Accounting for Managers: Financial Performance and Regulations

This report offers a detailed exploration of accounting principles and practices for managers. It begins by defining accounting concepts and conventions, differentiating between financial and management accounting, and examining the roles of key stakeholders. The report then delves into the practical application of these concepts, demonstrating the preparation of financial statements, including journal entries, general ledgers, trial balances, and final accounts such as the income statement, balance sheet, and cash flow statement. Furthermore, it includes the application of adjustment entries. The report also covers the assessment of financial performance, including the calculation and categorization of financial ratios, with examples. Finally, it addresses the UK regulatory framework, outlining its role and the impact of international regulations on UK businesses. The report utilizes examples and practical applications to enhance understanding.

Running Head: Accounting For Managers
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Accounting for Managers
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Accounting for Managers
Contents
INTRODUCTION................................................................................................................................2
JOB 1....................................................................................................................................................2
1. Accounting Concepts and Conventions.............................................................................................2
1.1 Role and aim of financial and management accounting and accounting regulations.....3
1.2 Nature of business and accounting information...................................................................4
1.3 Users of Accounting and Financial Information....................................................................5
JOB 2....................................................................................................................................................6
2. Preparation of financial statements..................................................................................................6
2.1 BOOKS OF ORIGINAL ENTRY.............................................................................................6
A.JOURNAL ENTRIES......................................................................................................................6
B. GENERAL LEDGERS ACCOUNTS..................................................................................................8
2.2 TRIAL BALANCE...................................................................................................................10
2.3 FINAL ACCOUNTS/FINANCIAL STATEMENTS...............................................................11
A. INCOME STATEMENT...............................................................................................................11
B. BALANCE SHEET.......................................................................................................................11
C. CASH FLOW STATEMENT.........................................................................................................12
2.4 ADJUSTMENT ENTRY.........................................................................................................12
JOB 3..................................................................................................................................................13
3. Assessment of Financial Performance.............................................................................................13
3.1CALCULATION OF FINANCIAL RATIOS OF THE COMPANY.......................................13
3.2 CATEGORISATION OF FINANCIAL RATIOS..................................................................................13
3.3 FINANCIAL PERFORMANCE OF McDonald’s Corporation............................................14
JOB 4..................................................................................................................................................15
4. UK Regulatory Framework...............................................................................................................15
4.1 Role of UK Regulatory Framework in the field of Accountancy and Finance.................15
4.2 Impact of International Regulations on UK’s business Entities........................................16
Conclusion.....................................................................................................................................16
References.....................................................................................................................................18
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Accounting for Managers
INTRODUCTION
The concepts of accounting are usually employed by the management of every company, to
make relevant and informed decisions with nominal errors. There are various financial
records prepared by the accountants of an entity, to assist the stakeholders like creditors,
suppliers, employees, government etc. in drawing the proper conclusions. Also there are
various financial ratios which are calculated in order to understand the actual performance of
the company and plan accordingly. Current report will now study the significance of financial
accounting for the company.
JOB 1
1. Accounting Concepts and Conventions
The financial information needs to be well understood by the external users so that they can
make the required decision without any hurdle or difficulty. These information should be free
from biasness and unethical practices.
Generally Accepted Accounting Principles (GAAP) - GAAP came into the picture over
many years back. It is a collection of accounting rules and regulations the organisations have
to strictly follow while preparing their financial records. It tells us the way to represent the
financial information. There are certain concepts and conventions given by GAAP which
have been discussed below-
ACCOUNTING CONCEPTS AND CONVENTIONS-
i. Accrual Accounting- This convention says that revenue and expenses are recorded as
and when they are earned and incurred respectively, no matter whether or not the cash
has been actually received from the debtor or paid to the creditor.
ii. Business Entity- This convention says that business and the owner of the business are
two different entities. Hence, business should maintain a proper separate record of its
transactions.
iii. Consistency- According to this convention, the business entity should try to follow
the same accounting policies and methods from year to year.
iv. Historical Cost- This convention informs that whenever an asset is purchased by the
business it should be recorded at the actual price in the books of accounts that is, the
price at which it is purchased and not at the price it carries due to inflation, deflation
or any other factors.
v. Full Disclosure- As per this convention, no information should be hided from the
stakeholders which can resist the users from making a wise decision.
vi. Going Concern- This convention states that every business owner operates with the
view of carrying the business for indefinite period of time and has sufficient resource
to carry on the business successfully in future.
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Accounting for Managers
vii. Matching- This concept requires the business to make proper match between the
revenue earned and expenses incurred during the same year or period of time.
viii. Materiality- It states that those informations, which have a mere impact on making of
the financial statement and will actually not hamper the quality of decisions taken by
the external business users can be ignored.
ix. Revenue recognition- This makes the business to consider the revenue to be earned
only when the services/products have actually been delivered to the purchasing party.
x. Stable Monetary Unit- The monetary information should be communicated or
recorded in fixed unit of currency.
xi. Money Measurement- This concept says that only those transactions are recorded in
the books of accounts which could be easily stated in terms of money and non-
monetary transactions are not taken into account.
xii. Conservatism- This says that accountants are always pessimistic about their business
and therefore record for all possible losses and never record the possible gains in
forthcoming period of time.
xiii. Objectivity- This states that each transaction recorded should have supporting
document which may be, invoice, sales order, credit card receipt etc.
1.1 Role and aim of financial and management accounting and accounting regulations
Accounting is an orderly process of recording, classifying, analysing, summarising and then
reporting the end result to the stakeholders of the company for the better decision making.
The information fetched from the financial records aids the company in making efficient and
effective plans.
In short, accounting is the method which helps the organisation in achieving the ultimate
objective of earning profit.
Branch of Accounting
I. Financial Accounting- It is a way with the help of which companies record, classify,
analyse, summarise and report the financial information like income, expenditures,
accounts receivables to the external users of the company.
Roles & Aims of Financial Accounting-
i. It helps to uphold accuracy in recording with the help of double- entry
bookkeeping, wherein each transaction is recorded twice
ii. According to the Companies Act, every company is required to maintain a proper
record of their revenues and expenses and share the annual reports consisting of
financial information with the shareholders
iii. Tax laws also requires the detailed information of the company’s income and
expenditure
iv. It also helps the owner of the company to know the actual profit earned or loss
incurred on the capital invested
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Accounting for Managers
v. Financial accounting also helps in allocating the resources well
II. Management Accounting- This branch of accounting is carried out only for the
management of the company who are considered as internal users. The reports
prepared under management accounting are not available for the stakeholders of the
company.
Roles & Aims of Management Accounting-
i. It support the managers to take better internal decisions and contribute
effectively to the growth of organisation
ii. It facilitates the various divisions of the organisation to plan and forecast the
future requirements
iii. Financial plans like budgets can be smoothly framed out with the management
reports
iv. This makes management team to analyse whether the actual results are in
accordance with the planned one or not, after which proper measure are taken
in case of any abnormality
v. Controlling and supervising becomes easy with managerial accounting
(Annand, 2018).
Functions of IASB and SAC- The organisations of UK are controlled by two accounting
bodies which are IASB and SAC.
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) and STANDARD
ADVISORY COUNCIL (SAC)-
(ifrs.org, N.D.) IASB is board consist of the members having relevant understanding in
preparing financial reports, auditing, accounting education etc. It is a self-regulating
group of professionals which forms the standards of IFRS (International Financial
Reporting Standards). It also studies the conclusions of IFRS Standards formulated by
IFRS Interpretation Committee. The primary task of IASB board is to ensure
transparency in preparation of financial reports by the entities.
Those organisations having B Impact Rating System are being guided by the
professionals of SAC.
1.2 Nature of business and accounting information
There are number of accounting information which can be categorised as follows:
a. Information depicting financial performance and position - Company judge their
financial performance by calculating the net profit/loss by preparing profit and loss
account at the year end. This information can be used by shareholders for demanding
extra dividends, employees can expect a hike in their earnings/salaries, and investors
can plan to invest their money in order to yield return in future and so on.
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Accounting for Managers
Financial position can be known through preparation of Balance sheet. Balance sheet
of the company shows the total assets, liabilities and owner’s equity. This can be
studied by the stakeholders to review the actual position of the company which may
be either financially weak or strong.
b. Information relating to per unit cost and total cost- It becomes really important for
the managers to evaluate per unit cost and total cost for setting up the final sale price.
c. Information required for tax management- Here, those informations are composed
which are required for tax calculation. These informations are used by the Income Tax
Department. Example- Companies are required to calculate EBIT and dividend
distributed for computing income tax charged on the profit.
d. Corporate social responsibility related information- Big companies have been
mandated to show the informations related to the amount spent for the social cause.
Example- amount spent pollution control, women empowerment, commodity related
safety etc.
1.3 Users of Accounting and Financial Information
The accounting and financial informations plays an important role for the interested parties
of the company in making better and significant decisions. The users can be either external
user which includes suppliers, investors, creditors, debenture holders, customers etc. or
internal user which consists of management of the company, owners of the company,
different departments of the company etc. The roles of users are discussed below:
i. The managers and the owners of the company use the profit and loss account in order
to evaluate its performance at the year end
ii. Shareholders of the company always looks for the information relating to net
profit/net loss, in order to demand extra dividend and also to know, how their invested
amount is contributing towards the sales made by the company
iii. After evaluating the performance of the company, investors make their plans of
investment
iv. Employees expect a hike in their bonus or salary in case the company perform better
v. Income tax department looks at the EBIT of the company in order to levy tax
vi. Debenture holders and creditors uses the balance sheet to know the debt returning
capability of the company
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Accounting for Managers
JOB 2
2. Preparation of financial statements
2.1 BOOKS OF ORIGINAL ENTRY
A.JOURNAL ENTRIES
In the books of Juju Grez
Dat
e Particulars
L/
F
Amount
Dr.
Amount
Cr.
A
Cash A/c
Dr. 400000
To Capital A/c 400000
(Owner Started business with cash)
B
Rent A/c
Dr. 16000
To Cash A/c 16000
(Being rent paid)
C
Equipment A/c
Dr. 13000
To Accounts Receivable A/c 13000
(Being office equipment purchased)
D
Cash A/c
Dr. 33000
To Sales A/c 33000
(Being payment received from client for the service
given)
E
Accounts Payable A/c
Dr. 28000
To Sales A/c 28000
(Being service rendered to a client)
F
Equipment A/c
Dr. 9000
To Cash A/c 9000
(Being additional equipment purchased)
G
Salaries & Wages A/c
Dr. 7000
To Cash A/c 7000
(Being salaries and wages paid to employees)
H
Cash A/c
Dr. 16000
To Accounts Payable A/c 16000
(Being payment received from a debtor)
I Accounts Receivable A/c
Dr.
13000
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Accounting for Managers
To Cash A/c 13000
(Being payment made to creditors for equipment
purchased)
J
Drawings A/c
Dr. 600
To Cash A/c 600
(Being cash withdrawn by the owner for personal use)
K
Cash A/c
Dr. 50000
Accounts Payable A/c
Dr. 50000
To Sales A/c 100000
(Being 50% payment received from the debtor for the
service rendered)
L
Salaries & Wages A/c
Dr. 800
To Cash A/c 800
(Being salaries and wages paid to employees)
M
Building A/c
Dr. 5000
To Accounts Receivable A/c 5000
(Being Furniture purchased)
N
Cleansing Services
Dr. 100
To Cash A/c 100
(Being cash paid for office supplies)
TOTAL 641400 641400
B. GENERAL LEDGERS ACCOUNTS
I. Cash Account
Dr Cr
Particulars
Amoun
t Particulars
Amoun
t
Capital A/c 400000 Rent A/c 16000
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Accounting for Managers
Sales A/c 33000 Equipment A/c 9000
Accounts
Payables A/c 16000 Salaries & Wages A/c 7000
Sales A/c 50000 Accounts Receivable's A/c 13000
Drawings A/c 600
Salaries & Wages A/c 800
Cleansing Services
Dr. 100
Balance C/F 452500
Total 499000 Total 499000
II. Capital Account
Dr Cr
Particula
rs
Amou
nt
Particula
rs
Amou
nt
Balance
C/F 400000 Cash A/c 400000
Total 400000 Total 400000
III. Rent Account
Dr Cr
Particula
rs
Amou
nt
Particula
rs
Amou
nt
Cash A/c 16000
Balance
C/F 16000
Total 16000 Total 16000
IV. Equipment Account
Dr Cr
Particula
rs
Amou
nt
Particula
rs
Amou
nt
Creditor's
A/c 13000
Balance
C/F 22000
Cash A/c 9000
Total 22000 Total 22000
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Accounting for Managers
V. Accounts Receivables Account
Dr Cr
Particula
rs
Amou
nt
Particula
rs
Amou
nt
Cash 13000
Equipmen
t A/c 13000
Balance
C/F 5000
Furniture
A/c 5000
Total 18000 Total 18000
VI. Sales Accounts
Dr Cr
Particula
rs
Amou
nt
Particula
rs
Amou
nt
Balance
C/F
16100
0 Cash A/c 33000
Debtor's
A/c 28000
Cash A/c 50000
Debtor's
A/c 50000
Total
16100
0 Total
16100
0
VII. Accounts Payables Account
Dr Cr
Particul
ars
Amou
nt
Particul
ars
Amou
nt
Sales
A/c 28000 Cash A/c 16000
Sales
A/c 50000
Balance
C/F 62000
Total 78000 Total 78000
VIII. Salaries & Wages
Dr Cr
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Accounting for Managers
Particul
ars
Amou
nt
Particul
ars
Amou
nt
Cash A/c 7000
Balance
C/F 7800
Cash A/c 800
Total 7800 Total 7800
IX. Cleansing Services
Dr Cr
Particul
ars
Amou
nt
Particul
ars
Amou
nt
Cash A/c 100
Balance
C/F 100
Total 100 Total 100
X. Drawings Accounts
Dr Cr
Particul
ars
Amou
nt
Particul
ars
Amou
nt
Cash A/c 600
Balance
C/F 600
Total 600 Total 600
2.2 TRIAL BALANCE
Trial Balance for Juju grez
On 31st December,2018
Debit
Credi
t
Equipment 22000
Accounts
Payable 62000
Cash
45250
0
Capital
40000
0
Accounts
Receivables 5000
Drawings 600
Sales
16100
0
Rent 16000
Cleansing
Services 100
Salaries & 7800
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Accounting for Managers
Wages
Suspense A/c 5000
Total
56600
0
56600
0
2.3 FINAL ACCOUNTS/FINANCIAL STATEMENTS
A. INCOME STATEMENT
Income statement for the year ended 31st December, 2016
Particulars Amount
Revenue 161000
Less: COGS Nil
Gross profit 161000
Operating expenses
Prepaid Expenses Nil
Doubtful debts Nil
Administration expenses 74
Wages expenses 7800
Depreciation on Furniture and fixtures 0 Nil
Interest on investment 0 Nil
Interest paid 0 Nil
Total operating expenses 7874
Operating income 153126
EBIT NIL
Add: Depreciation NIL
Tax NIL
Net income 153126
B. BALANCE SHEET
Juju Grez Company
Balance sheet
As at 31st December 2018
ASSETS
CURRENT ASSETS
Cash 452500
Accounts Receivables 5000
Short term Investments 173226
Total Current Assets 630726
NON-CURRENT ASSETS
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