Importance of Accounting Information for Decision Makers

This article discusses the importance of accounting information for decision makers in business. It explores how financial information is crucial for CEOs, shareholders, and board of directors. The article also examines the advantages and disadvantages of sole trader and partnership businesses. Additionally, it highlights the role of financial accounts in decision making and legal matters. A case study on Mc Donald's and KFC is included.

Student Name:
Unit Title: Recording Business Transaction
Table of Content

INTRODUCTION
Accounting refers to a process that includes recording, classification, analysis and
summarising of financial transaction of an individual within business unit and this is only
carried out with the help of accounting. Basically, accounting is a language of finance. Which
aids company to convert the working of a firm into tangible reports that can be differentiated.
All these records and reports is made in that form that aids in evaluation of financial
performance along with position of company (Neeraj and et.al., 2017). In which the present
assignment consist question that includes financial transaction of various company and need
to generate trail balance, along with income statement from that records. Further the benefits
and disadvantages in context of commercial business is discussed. Lastly the impact of
covid-19 on productivity and profitability of company is analysed.
Assessment 1: Part 1.
a)
Decision makers: All the individuals who are responsible for formulation of decisions
for a business are known as decision makers. For all the firms it is very important to make
sure that they are able to maintain interest of all of them so that the long term decisions
could be formulated. There are various types of decisions markers for the entities.
Discussion of all of them is as follows:
 Shareholders: All the individuals or institutions which are legally owning specific
shares of an entity are known as shareholders. These are also known as members of
corporation (Wang, Lau and Mao, 2019). It is very important for all the businesses to
make sure that they are able to manage shareholders as it can help to carry out all
the operational activities in systematic manner. They are important for company

because they provide funding to execute all the operations and facilitate the entity to
sustain in the market. If an entity will not be able to manage them then it may result in
issues for business in future.
 CEO: A Chief Executive Officer is a person who is the highest ranking executive
within the organisation. The main responsibilities of a CEO include formulation of
corporate decisions, management of resources and operations and communicate
with board of directors and other corporates. For all the businesses CEOs are very
important as they fill the gap of communication between board of directors and other
employees of the organisation. If they will not be managed properly then it may result
in negative impacts upon functionality of business.
 Board directors: A group which is responsible for supervising the whole
organisation is known as board of directors. This group is focused to conduct regular
meetings so that policies for executing operations of business could be formulated.
They are very important for businesses because they can facilitate an enterprise to
sustain in the market with the help of effective decision making of them. As they are
elected to represent the shareholders so they share detailed information of
requirements of them so that policies to retain the shareholders could be formulated
(Dolnicar, 2017).
Accounting information is very important for all the decision makers as it can help
them to analyse the actual position of business and then formulate future decisions for
betterment of business. Some of the decisions makers for the entities are CEO,
shareholders and board of directors. All of them need financial information and need of them
regarding the details could be analysed with the help of following discussion:
 For all the decision makers accounting information is very important because it can
help them to determine that the business is able to perform all the operational
activities in systematic manner and reach to all the long term business goals.
 Financial information is needed by CEO as it can help them to determine that the
business is performing appropriately or not. Apart from this, they can also analyse
that the financial position of the company is appropriate or not as compared to the
competitors.
 The need of financial information for Board of Directors is very high because they are
working as the representatives of shareholders and in order to retain them for long
period they need to share proper and detailed information of company’s position. If
they will not be able to get the financial information, then it will be very difficult for
them to provide details of actual status of business to the shareholders (Götzer,
2018).

 Shareholders are the owners of business and financial information is also needed by
them as it can help them to analyse that the entity in which they have invested their
funds is able to sustain in the market. By using the information, they can formulate
decisions for future to provide funding to the entity to carry out operations.
 The importance of having financial information for all the decisions makers is very
high as it can help them to make decisions for future to improve performance or
invest funds. If the information will not be gathered by them then it may result in long
term issues for them in future.
BT. British Telecom
Financial accounting involves recoding, analysing and summarising of all financial data in
that manner which can be used in reports. And these types of report which carries financial
information is useful for making effective plan and strategies related to finance and budget
(Berry, 2018). By this company will able to deal with their short outcomes in future. As well
as able to offer a better consumer service to end users. All the function starting from
recruiting to firing includes determination of sales target, planning of promotional activities
along with its budgeting and for choosing a specific techniques and software for performing
different function and operation. And all these decisions are taken by the senior executive
and managers of corporation. Responsibility of decision making within the firm depends on
the organisational structure of company for instance the in larger size company the
organisational structure that management team followed will be a hierarchical structure,
managed by top management or board of directors so that they will able to accomplish their
goal within stipulated time period. In relevance to this, a BT British telecom is a large size
organisation based on stock exchange and board of director managed by its CEO, Philip
Jansen and takes all strategic decision for the beneficial of company (Tong, Tao and Lifset,
2018). This firm follows hierarchical organisational structure which is the combination of
functional and divisional structure. In that all decision of company is taken by top level
management team on the basis of goal, objective, mission and vision of firm. For this all
obligation and roles are delegates to mangers of various departments as well as authorities
to carry out them.

b)
Sole trader: A person who is running own business and responsible for bearing all
the risks and getting the profits is known as sole trader. All the profits or losses that will be
generated or faced by the enterprise in case this type of business will be the responsibility of
the owner. It is the cheapest and simplest structure of a business. In case of a sole trader
the decisions will be taken by the owner, no one can interfere in the decision making
process. In sole trading firms it is not compulsory to generate the accounting records as the
owner will be responsible to deal with profits and losses. Some of the advantages and
disadvantages of this type of business are as follows:
Advantages:
 The process of formulating and winding up a sole trading business is very easy so
the owner will not have to be worry about the legal procedure in this case. It is an
advantage because it can help to reduce stress of owner to follow long processes for
business formulation.
 Another advantage of sole trader is that the decision making process in this type of
business is quick as the owner does not have to ask for any type of approval in
decisions (Liu, 2019).
 If a sole trading business will be operated by an individual, then it will be easy to
maintain the business secrets as there will be no one who can share the secrets with
outsiders in this type of firm.
Disadvantages:
 The major disadvantage of a sole trading firm is related to resources which will be
limited. Due to this the owner will be able to spend limited amount on the development of
business.
 The level of continuity in sole trading business is very low. For example, if the owner
will have to go to out of city then the business will not be carried out continuously and it may
affect the profitability.
 The managerial expertise in sole trading business is very low and the owner will not
be able to ask for any type of guidance from others because there will be only one person
who will be running the business.
Partnership: It is a type of business in which an agreement is signed by two or more
parties to carry out business collaboratively. All the individuals who will be running the
business will be known as partners. The accounting process in partnership business will be
same as the rules that are made for the corporations (Uyar, Gungormus and Kuzey, 2017).
The profit and loss in this type of business will be segregated by partners equally or a
predetermined ratio. Advantages and disadvantages of this type of business are as follows:

Advantages:
 A partnership firm is less formal with few obligation of legal authorities that can help
to execute all the operations in systematic manner. For example, as a limited
company is required to generate a confirmation statement but it will not be required in
partnership.
 It is very easy to start a partnership business is the partners are agreeing to carry out
business collaboratively.
 The burden of bearing losses and facing risks will be shared by all the partners and it
will not harm a single person or affect the profitability of business (Fitzgibbons, 2016).
Disadvantages:
 The liabilities of all the partners in partnership firm will be unlimited and due to this
the partners may have to bear huge losses.
 The access of partners in the capital is limited to the partners as they will not be able
to raise funds to grow the business easily as banks may refuse to provide funds to
operate business.
 The possibility of potential differences and conflicts in partnership business is very
high because grievances may take place between partners at the time of decision
making.
Financial accounts represent all financial data with relation to company in brief that makes
viable and easy for the management team along with investors of company to use that
information in devising strategies. In which the financial accounts are prepared on the basis
of standard principles and guidance which are same throughout industry (Werner, 2017).
This aids them make differentiation from other competitors for standing across benchmark of
industry. It provides basis for management to take related to investment proposal like
whether these decisions are beneficial and economically feasible for company to take or not.
Further the projection and estimations are also relying on financial data within company and
for improvement according to the condition of marketplace. This is not only essential in terms
of comparison but also in forms of basis for extracting useful information from non-financial
data.
Mc Donald’s /KFC

In accounting all transaction are record and assess within a business are specific in nature
and all these are carried out on the basis of prescription of laws. In relevance to given two
firm Mc Donald and KFC some advantage and disadvantage with relation to maintenance of
accounting records are as follows:
Advantages:
Decision making: - In an organisation it is the responsibility of management team to
take effective decision related to finance and with the help of accounting they will able to
accomplish this goal by comparing financial records of present and past. In which accounting
books plays that role for business (Firmansyah, Arham and Nor, 2020). This provides
information about cash inflow and outflow along with income and expenses that makes easy
to forecast surplus or deficiency within funds and it need to be arranged timely. So, this aids
in developing responsibility and accountability fixation for preventing and detection of frauds.
In relevance to Mc Donald and KFC, this process of accounting provides a huge benefit to
them in making effective decision with relation to finance.
Evidence in legal matters: Accounting books in a business firm acts as business
record as all financial transaction are recorded in it. When any legal matter arises in relation
to finance or budget, that time these books will helpful, as a proof company can use this in
court. In context of Mc Donald and KFC they prepare accounting books on the basis of
specific format of act and then submit to registrar, once audited is done from independent
auditor. This makes them accountably and legally presented towards Tax authorities.
Disadvantage:
Record only financial aspects: In a business unit it has been find that it is one of
the prominent disadvantages of financial accounting as it only includes transaction and data
that are related with the finance nature only. For this context there are various non-financial
factors such as market conditions, political environments, policies, legal laws, social factors
and so on. All these puts significant impacts on business function and operations. As well as
all these are left out from being recorded in books of accounting. Due this it represents a
incomplete picture during devising strategy and making important decision of business. In
context of given tow firm, the mangers of company cannot take decision related to other
factors like environmental social etc. on the basis of this accounting book.
Historical nature: In books of accounts, amount is recorded on actual cost and
prices, fluctuations in cost will not be taken into consideration. Due to this it makes books of
accounts as a historical nature (Epstein, Buhovac and Yuthas, 2015). All these information
and data will be used as a base for future forecasting. It is not related with the time value of
money and changes that raise with this. With reference to KFC and Mc Donald, it is not
necessary that the estimation that makes on the basis of historical cost will be correct it
might go in wrong direction too for future activities.

Part 2.
Journal of David __ for the month February 2020 __
Date Details Fol DT CT
Feb 1 Asma Ltd 350
Office Fixtures 350
Returned office with full allowance
Feb 4 Bad debt 85
To S. Keyes 85
(Debt from S. Keyes, written off as bad)
Feb 9 Machinery 2300
To TS Co 2100
To bank 200
(Machines bought from TS company on part credit
& cash)
Feb
13
Bank 220
Bad Debt 50
To S. Hill (only £220 received out of £270 from
bankrupt debtor S. Hill as final settlement
270
Feb
20
Drawings 180
To purchase 180
(products used by owner for personal use)
Feb
26
Drawing 85
To insurance 85
(personal insurance bill debited to business not
stand corrected)
Feb
28
TS company 1050
To bank 1050
half payment of machine is paid by owner to TS
company in credit)

Part 3.
a) General Ledger (T Accounts) of Pearce & Sons
LEDGER OF ___ Pearce & Sons ______FOR ____Feb___(month)
CAPITAL
Date Details Fol Amount Date Details Fol Amount
Feb 1 Bank 21,500
Feb 1 Van 25,000
Feb 1 Office Fixtures 800
28
Feb
Balance c/d 47,300
47,300 47,300
1
Mar
Balance b/d 47,300
BANK
Date Details Fol Amount Date Details Fol Amount
Feb
1
Capital 21,500 Feb 4 Van 4,800
Feb
2
Lloyds Bank 2,500 Feb 3 Cash 1,500
Feb 8 Nissan 5,200
Feb
25
Cash 350
Feb
28
Office Fixtures 620
Balance c/d 12,230
24,350 24,350
Balance b/d 12,230
Total 24,350 Total 24,350

VAN
Date Details Fol Amount Date Details Fol Amount
Feb
1
Capital 25,000
Feb
4
Bank 4,800
Feb
8
Nissan 5,200
Balance
Total 35,000 Total 35,000
Office Fixtures
Date Details Fol Amount Date Details Fol Amount
Feb
1
Capital 800
Feb
5
Quick office ltd 1,100
Feb
15
Cash 70
Feb
28
Bank 620
Total 2,590 Total 2,590
Loan Lloyds Bank
Date Details Fol Amount Date Details Fol Amount
Feb 2 Bank 2,500
Total 2,500 Total 2,500

Quick Office ltd
Date Details Fol Amount Date Details Fol Amount
Feb 5 Office fixtures 1,100
Total 1,100 Total 1,100
NISSAN Co.
Date Details Fol Amount Date Details Fol Amount
Feb
19
5,200 Feb 8 Van 5,200
Total 5,200 Total 5,200
CASH
Date Details Fol Amount Date Details Fol Amount
Feb
3
Bank 1,500
Feb
15
Office fixtures 70
Feb
25
Bank 350
1500 420

Balance up the accounts and extract a Trial balance as at 30 Feb 2019.
Trial Balance of ___ Pearce & Sons ___ as at __30 Feb 2019____
Details Debit Credit
Capital 47300
Bank 12230
Van 35,000
Loan Lloyds Bank 2500
Quick Office Ltd 1100
Cash 1,080
Fixtures 2590
Total 50,900 50,900
PART 4
a. Income statement for Airman Co. for year ending 30th September 2019.
Profit and Loss Account
(For year ending 30th September 2020)
Particulars Amount Particulars Amount
Opening Stock 36000 Sales 80000
Purchases 150000 Less: Returns
Inwards
-2000 78000
Less: Returns
Outwards
-600 149400 Closing Stock 120000
Carriage Inwards 720
Gross Profit c/f 11880
Total 198000 Total 198000
Carriage Outwards 400 Gross Profit c/d 11880

Motor Expenses 1200
Rent 5000
Telephone Charges 620
Wages and Salaries 32000
Insurance 830
Office Expenses 600
Sundry Expenses 300
Net profit / (loss) -29070
Total 11880 Total 11880
b)
There are various expenses that are overspent by the organisation and handled in
wrong way. Discussion of some of the major issues is as follows:
 Rent for the year is very high the entity has overspent this expense and handled in
wrong way. The organisation would have asked the landlord to reduce rent in this
pandemic because the business was not carried out systematically during this time
period.
 Office expenses were also not handled properly the organisation. It would have dealt
systematically by the entity because during the pandemic offices were closed and
such types of expenses have not been faced by entities actually (Mergel,
Rethemeyer and Isett, 2016).
 Sundry expenses were also some of the main expenses that were also recorded in
the income statement but due to pandemic no additional expense would have taken
place. Therefore, the entity would not have recorded it in the income statement.
 Wages and salaries were also some of the main expenses which are also recorded
in the income statement. During the lockdown period a few percentage of salaries of
staff is deducted and not paid to the employees. In order to improve the performance,
the organisation would have done the same (Whittow, 2018).
Business unit requires economic, social and political stability for success and development.
Instability leads to reduction in productivity and profitability of company as well as incurring

of losses in business unit like Airman Co which had been profitable during 10 years since
2009 and faces a loss in current year.
It has been seen that execution on airman company elicited by covid-19 would be
limited at initial two quarters from September 2019 to march 2020 and this is because of
small period of time between reporting period and pandemic situation. After March, it has
been noted that each and every organisation faces so many losses in production, supply
chain along with sales due to implication of lock down in each nation similarly the Airman co.
also faces loss in supply chain along with time taken by freight inwards and outwards
increased (Weygandt and et.al., 2019). Further there is loss in sales which reduces the
demand of products at marketplace and company need to pay a fixed charge accordingly.
From this it has been seen that this impact on operation and function results of company. In
relevance to Airman company, they might face a loss in this financial which they registered
in their records. Situation that was created by the Covid-19 are unique and infrequent. It is
not possible to figure out how long this pandemic will be impacted on business operation of
company as well as by what frequency it will affect the economy condition of business.
Hence, a comparison between past 10 years trends and current years is not justified.
Additionally, the impact of this pandemic on future production of financial period cannot be
predictable.

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