Report On Management Accounting & Financial Accounting

Added on -2020-02-05

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FINANCE FOR MANAGERS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 Explains the purpose and requirements for keeping financial records.............................31.2 & 1.3 Analyses the techniques for recording financial information and analyses the legaland organisation requirements of financial reporting.............................................................41.4 Evaluates the usefulness of financial statements to stakeholders.....................................5TASK 2............................................................................................................................................72.1 Components of working capital .......................................................................................72.2 how business organisations can effectively manage working capital..............................8TASK 3............................................................................................................................................93.1 Difference between management and financial accounting.............................................93.2 Explains the budgetary control process..........................................................................103.3 Calculate and interpret variances from budget...............................................................113.4 Evaluate the use of different costing methods for pricing purposes..............................13TASK 4..........................................................................................................................................144.1 Demonstrate the main methods of project appraisal......................................................144.2 Evaluate methods of project appraisal............................................................................154.3 Explain how finance might be obtained for a business project .....................................16CONCLUSION..............................................................................................................................18REFERENCES..............................................................................................................................19INDEX OF TABLESTable 1: Variance analysis and reconciliation statement...............................................................11Table 2: Performance of firm.........................................................................................................11Table 3: Calculation of payback period.........................................................................................14Table 4: Calculation of ARR.........................................................................................................14
INTRODUCTIONFinancial and management accounting both are different branches of accounts. Both ofthem have importance for the firms. In this report difference between both is explained in detailon the basis of specific parameters. In middle part of the report, variance analysis is done andperformance of the firm is measured. In order to cross check variance calculation reconciliationstatement is prepared. At end of the report, project evaluation is done by using some specificmethods and viability of project is measured.TASK 11.1 Explains the purpose and requirements for keeping financial recordsFinancial records are like a mirror and reflects the financial position of the firm and itsprofitability. It is very important to keep financial records because they help managers inidentifying the point where organization is standing currently. The main purpose of preparingfinancial statement is to access the strong and weak points of the firm and to make sure thatcorruption is not going on in the organization (Zimmerman and Yahya-Zadeh, 2011). Financialrecords help managers in identifying that from which source fund is coming in the firm and placewhere it is incurred. Thus, main purpose of preparing financial record is to make sure thateverything is done in write manner in the firm. The other main purpose of preparing the financialrecords is to identify and evaluate strong as well as weak points of the firm. Hence, it can be saidthat preparation of financial records gives a multidimensional benefit to the firm. There arerequirements to keep financial records because as per rules it is necessary for every businessconcern to maintain records. It is also necessary for the managers to conduct audit of thecompany accounts by appoint specific person who is qualified to audit firm accounts. Thus, itcan be said that there are requirements to keep financial records (Kaplan and Atkinson, 2015).Every business concern must makes sure that it is keeping proper record of company books ofaccounts and all transactions are recorded at accurate value. Further, there are various techniquesand methods which are used in order to keep record of financial informations. The techniques ortolls of financial recording are such as bookkeeping, posting and documentation, financialtransactions recording system, days books, ledger accounts, EPOS (Electronic point of sale) etc.Apart from these come manual tools are also used such as cash register etc. in order to keeprecord of financial transactions.
Financial records are required for tax preparation and filing and, if needed for any audits.The financial records are useful for providing managers the management information such asinformation about costs, and forecasts of future costs and revenues. Financial records requiredfor those who requires such information for decision making and record keeping purpose. Ithelps to manipulate in the financial records in order to reduce company's tax obligations. It helpsto plan for tax payments (Frieden, 2016). It helps to identify the strengths and weaknesses of thebusiness. Financial records will help to the company to make plan to meet financialcommitments such paying creditors or employees. Its another important purpose is with help offinancial records company makes easier to distribute profits to shareholders as dividends or forpartnerships where both profits and losses have to be shared. Financial statements are givesinformation to company that it need to run the business and help it grows as well as it helpsmanage changes and improvements in the organisation.1.2 & 1.3 Analyses the techniques for recording financial information and analyses the legal andorganisation requirements of financial reportingThere are many methods in accounting that are adopted to keep record of the financialinformation. Some method that are used to record financial information are given below.Journal- It is one of the most important method which is adopted to record financialinformation. Per day transactions are recorded in Journal and same is transferred to theledger account to form separate account for each individual. It is the book of account inwhich all transactions that are related to the firm are recorded. In journal entries are doneand there debit as well credit sides are recorded in the books of account (DRURY, 2013).It is prepared by each and every type of firm irrespective of its size.Ledger- It is also one of the most important account that is prepared by the firm. In thisaccount all entries of the journal are recorded. A separate account is prepared underwhich all similar transactions are recorded. This statement gives an overview of thespecific account collectively and on individual basis. Firms normally use ledger accountto prepare their credit related strategy. By using ledger accounts entities to whom debtmust not be given for future time period is determined by the mangers. Thus, it is one ofthe most important technique of keeping record of financial information.Cash book- In this book all cash related transactions are entered and it providesinformation about the expenses that are made by the firm in specific duration (Gow,
Ormazabal and Taylor, 2010). Hence, it can be said that along with journal and ledger itis one of the most important method of recording transactions.Balance Sheet- A balance sheet is a financial statement of assets and liabilities andcapital of business. It is one of the best technique to record financial information. By thisthe company can know that how many assets and liabilities it has within the organisation.By using balance sheet firm liquidity and investment related performance is measured.Ratios like current and PE ratio are usually computed by using balance sheet of thebusiness firm. Here the company keeps all the records of the current and fixed assets andliabilities. It gives the clear picture of business at the quarterly, half yearly and yearlybasis.Income Statement- A income statement is also one of the most technique to record thefinancial information about the business (Angel, 2016). It measures the company'sfinancial performance over a specific accounting period. It is important for the businessbecause it shows the profitability of business during the time interval specified in itsheading. Mentioned statement reflects the proportion of the sales revenue that is coveredby the cost. On the basis of income statement cost control strategy is prepared by thebusiness firm. It gives the information about all the expenses and revenue generated bythe business.There are legal requirements of financial reporting and under this every firm have tofollow provisions of IFRS or International financial reporting standards. As per provisions ofIFRS all accounts are prepared and there notes are recorded in the company books of accounts.In an organisation there are rules about different types of reports that will be prepared in relationto firm accounts. These rules are strictly followed while in activities that are related to financialreporting.1.4 Evaluates the usefulness of financial statements to stakeholdersFinancial statements have great importance for the stakeholders. This is becausestakeholders are those entities that give close cooperation to the firm in running businessoperations. Hence, they are always interested in knowing that in which direction firm is going incurrent time period. Some of the most important stakeholders of the firm are given below.Shareholders- These are those who makes an investment in the company and buyshareholding in same (Kieso, Weygandt and Warfield, 2010). In this way they become
real owner in the company. They makes an investment in the firm and due to this reasonalways like to ensure that investment made by them is fully secure. Thus, they neededcompany financial statements and on the basis of evaluation of same they identify thefinancial condition of the firm. By using ratio analysis method shareholders evaluate firmfrom different sides and take their investment related decisions. Investors compute priceearnings ratio in order to identify whether company shares are overvalued orundervalued. On the basis of results of PE ratio investors take purchase related decisionsin respect to shares. If firm condition is not good then shareholders sale firm shares inthe market and exit from same.Creditors- These are also one of the main stakeholders of the firm because they makeavailable debt to the firm to meet its working capital and long term finance needs. Inbusiness firms often takes debt from the suppliers and other business friends (Hail, Leuzand Wysocki, 2010). Some times already specific entity gives debt to the firm and whensecond party again approach same for getting a loan creditor carry out analysis of firmfinancial position. In this regard, creditor needed copy of firm financial statements. Byusing ratio analysis method creditors evaluate firm from different sides and take theredebt allotment related to decision in proper manner.Managers- These are the one of the most important stakeholder of the firm because theytake its tactical and strategic decisions. Managers needed firm financial statementsbecause strategies are prepared to solve specific problem or to capitalize opportunities.Managers evaluated income statement and identify the expenses that increased at fastpace in specific time period. On this basis cost control related strategy is formulated bythe managers for the business firm. It is financial statement which reflects the area wherefirm performance is weak and needs strong action to convert same in to strength (Larckerand Rusticus, 2010). Thus, managers always first of all evaluate financial statements andon the basis of same decide the direction in which they need to make business decisions.Government-The government is also one of the most important stakeholders of thebusiness entity. The government used the financial statements of the company to evaluatethe performance of the company towards the legal formalities. The government in whosejurisdiction the company is located will request financial statements in order to determinewhether the business paid the appropriate amount of taxes (Best, 2016). The government

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