Unit 5: Accounting Principles Project: Financial Statements & Ratios

This project delves into the core principles of accounting, exploring the purpose and scope of accounting functions within an organization, critically evaluating their significance, and explaining the main branches of accounting like financial, management, and cost accounting. It examines accounting systems, the role of technology in enhancing efficiency and accuracy, and the ethical considerations, regulations, and compliance issues that accountants face. The project also includes the preparation of a cash budget, demonstrating practical application of accounting principles. The project emphasizes the importance of financial record-keeping, monitoring activity, and measuring financial performance. It also touches on the role of technology in accounting and the importance of ethical practices and regulatory compliance, providing a comprehensive overview of key accounting concepts.

Unit Number and Title Unit 5 – Accounting Principles
Project Title
Part 1 Accounting Principles. Standards, Financial Statements and
Budgets
Part 2 Financial Ratio Analysis
Statement of Authenticity:
I certify that the work submitted for this unit is my own and the research sources are fully
acknowledged.
Learner Name: Date:
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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
3.0 A critical evaluation of the accounting function 5
4.0 Explanation of main branches of accounting 6
5.0 Accounting systems and the role of technology 7
6.0 Issues of ethics, regulations and compliance 8
7.0 CASH BUDGET 9
8.0 Conclusions 9
References 9
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Part 1
1.0 Introduction
Accounting principles are a set of standards which should be followed by every
organisation whether listed or unlisted. It is mandatory for all the organisations to follow the
structure. It is helpful in following the guidelines while reporting the financial data. In the
following report, the purpose and scope of the accounting function will be discussed by
critically evaluating the accounting functions of the organisation. The branches of accounting
will be elaborated with the context of the bookkeeping function and how it is useful in the
organisation. Further, the role and utilisation of technology are discussed with the issues
related to ethics, compliance, and regulations in accounting. Moreover, the cash budget is
prepared as per the given requirement of Alpha Ltd (Arun, Cuomo and Gaur, 2019).
Write an Introduction to Management Accounting and the principles of Management
Accounting
Management accounting can be explained as a method which renders
information to management. On the basis of which they would be taking decisions for
achieving business objectives and contribute in the improvement of efficiency in a
enterprise. Management accounting can be explained as a activity of interpretation,
examination, measurement and identification as well which would prove to be helpful
for business leaders making sound decisions in finance related areas and efficiently
managing their day to day operations. The basic aim of management accounting is
enabling management towards minimizing losses or maximizing profits (Brooks and
Dunn, 2020). Management accounting further provides the useful data for
management which would help in exercising efficient and effective control of the
organization. Functions which are being performed by management accounting
includes analyzing, collection and reporting data related to finance and operations of
a company. Management accounting also known as cost accounting or managerial
accounting is a sort of examining business expenses and operations which would
help in development of records, accounts and finance based reports contributing in
taking effective decisions during achievement of business objectives. Management
accounting principles have been developed with a motive to serve the core needs
and wants of internal management for improving the decision support goals,
resource application, capacity utilization, consumer value and internal business
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processes in a optimum way (Castillo-Vergara, Alvarez-Marin and Placencio-Hidalgo,
2018). Principles of management accounting can be explained such as accurate
accounts, consistency and stability, presentation of unbiased actual information,
detection and forecasting of issues, maximum use of sources and measurement of
efficiency.
2.0 An examination of purpose of an accounting function within
an organization
The primary goal of any accounting function is that of ongoing financial record
keeping. The accounting department is liable to keep records of goods and services
which business would be paying for and assuring that all business cost are paid on
time. It is also observed that it keeps track of all scheduled payment being done in a
company, for example payroll, inventory and other business related costs. Main
purposes associated with accounting is recording transactions, monitoring activity,
controlling, managing the business enterprise and measuring financial performance.
Some business purposes are explained as under:
 Record entries and transactions: Business cannot function without proper
records of accounting. The accounting requires managing business records in
a accurate and up to date manner which is necessary and useful for smooth
functioning and running of a business enterprise (Gray, 2019).
 Monitoring activity: It helps to make owner realize if funds move out which
would clearly reflect that sales are dropping off when monitoring of activity is
carried out. It would help in finding out where the business is lacking and
lagging behind and in what ways company can grow over a period of time.
 Controlling: It is a useful function which would help in finding areas which
demand assistance and guidance for controlling unwanted losses, costs and
expenses occurring in a enterprise or company.
 Managing the company or organization: In accounting function main purpose
to be served in context of company is to manage the operations being carried
out such as maintaining proper record of inventories, meeting the set and
specified targets by the business organizations (Kreutzer, 2021).
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 Measurement of financial performance and results: It is necessary in every
firm that one must measure variation between expected performance and
actual performance. Accounting is a subjective measure for finding out as how
well a business is capable of making use of its assets from its primary mode
of business and generate income as well as revenues. It also contributes in
assessing firm's overall health for a stated period of time.
3.0 A critical evaluation of the accounting function
Accounting is helpful in examination of assets being acquired by a business
against the liabilities for financial reporting purposes. It is useful in
development of financial records and statements. There are various
accounting function such as recording, analyzing, summarizing, systematic
tracking and reporting of a business financial transactions as well. All
business enterprise make use of accounting for tracking, reporting, executing
and predicting financial transactions. The main functions of accounting are
storing and analysis of financial data and over viewing monetary transactions
(Mann and Roberts, 2022). There are some crucial functions which are being
performed by a management and business firms which include payrolls,
managing inventories, development of budgets, financial statements and
records account payable and receivable, record keeping, legal compliance
and financial control as well. Certain functions are explained as under:
 Preparation of budgets: It is a very important function carried out in
every business and company which explains where the funds must be
allocated in such a way that it would help to serve the goal in
appropriate manner and timely as well. Budgets are necessary for
overcoming unpredictable hurdles in the development and expansion
of business in long run. They serve as a tool for firms who are planning
to grow keeping futuristic time in mind.
 Controlling expenses and costs: Accounting function is helpful in
monitoring the expenses incurred after completing tasks and what
ways would prove to be useful for controlling such situations and costs
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for a given period of time. Controlling such unwanted expenses would
prove to be helpful in overcoming hurdles (Treiblmaier and Beck, 2019).
 Evaluation of employees performance: Such functions are useful for
examining where the employees are performing up to mark and which
areas demands improvement. It helps to plan well in advance the
workforce that would be required and which employee would be
assigned which area related tasks keeping betterment and fruitfulness
of the company in mind.
 Prevention of frauds and errors: Main purpose of accounting function is
to remove and detect errors if any present in the company. It is
important for the business person and managers to keep a close check
on functions and activities being performed in a firm and in external
areas as well.
 Planning and controlling of financial policies: Accounting function is
useful in planning the actions and plans which are to be taken in
account while working on business related areas. Financial planning
and control can be explained as a combination of strategies it would
support in the entire financial management process of a company. The
process takes place at financial panning, many times in the form of
cash flow and predicting balance sheet (Xolmirzaev, Juraev and
Axmadjonova, 2021).
4.0 Explanation of main branches of accounting
Various branches of accounting came into existence keeping in mind various
sort of accounting data and information which is needed by different classes
of customers. They could be shareholder's, owners, suppliers, management,
taxation authorities, creditors, management accounting and cost accounting
as well. Various branches of accounting are explained as under:
 Financial accounting: It is a systematic way of recording any business related
transactions which are linked and related to accounting principles. It is the
original form of accounting process. The basic aim of financial accounting is to
compute the profit or loss of a enterprise during a period and render a
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accurate and transparent image of company's financial position as on a
specific date. Profit and loss, trial balance and balance sheet of a company
are based on the application of finance related accounting principles. These
are helpful for banks, creditors and financial institutions for assessment of
company's financial status.
 Management accounting: It helps in providing data and information to
management for better administration of the business enterprise. It is helpful
in taking important decision and controlling several operations and activities of
the firm. The management then further can make decisions more effectively
and efficiently with the assistance of several management information system
for example projected cash flow, fund flow statement, cost volume profit
analysis report, variance analysis and break even point computations as well.
Management accounting is helpful in managing decision making in relation
with minimizing the cost element and enhancement of profit making. On the
other other hand, financial accounting would be serving the wants and needs
of creditors, shareholder's and financial institutions for ascertaining the
organization's financial liquidity and positioning.
 Cost accounting: It is helpful in dealing and evaluation of expense of a good
or service being offered. It also helps in computation of cost by taking in
account all elements such as administrative and manufacturing which would
contribute to the output productivity. The aim of cost accounting is to help the
management fix the rates and monitor the cost of production.
5.0 Accounting systems and the role of technology
Technology plays a vital role in accounting which helps to transform the sector
with new and advance software and suits capability to assure accuracy and
minimize errors as well which would help business enterprise to avoid tax
penalties and other issues as well. Accounting system contribute in improving
the capacity of accounting research and extension specialist for organizing,
retrieving, storing and exchanging accounting information. To evolve
mechanism of data sharing, develop accounting database for easy
accessibility and data base for decision making as well.
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6.0 Issues of ethics, regulations and compliance
Honesty, integrity and morality is the principle of ethics. All these principle are basically set
by the government of the country according to the nature and structure of business. Every
country have different rules and polices but these principles are generally similar at every
country. Department of accounting strictly followed all these ethics at the time of working.
It is also used to stop the scandals from the country economy. After following this company
is more helpful to make proper report of day to day transactions.
The management of the company hired talented and experienced candidate for
achieving the aim and objective and performing the activity of accounting. It is a duty of the
company accountant of Verdant Leisure to assure that each and every transaction are write
down properly for making the accurate report. Business organization also faced some
challenges and issues from ethics and regulation at the time of performing the activity of
accounting. Few of the issues are listed below:
 Pressure of manipulated the figures: The accounts department of the organization
sometime face pressure when the practices are not running well and one of the
current reason is Covid-19 pandemic. Business firm pressure their accountant to
make effective report of the financial year for showing their internal and external
investor a positive result of the company.
 Access to data and confidentiality issues: one more administrative and moral issues
in carrying out the role of bookkeeping in Verdant Leisure is that they need to
manage the data's which are private in nature. It is the moral issue which is being
looked by the bookkeeper of Verdant Leisure as anyone can abuse the secret data of
organization for their improper way.
 Conflicts of Interest: It is the most troublesome moral issue which is being perceived
for the bookkeeping division of Verdant Leisure in light of the fact that the financing
cost isn't fixed. The representatives of bookkeeping need to deal with the struggles
in such a way, so they can play out their tasks in a viable and productive way. This
clashes can annihilate the way of life of association too.
 Company Standard: It is findout as fundamental that the bookkeeper of Verdant
Leisure need to play out their activities as indicated by the standards and guidelines
which are being created by the public authority of United Kingdom. The standing of
organization is in the hand of funds of association since they work for introducing
the right and precise place of organization before different clients. It helps the
business substance in keeping up with some impressive skill and furthermore
guarantees that the money related articulation distributed shows the legitimate
portrayal of the association's financial position
 Sins of Omission: A bookkeeper or accountant discarded to record a few exchanges
in some cases as a result of strain and exchange are addressed as Error of exclusion
in the books of records. Mistake of oversight can be distorting the number or some
other deficiencies. A financial backer can't break down risk precisely due to blunders
so financial backer isn't in that frame of mind to purchase in the organization. There
is enormous gamble of settling on future choice with the assistance of inadequate.
Organization can endure assuming the choice is assumed the premise of inadequate
report. It can harm the organization's name in the serious commercial centre.
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 Penalties: On the unsatisfactory chance that control the records, obliterate the data
and wrongly explore data occur in the bookkeeping system the dependable
individual can endure punishment forced by regulation and furthermore criminally
responsible.
 Effect of Greed: Accountant sometimes cross their limit when the willingness of the
accountant are increases. Due to this the statement of accounts are effected badly
and shows the inaccurate result.
 Misappropriation of assets: This type of activity are used by the business firm for
making their goodwill and standard in the market. It is generally indicates by the
name of of embezzlement and stealing. Due to this performance the accountant
fluctuated their value of assets according to preference of the company.
7.0 CASH BUDGET
8.0 Conclusions
In the above report, the various functions and scope of accounting is discussed and it
can be concluded from the overall report that accounting principles, standard are very
crucial for any business. Because it helps is making financial reports and financial statement.
This helps in making crucial decisions for the business. Although, the cash budget is
prepared for analysing the future of the company by estimated the figured related to
overheads, revenue. On the basis of this certain crucial choices are made by the business
entity.
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Particulars January February March April May June July August September October November December
Receipt
Opening balance 8000 10400 -39600 -79900 -134400 -167400 -161000 -208400 -253400 -276400 -326600 -353800
Sales 60000 40000 45000 40000 50000 60000 40000 45000 65000 45000 40000 60000
Issue of shares 2000 2000
Issue of debentures 2500 2500
Total (A) 68000 50400 7400 -39900 -84400 -105400 -121000 -163400 -188400 -228900 -286600 -291300
Less Payments
Purchases 48000 80000 81000 90000 75000 48000 80000 81000 80000 90000 60000 48000
Selling and Administration 2800 3400 1800 1000 2000 2400 2500 2400 2600 2600 2400 1500
Marketing Expenses 5000 4200 3000 2500 4000 2800 2400 4200 2800 2500 2400 3000
Property/ Rental Exp 1800 2400 1500 1000 2000 2400 2500 2400 2600 2600 2400 1500
Total (B) 57600 90000 87303 94500 83000 55600 55600 87400 90000 88000 67200 54000
Closing Cash 10400 -39600 -79900 -134400 -167400 -161000 -161000 -208400 -253400 -276400 -353800 -345300

References
Arun, J.S., Cuomo, J. and Gaur, N., 2019. Blockchain for business. Addison-Wesley
Professional.
Brooks, L.J. and Dunn, P., 2020. Business and professional ethics. Cengage Learning.
Castillo-Vergara, M., Alvarez-Marin, A. and Placencio-Hidalgo, D., 2018. A bibliometric
analysis of creativity in the field of business economics. Journal of Business
Research, 85, pp.1-9.
Gray, D.E., 2019. Doing research in the business world. Doing Research in the Business
World, pp.1-896.
Kreutzer, R.T., 2021. Toolbox für Digital Business. Springer Books.
Mann, R.A. and Roberts, B.S., 2022. Smith & Roberson's business law. Cengage Learning.
Treiblmaier, H. and Beck, R. eds., 2019. Business transformation through blockchain (Vol. 1).
Cham, Switzerland: Palgrave Macmillan.
Xolmirzaev, U., Juraev, E. and Axmadjonova, M., 2021. THE ROLE OF ACCOUNTING IN SMALL
BUSINESS MANAGEMENT. Интернаука, (21-5), pp.20-22.
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Table of Content
Assessment Part 2
Section B:
Detailed letter to client 12
Financial Statements 12
i] Profit & Loss Account 12
ii] Balance Sheet 12
Ratio Analysis 13
Conclusion 13
Recommendations 14
References 15
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Part 2
Detailed letter to client
Below are the computations of Financial statements done such as profit and loss
account has been prepared and balance sheet has also been prepared which would help
client to predict the financial position and liquidity of firm in competitive market. Such
measures would help business to overcome issues and hurdles making it difficult for the
company to plan expansion or growth. Examining the results recorded as under would prove
to be useful for the clients and consumers to compare the performance rendered by the
respective company in relation to other companies dealing in same areas.
Financial Statements
Financial statements are helpful in assessment of liquidity and positioning of a
business in competitive environment. It also helps to understand where the business
requires attention and where it is lacking and lagging behind. Financial statements
are useful to give a transparent view of the business working and functioning in a
competitive market and in what ways it could overcome hurdles and obstacles in
monetary aspects. It helps company to plan in advance what a enterprise could do
and in what ways it could improve its performance over a period of time.
i] Profit & Loss Account
Profit and loss statement is also refereed as an income statement which is a
financial record and report reflecting net income of a business firm by deducting total
expenses and costs from total revenue and income. The P & L is found in the annual
financial reports which are publicly traded firm and organisations including a
company's P & L statement, statement of cash flow and balance sheet as well. It is
helpful in providing in depth knowledge related the financial performance of a
company. It is necessary to compare P & L statements with different accounting time
intervals to understand if there are any changes incurred over a period of time to
become more meaningful than the number itself. These statements are seldom
presented on a accrual basis or cash.
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