Accounting Report: Stakeholders, Financial Statements, and Costing

This report delves into the core concepts of financial accounting, examining the roles and needs of various stakeholders, including investors, creditors, and management. It analyzes how the construction of financial statements caters to these diverse needs, providing crucial information for decision-making. The report then explores two key costing techniques: absorption costing and marginal costing. It outlines the advantages and disadvantages of each, offering a comparative analysis to highlight their respective strengths and weaknesses. Furthermore, the report identifies the most suitable costing technique for different types of businesses, such as vehicle servicing, construction, and car manufacturing, providing practical applications of these accounting methods. The conclusion summarizes the key findings, emphasizing the importance of accounting in financial resource management and the significance of the discussed costing techniques.

Accounting

Table of Contents
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
A) Identifying as well as describing the relevant stakeholders as per the conceptual framework
.....................................................................................................................................................4
B) Analysing the way construction of financial statement meet the needs of stakeholders.......5
TASK 2............................................................................................................................................5
A) Advantages as well as disadvantages of absorption and marginal costing............................5
B) Identifying the costing technique each of the type of business listed below will be utilising
.....................................................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Accounting is defined as the process of measuring, processing , recording, verifying
summarising, interpretation as well as communicating the financial information to both internal
and external stakeholders. Accounting is also considered to be as a mechanism in which all the
business transaction are recorded in systematic manner and in proper format. It is also recognised
the tool which helps an organisation in controlling the cost and assist management team in
analysing the business performance. Accounting also supports manager in identifying the profits
and revenue earned by a firm during specific financial year.
The purpose of the report is to explain the scope as well as objectives of financial
accounting for catering the need of stakeholders. It also has focus on highlighting the advantages
as well as disadvantages of absorption and marginal costing.
TASK 1
A) Identifying as well as describing the relevant stakeholders as per the conceptual framework
Conceptual framework is defined as a framework which is considered to be as an attempt
to explain the nature as well as scope of accounting. A cording to the conceptual framework
various stakeholders such as government , banking institutions , investors, employee, lenders,
creditors share the right to get information about the financial performance of conversely,
shareholders, and more specifically professional shareholders are generally short-term oriented
and expect immediate, maximum profits (Weil, Schipper and Francis, 2013) Investors alone
were considered to be the primary users of financial information , as investors are providers of
risk capital to the enterprise. Financial statement assists manager in making the business
decision. Financial statement assists investors in making the judgement related to the future
investment. It also helps investors in analysing or evaluating the return they will get from making
the investment. It also helps suppliers in ensuring that they will get payment on the time.
Providing information to investors, promoters, debt provider and creditors which is used to
enable them to male rational and prudent decisions regarding investment, credit etc. It also
enables management team in making plans related to Enhancing social welfare by looking into
the interest of employees and Government (Williams, 2014)

B) Analysing the way construction of financial statement meet the needs of stakeholders
As per the balance sheet theories, the information contained in the balance sheet should
be provided to the investor. As this will assist them in analysing the business performance. It will
also help investor in making the decision related to making further investments in the future.
Finacial statement helps the stakeholders in identifying the total profit or revenue earned by an
organisation during particular financial year (Ismail and King, 2014)
TASK 2
A) Advantages as well as disadvantages of absorption and marginal costing
Absorption costing is defined as all of the manufacturing costs are absorbed by the units
produced. In simple words, the cost of a finished unit in inventory will include direct materials,
direct lobar, both variable and fixed manufacturing overhead.
Advantages :
 It helps in development of understanding about the significance of fixed cost involved in
production or operational activities.
 Absorption costing method is considered to be effective when Revenue as stock is not
undervalued.
 It is considered to be as an appropriate tool which is proved to be useful when preparing
financial account.
 This method helps in identifying the method for maintaining net profit in case of regular
production. But there may be fluctuation in sales.
Disadvantages
 Absorption costing technique have focus on only total cost. It doest not have emphasizes
on other variable cost. Absorption costing provides incomplete information which is not
useful for management and might have negative influence on decision taken by manager.
 Manager is more concerned about the total cost, the cost volume profit relationship is
ignored.
Marginal costing
Marginal costing is defined as an accounting system in which variable or cost which are
not fixed are charged to cost units and fixed costs of the period are written off in full against the
total contribution.

Advantages
 Marginal costing helps management team in identifying the impact of change in profit on
output.
 This method or techniques is simple to understand.
 This technique of accounting assist management in developing the understanding about
the relationship between volume, price and cost.
Disadvantages
 The major advantage of this accounting techniques is that it utilised the historical
information or data.
 Fixed cost is not involved in this accounting technique (Otley and Emmanuel, 2013)
B) Identifying the costing technique each of the type of business listed below will be utilising
1. Kwik Fit: a garage specialising in servicing cars, vans and other vehicles – Job costing
technique can be utilised by the firm. In this method of costing Costs are accumulated
via transactions that occur for buying of raw material, Specific labour charges
Level of assignment of manufacturing. It will assist manager in making the pricing
decision.
2. A construction firm specialising in building offices and or houses. :Activity based costing
is the method which can be adopted by an organisation. This costing method Costing can
assist manager in gaining clarity into the projects which are profitable.
3. A car manufacturing industry: producing cars and SUV _ standard costing techniques is
suggested to this organisation. As this is the costing method employed by manufacturing
operations. The major benefit of using the standard costing method is that business entity
can produce product up to a specific of standards. The another advantages is that when
there is fluctuation in actual rates the changes can be monitored as well as compared by
analysing deviation recorded at the production level (Messner, 2016)
CONCLUSION
It has been concluded from the report that accounting is an effective tool which helps in
controlling the transactions. Project has also concluded that accounting mechanism helps in
effective as well as efficient utilisation of financial resources. Study has successfully
demonstrated the way financial statement assists management team in catering the need of

several stakeholders. Report has also highlighted the advantages as well as disadvantages of
marginal accounting techniques.

REFERENCES
Books and Journal:
Weil, R. L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to
concepts, methods and uses. Cengage Learning.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.
Ismail, N.A. and King, M., 2014. Factors influencing the alignment of accounting information
systems in small and medium sized Malaysian manufacturing firms. Journal of
Information Systems and Small Business. 1(1-2). pp.1-20.
Otley, D. and Emmanuel, K. M. C., 2013. Readings in accounting for management control.
Springer.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research, 31, pp.103-111.