Unit 5 Accounting Principles - Accounting Standards, Financial Statements and Accounting Function

This report discusses the accounting principles and standards, purpose of accounting function, critical evaluation of accounting function, main branches of accounting, accounting systems and technology, and issues of ethics, regulations and compliance.

Learner Name ID
Programme Name Pearson BTEC
Higher National
Diploma in Business
Unit Number and Title Unit 5 – Accounting
Principles
Assignment Title
Part 1 Accounting
Principles.
Standards, Financial
Statements and
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Table of Content
Assessment Part 1
1.0 Introduction 3
2.0 An examination of purpose of an accounting function within
an organization 4-6
3.0 A critical evaluation of the accounting function 6-7
4.0 Explanation of main branches of accounting 7-8
5.0 Accounting systems and the role of technology 8-9
6.0 Issues of ethics, regulations and compliance 10-12
7.0 CASH BUDGET 12-13
8.0 Conclusions 13-14
References 14
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Part 1
1.0 Introduction
Write an Introduction to Management Accounting and the
principles of Management Accounting
The report discuss about the accounting principles and standards
which mainly involve the general rules and obligation that required to be
followed and provide direction to the accountant at the time of recording
and proceedings the financial documents. The main goal of accounting
elements is to lead the consistency and equivalence to the financial
documents. Which helps the lenders who provide loan, investor who
invest money, creditors and many more, etc(Appelbaum and Nehmer., 2020).
The systematize group of accounting elements has been provided by the
Financial Accounting Standards Board (FASB). The firm in which it is
selected from this case is Brainslabs it is the data -controlled agency of
marketing, which mainly helps the companies to construct the testing-
control marketing through the assistance of display, CRO and
investigative of London, United Kingdom. This case study is mainly
involves the significance of accounting management and financial
documents and how budgetary plan and estimation assist to forecast
future outcomes and corrective measures which are considered to
accomplish the long-term goals of the firm(Baatwah, Salleh and Stewart., 2019).
2.0 An examination of purpose of an accounting function within
an organization
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The technique of accounting is mainly used for recording the
business proceedings, it executes and knowing the financial data(Barnes
and Enget, 2022). The accounting is function like a large machine in which
the firm provide data as well as raw material and records all of its
companies proceedings, projected task, taxes, etc. In which it discuss
about the true image of the financial position of the firm. There are some
few points which include in accounting, bookkeeping is the first instance
which is also called as accounting cycle. This is the procedure which is
calculated to consider in detail proceedings and through out for uniform
and appropriate financial statements. Both the large and small firms,
private and public, profit or non-profit these type of organizations are
evoked by numbers. For tracing sales revenue, creating payroll and
handling stock, the potential supervisor understand to maintaining
commands on those numbers which is crucial but without concrete
accounting purpose it is close to impossible. Companies selecting a well-
overall function of accounting it required to take different prospects of
accounting apart from the debit and credits.
The important objective for the function of accounting is to maintain the
continuing financial transactions(Bertomeu and et.al., 2021). It also maintain
and ensure all the kinds of monetary details which includes operational
expenditure, capital expenses, salaries, donations, cash flow,
investments, utilities, etc. which should be traceable by each and every
month. The continuous outputs is creating the historic financial of the
firm that can be utilized in various types of ways. It also helps the
supervisors to get understand the wealth and health of financial position
along with the investors who want to invest in the firm.
Some functions of accounting and its main purpose according to the
company Brainlabs which are discussed below:
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 Maintaining financial records: It keep a correct and well record
of daily financial proceedings of the organization Brainlabs. This is
the firm of UK buys, sales, receivables and payable along with the
borrowings which assists the accounting of the company(Boubaker,
Gounopoulos and Rjiba, 2019).
 Close watch of financial proceedings: The accounting function
of the company is useful for the accountant to become a full
relation of payments in respect of the brainlabs firm and the
receivables attained by the organization to check that its receives
the revenue and leaves profitable.
 To prepare the financial statements: It usually prepare the
different kinds of financial statements in which overall accounting
is required. The function of accounting includes readying monthly
information, yearly and quarterly financial documents about the
assets of Brainlabs firm, its internal and external profit and losses
of stakeholders and their borrowings(Bucaro, 2019).
 Handling payroll management: Through the assistance of
accounting, the Brainlabs company can keep a complete or clear
data of staff members welfare fund, staff provident fund, statutory
provident fund, etc. It also create payroll expenses every month,
and provide staff work-based bonuses or bonuses on the basis of
performance and handle staff advantages too.
 Creating the bill payable: The accounting function mainly assists
in ensuring accounts to create confirm that bills which are
appropriately paid off and establishing dates for payments and
paying the bills for the firm which have obligations to pay some
retailers and suppliers on a constant date.
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 To make the budgetary or estimate the financial projected
task: In the Brainlabs company to ensure the future profitable
condition of the organization, there is necessary to ready predicts /
budgets of the firm's financial information(Campra, Esposito and
Lombardi, 2020). Financial projected activity are created to examining
the firm's availability of financial funds, anticipated revenues, future
expenditures, etc. and with the help of this data, the company can
forecast the future business growth and development.
p
3.0 A critical evaluation of the accounting function
The function of accounting involves examining, recording,
reporting and evaluating of a firm financial tasks. This role of
accounting mainly help in making to predict budget, income
statement and balance sheet also. It assist in declining the cost,
increasing profits and measure future expenses(Crowther., 2018).
Estimating the function of accounting which is given below:
 Administration of financial data: This accounting function of firm is
mainly assists to manage the daily financial tasks in a relevant
way. The day to day proceeding involves purchase, sales,
receivables and payable.
 Bills payable: This function of accounting mainly assist in handling
the date of payments and retailer payments. It also assist in
creating the staff salaries and workers advantages on time.
 Making financial data: The function of accounting include in
making of financial documents which involves balance sheet and
income statement of the firm. It also assist in keeping the firm's
historical financial information and creating it obtainable for
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projected activity and and audit procedure(de Villiers, Dumay and
Maroun, 2019).
 Obtain company objectives: The main function of accounting is
usually assist in raising firm's objectives by calculating and availing
the financial rules and obligations. It also provide an assistance to
take business related decision, financial strategy and controlling of
firms financial tasks which maximizing profits of the company.
 Examining performance: The function of accounting business is
financially assist in tracing the financial tasks and also evaluate the
financial performance of the business. It give recommendation for
maximizing the efficiency and declining the wastage of funds.
4.0 Explanation of main branches of accounting
In this topic it discuss about same main branches of accounting
function which are discussed below:
Financial accounting: In this part of accounting branch it assists
to maintaining the daily proceedings. The record of transactions
involve income and expenses of the organization(England, Nagel and
Salter, 2020). The structure of accounting transaction are recorded in
a context of financial document which mainly involve trial balance,
income report and balance sheet. It also play a vital role in
examining the financial condition of the business that assists to
provide company related decision.
Cost accounting: The function of accounting branch is mainly
stands for keeping and controlling the expense of firm projected
sections(Finkler, Calabrese and Smith, 2022). It makes an appropriate
structure that provides data about manufacturing expense of the
firm to the obtainable management. It also determining the
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procedure that mainly assists in declining the cost of the
organization. This equipment also assist in using the funds and
examining the final manufacturing expense that helps in evaluating
the budget for the upcoming financial year(Hoitash and Hoitash., 2018).
Managerial accounting: In this type of accounting the task which
gives complete data for the internal framework of the company. It
functioning below the rules and obligations of the financial tasks by
keeping the standard of accounting. After ensuring these points
company is useful in creating the profits and predicting company
which involves planning, organizing, directing and controlling.
Audit the financial documents: This the main branch of
accounting in which it cover both internal and external aspects of
the company. In this task they completed with the help of
examining the financial reports which basically involve the financial
documents of the firm. The auditing function is considering the
person who have good knowledge and efficient and understand
how to execute the task of auditing(Jiambalvo., 2019).
5.0 Accounting systems and the role of technology
This is the particular accounting division of the company in whole
world that cover all the proceedings of the business. These
proceedings involve income and expenses which includes trade
receivable and trade payable.
Purpose of technology in system of accounting:
It consume less time: This Process of accounting that consists
high information of business proceedings. This type of procedure
is very long and consume high time which create an impact on the
performance of accountant. In the current time, technology provide
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an accountant a big relaxation because it assists in completion of
organization work on timely basis(Kang, Park and Han., 2018).
Simple to revise and control: The main technological effect in
the system of accounting is very useful for the business and very
crucial for the accountants. It maximize the overall productivity of
the accountant that assists them to keep the proceedings in a very
simple manner and in a less time. Apart from this it also assists in
revising the proceedings of the company which normally takes few
time to proceed.
It Contribute to another individual: In daily supply chain, the
innovative ideas and technology are maximized that create a
positive impact in both of the companies in whole world and
required population(Maroun., 2019). By examining the firm, the
principles of accounting system are maximized moderately. In the
present world individual contribute and download reports and
important documents in one tab.
Software of accounting: In current time, the technology are
expanded in high stage and it indicates many kinds of software
program. In the area of accounting framework, many kinds of
software are makes that functions in handling the payroll, creating
slips, invoicing and many other. In involve software such as tally
and ERP which basically utilize for recording the daily proceedings
of the company.
6.0 Issues of ethics, regulations and compliance
The word 'ethics' is mainly define for identifying the comparison
between correct and wrong. Somehow, it was correct to discuss
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that ethics is a situational word form one person to another. Which
mainly involves if it is the correct for one individual then it's doesn't
mean that it was the correct for another individual(Muñoz-Izquierdo and
et.al., 2019). Other component of accounting is a act which assists to
keep the rules and obligations of a firm. If any firm or business
utilize some ethics and guidelines in their organization then it
provide consistency in the functioning of operational activity. If
company want to run their business very smoothly then they
required to use several kinds of ethics in their organization which
are including, expanding and maximizing its place in the market, to
increasing the trust of customer and setting up the honesty and
equity in the ruling of the firm which necessary to cover such
components like measuring the nature of accountant and work
accomplishment. They both are the important key factors for the
function of accounting within the firm but there are some two words
in which they consider high impact and arouse the issue for
accountants at the time of executing the task in an entity(Salehi,
DashtBayaz, and Khorashadizadeh, 2018). The brainlabs firm's hire highly
skilled and knowledgeable employees for handling the accounts
appropriately. The brainlabs organization is answerable for
recording the daily proceedings and controlling expenditures. At
the time of executing the task the accountant of a firm which
usually deal with many problems on the basis of ethics and ruled
which are discussed below:
It force to influence the figures: The firm Brainlabs has keep
their principles and condition in the market according to the UK
years but in case of any imbalance in financial or accounting
document of the firm create variations. These variations are
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included because the firm do not want to express its actual
condition to their internal and external investors of the
organization(Salehi, Mahmoudabadi and Adibian., 2018). On that basis firm
create pressure on its accountant to make the good and relevant
books of accounts which mainly indicates the better position of the
company.
Approach to provide data and confidential problems: Each and
every business the accountant of the company maintain the record
of all data confidentially. The UK based company Brainlabs also
share all the details of their important data with their accountant,
but in some cases accountant is fail to keep the data safe and
secret which increase the ethical problems in context of
accountant. It also tends to break the development of the firm and
also reduce the market worth. If the data of the company is leaked
and and come into the hand of some other competitor then its
create big problem for the company(Stárková and Janíčko, 2019).
Conflict of interest: This is the very big problem and simple to
measure. It involve high time and expert to identify it. The
brainlabs firm is also generate this kind of environment which
mainly create an impact on the firm accounts and create high
politics in administration. This kind of environment is simple to
adapt in any firm management but hard to eliminate fully. In this
firm it create and sell its shares in the market in more prices
without understanding their outcomes. The effect originates when
the audit proceeds and the firm don't understand what to say.
Lack of productivity: In this point it explain that it reduce the
productivity of accountant of the company brainlabs and it also
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control the accountant of the organization. It also not providing the
kind of information in that type of work the accountant is expertise.
Impact of greed: It also creating the problem in ethics and ruling
when the accountant of the firm fluctuate the financial proceedings
according to the organization necessity or in some cases it hide
the incorrect transaction of the company. It is one of the biggest
disadvantage of the brainlabs firm because the individual who
influence the entity financial report also answerable for recording
the accounting of Brainlabs daily proceedings.
Paying extra money: The firm Brainlabs is also create an impact
on the business investors and consumers by paying additional
money as a penalty. Because the team of accountants do not
create a relevant and appropriate records of the organization.
7.0 CASH BUDGET
Cash flow: It is the financial report of the company which includes
all the cash based proceedings it may be inflow or outflow of the
organization. The report maintaining all the money incomes and
expenses. It also indicates that how better a firm handle their cash
proceedings. It includes three important factors in the statement of
cash flow such as; Activity of operating, investing and at last
financing.
Particulars January February March April May June July August September October
Receipts
Opening
Balance 8000 16080 -30100 -66050 -116700 -144900 -132540 -175930 -216610 -23313
Sales 66000 44000 49500 44000 55000 66000 44000 49500 71500 4950
Issue of Shares 0 0 2000 0 0 2000 0 0 0
Issue of 0 0 0 0 0 0 0 0 0 250
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Debentures
Total (A) 74000 60080 21400 -22050 -61700 -76900 -88540 -126430 -145110 -18113
Less: Payments
Purchases 48000 80000 81000 90000 75000 48000 80000 81000 80000 9000
Selling &
Administration
Expenses 2800 3400 1800 1000 2000 2400 2500 2400 2600 260
Marketing
Expenses 5500 4620 3300 2750 4400 3080 2640 4620 3080 275
Property /
Rental Expenses 1620 2160 1350 900 1800 2160 2250 2160 2340 234
Total (B) 57920 90180 87450 94650 83200 55640 87390 90180 88020 9769
Closing Cash 16080 -30100 -66050 -116700 -144900 -132540 -175930 -216610 -233130 -27882
8.0 Conclusions
Form the above report it can be concluded that accounting
standards plays important role in an origination and they provide
support to increase profitability and growth of the company.
Accounting departments keep records of financial activities and
convert into them in financial statements. There are various factors
which impact day to day operations of the company and the
influence can be direct related to the factors. In this report various
corrective measure and action suggested to the company
Brainlabs which help in achieving future goal. A forecasted cash
flow of twelve month is prepared with the help of past data to
measure the future performance of the company.
References
Appelbaum, D. and Nehmer, R.A., 2020. Auditing cloud-based blockchain accounting
systems. Journal of Information Systems. 34(2), pp.5-21.
Baatwah, S.R., Salleh, Z. and Stewart, J., 2019. Audit committee chair accounting expertise
and audit report timeliness: The moderating effect of chair characteristics. Asian
Review of Accounting.
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Barnes, M. and Enget, K.A., 2022. TIME is of the Essence: An Audit Escape Room
Activity. Issues in Accounting Education. 37(1), pp.91-108.
Bertomeu, J. and et.al., 2021. Using machine learning to detect misstatements. Review of
Accounting Studies. 26(2), pp.468-519.
Boubaker, S., Gounopoulos, D. and Rjiba, H., 2019. Annual report readability and stock
liquidity. Financial Markets, Institutions & Instruments. 28(2), pp.159-186.
Bucaro, A.C., 2019. Enhancing auditors' critical thinking in audits of complex
estimates. Accounting, Organizations and Society. 73, pp.35-49.
Campra, M., Esposito, P. and Lombardi, R., 2020. The engagement of stakeholders in
nonfinancial reporting: New information‐pressure, stimuli, inertia, under short‐
termism in the banking industry. Corporate Social Responsibility and Environmental
Management. 27(3), pp.1436-1444.
Crowther, D., 2018. A Social Critique of Corporate Reporting: A Semiotic Analysis of
Corporate Financial and Environmental Reporting: A Semiotic Analysis of
Corporate Financial and Environmental Reporting. Routledge.
de Villiers, C., Dumay, J. and Maroun, W., 2019. Qualitative accounting research: dispelling
myths and developing a new research agenda. Accounting & Finance. 59(3),
pp.1459-1487.
England, T.K., Nagel, G.L. and Salter, S.P., 2020. Using collaborative learning to develop
students’ soft skills. Journal of Education for Business. 95(2). pp.106-114.
Table of Content
Assessment Part 2
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Section B:
Detailed letter to client 16
Financial Statements 16
i] Profit & Loss Account 16-17
ii] Balance Sheet 17-18
Ratio Analysis 18-20
Conclusion 20
Recommendations 20-21
References 21-22
Part 2
Detailed letter to client
The below report consist financial statements of a company that
includes income statement and balance sheet of Alpha Ltd. It help to
measure financial position of the company. This report also include the
calculations of the ratios of ABC Ltd with the help of given information
and provide needful recommendation on the performance of ABC Ltd. A
detailed conclusion is also included in the last that support the whole
report.
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Financial Statements
Financial statements are the physical records of financial activities
of the company that help to find out financial position on the company. It
include the systematic record of various financial reports or statements
such as income statements, balance sheet and cash flow(Wang, Zhou and
Wang., 2020).
i] Profit & Loss Account
Profit and loss account also known as income statement that
involve in summarisation of income, expenses and costs incurred in the
company in a particular period of time. This statement help company in
managing their profits or losses and cost to achieve financial goal. It also
helpful in creation of budgets. It is prepared with the help of cash flows
or other accrual methods of accounting.
Income Statement
Particulars Amount
Sales 400000
Less: Opening Inventory 32000
Less: Purchases 158000
Add: Closing Inventory 28000
Gross Profit 238000
Rent & Rates 10000
Energy 6000
Wages & Salaries 34000
Bad debt 8000
Provision for doubtful debts 5000
Net Profit 175000
ii] Balance Sheet
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Balance-sheet is one of very important financial statement that
display total assets and liabilities of the company. It shows the net worth
of the company and it is based on fundamental equation such as total
assets equal to the total liabilities. Liabilities also includes equity of
shareholder of a company(Weygandt and et.al., 2018). It also provide clear
view about the company position to the investors and stakeholders. It is
also used in computation of the financial ratios.
Balance Sheet
Liabilities Amount Assets Amount
Capital 180000 Premises 160000
Less: Drawings -12000 Equipment 150000
Shareholder's Capital 168000 Trade Receivables 45000
Net Profit 175000 Inventory 28000
Trade Payables 46000 Cash at Bank 14000
Accrued Expenses 3000
Provision for Doubtful Debts 5000
397000 397000
Ratio Analyses
 Current Ratio: It provide the short-term solvency position of the
company. It refers to the computation of how many time company
can able to fulfil the short term liabilities or debts by convert current
assets into cash. It states the comparison of current assets and
liabilities.
 Quick ratio: quick ratio help to measure liquidity position of the
company but It gives more accurate results as compare to current
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assets because balance of unsold inventories are excluded from
the current assets.
Liquidity ratios:
Ratio Formula Calculation Answer
Current ratio Current assets /
Current Liabilities
350,000 / 150,000 2.3 : 1
Acid Test Ratio (Current assets –
Inventory) /
Current Liabilities
150,000 /150,000 1 : 1
 Debt equity ratio: this ratio measure the difference between the
long term debts and equity share capital. It is a part of leverage
ratio which state the long term capability of the firm to meet their
non current debts by equity share capital. It also give clear view
about company using more debts or equity to run business
operations.
Ratio Formula Calculation Answer
Debt equity
Ratio
Debt / Equity (420,000 /
270,000)
1.56 : 1
 Proprietary ratio: It refers to the contribution of the stakeholders in
the total assets of the company. It help to determine the amount of
capital used to provide growth and expansion to the company.
Higher proprietary ratio is favourable for the company that describe
company have enough equity to provide support to the company.
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Ratio Formula Calculation Answer
Proprietary ratio
Ratio
Shareholder fund /
Total assets
(270,00/
840,000)
0.32 : 1
Interpretation of ratios: Current ratio of the company is 2.3 which is more
than its ideal ratio which state that company is managing its current
assets in efficient manner. Quick ratio of the company is 1 which shows
company is stable while managing their quick assets and it also tell that
company is ready to meet short term requirement of finance by their
current assets. Company mainly using debts as compare to its equity for
their operations. Debt equity ratio is not favourable for the company and
proprietary ratio is also not well because of high dependency on the non
current debts. Company has to improve their long term position by
increasing its share capital.
Conclusion
From the above report, it can be concluded that Financial statements are
important to analyse past performance of the company and also helpful
in future decision making. Income statement and balance-sheet provide
support to the investors and stakeholder to measure the market position
of the company. The short term solvency position of the company is
good. Company can easily meet their short term obligation by converting
their current assets into cash. ABC Limited is more depended on the
long term debts as compare to its equity. According to the ratios
company is performing well in short term.
Recommendations
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On the basis of the above financial ratios measures, it can be suggested
that the measuring performance is the procedure of inspecting or
estimating the condition of the firm and people. It is the very crucial
procedure of a firm to accomplish their future goals without doing any
wastage of funds. The condition of the ABC limited company is short-
term and better but the long term condition of the organization is usually
depends upon the long term financing which is very risky for the
organization. In context of the company computed ratios describe that
firm's current assets is high than or twice of the current liabilities. The
quick ratio of the firm is is an good condition or ideal in nature which
indicates company is highly effective and efficient which keep the
balance among current assets and liabilities. It also analyze that firm
long term condition is not better to meet the upcoming financial risk
because company is more depends upon the overall long term
borrowing. It also maximize their revenues to reduce its borrowing. It
also explain that firm long term liability is more than the twice of its share
capital. This condition can reduce the interest of investors which mainly
hurt the companies worth. The firm proprietary ratio of the organization is
not in favor for it because organization not capable to create that much
of profit to reduce its borrowings and also not capable to maximize
contribute capital. Firm has more risk of bankruptcy and maximize the
rate of interest on borrowings. At last organization's short-term condition
is better but long-term condition is not in esteem of it. Firm has to
consider instant points to keep its long term condition.
References
Finkler, S.A., Calabrese, T.D. and Smith, D.L., 2022. Financial management for public,
health, and not-for-profit organizations. CQ Press.
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Hoitash, R. and Hoitash, U., 2018. Measuring accounting reporting complexity with
XBRL. The Accounting Review. 93(1), pp.259-287.
Jiambalvo, J., 2019. Managerial accounting. John Wiley & Sons.
Kang, T., Park, D.H. and Han, I., 2018. Beyond the numbers: The effect of 10-K tone on
firms’ performance predictions using text analytics. Telematics and
Informatics. 35(2), pp.370-381.
Maroun, W., 2019. Does external assurance contribute to higher quality integrated
reports?. Journal of Accounting and Public Policy. 38(4), p.106670.
Muñoz-Izquierdo, N. and et.al., 2019. Explaining the causes of business failure using audit
report disclosures. Journal of Business Research. 98, pp.403-414.
Salehi, M., DashtBayaz, M.L. and Khorashadizadeh, S., 2018. Corporate social responsibility
and future financial performance: evidence from Tehran Stock Exchange. EuroMed
Journal of Business.
Salehi, M., Mahmoudabadi, M. and Adibian, M.S., 2018. The relationship between
managerial entrenchment, earnings management and firm innovation. International
Journal of Productivity and Performance Management.
Stárková, H. and Janíčko, M., 2019, May. Information Asymmetry in Statutory Audit: A
Literature Review. In Annual Conference on Finance and Accounting (pp. 219-226).
Springer, Cham.
Wang, R., Zhou, S. and Wang, T., 2020. Corporate governance, integrated reporting and the
use of credibility-enhancing mechanisms on integrated reports. European
Accounting Review. 29(4), pp.631-663.
Weygandt, J.J. and et.al., 2018. Managerial Accounting: Tools for Business Decision-
making. John Wiley & Sons.
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