the organisation. This provides information related to the organisation to the
external user of the organisation. For example ; Persimmon plc is required to prepare financial
statement every year for presenting their yearly performance and positions as there are many
stakeholders associated with the success and failure of the business.
Management accounting
It is an another branch of accounting that is having equal importance as that of the
financial accounting. But there is a difference between the two accounting method. Management
accounting uses much of the same data but uses that data for a different purpose. It is concerned
with preparing reports periodically as per their requirement. Management accounting is an
important aspect for organisation that is concerned with managing the operation of company in
the cost efficient manner. It includes budgeting, forecasting, financial analysis and such other
function for keeping the cost and expenditures under control.
Management accounting ensures that the limited resources of the company are used in the
best possible manner. Motive of management accounting is to increase the productivity and
efficiency of the organisation. Reports generated by management accounting are for internal
users and contains the strategies of the organisations. They are not available for public use and
are kept with proper security. As these report are prepared for internal use, they are not required
to follow any accounting standards and reporting frameworks. They are prepared as per need and
requirement of the management. For example management accounting makes forecast about the
future incomes and expenditures of Persimmon plc based on previous trends for making the
budget. This is a spending plan that keeps cost and expenditures of the Persimmon plc under
control.
Cost Accounting
Cost Accounting involves the process of recording all the transactions and information
related with the costs. It is used by organisation for identifying the cost of production of the
products. Managers of the business conduct cost analysis for identifying the factors that are
related to the cost and are having direct impact over the cost of the product. Cost is an economic
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