Analysis of Financial Statements for Various Clients

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FINANCIAL ACCOUNTING
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Table of Contents
Introduction......................................................................................................................................3
LO 1.................................................................................................................................................4
LO 2...............................................................................................................................................16
LO 3...............................................................................................................................................21
LO 4...............................................................................................................................................23
Conclusion.....................................................................................................................................26
Reference List................................................................................................................................27
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Introduction
Financial accounting ensures any organisation to keep a track of the transactions of finance and
record them in order to present the standing of finance. This very important part needs to be
followed by the management of the companies so that they record all the activities properly.
Proper communication needs to be present to produce accurate reports of financial accounting.
The report will present calculations that will give detailed information about the financial
statements that includes balance sheet and income statement. This will present a view of the
various other applications of financial accounting like bank reconciliation statement, journal
entries, ledger accounts, trial balance and control accounts. The calculations will be done based
on the requirements of various clients.
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LO 1
Introduction
Financial information is essential for the companies and it should be made properly to increase
transparency within the processes of the administration. Key reason of financial accounting is to
prepare a proper report about the detailed financial information and it is used for the interest of
the stakeholders. Stakeholders are the important part in the administration and value of
administration can be checked by the analysis of the financial information of the administration
by the stakeholders. In this report importance of stakeholders and purposes of financial
accounting will be analysed. It will help different organisations to understand the detailed
analysis of financial accounting in a large administration.
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Question 1
The process of summarising and recording all the transaction and details of earning and expenses
is called financial accounting and it is helpful to augment the transparency of all the transaction
in the administration (Abernathy et al., 2015). The financial accounting can be considered as the
detailed method of preparing the accounting statement. A series of principles are used in this
method for preparing various statements of this method and it can be used by using accrual
method and cash method. In the accrual method the prepaid expense and incomes are stated and
in the cash method the payment and incomes are stated. Both the methods are important for the
administration. The statements are reported to higher management to let them know the detailed
situation of administration. Further decisions of administration are taken by using these
information and it augments the profit of administration. Annual reports of the administrations
use these pieces of information for communicating with stakeholders. Annual report is all about
analysis of the financial reports and taking the decision of investment in the administration.
Purpose of financial accounting
Financial accounting is essential for the administrations. It has several purposes to be served in
several administrative processes. Reports and statements are analysed based on the calculation of
financial accounting. The objectives of preparing financial accounting will be described below:
1. Preparation of financial statements
A large administration needs different reports to be published for the administration and these
augments the transparency of processes. The investors and stakeholders analyse those financial
report to revise the relationship with the company (Balakrishnan et al., 2016). Income statement
is one of those important statements and total income and expenses are enlisted within the
income statement. It is used to analyse the profit and the cost of the entire process. It is helpful to
reduce further cost of administration. The administrative process can be smoother with the
financial accounting method and the assets and liabilities can be balanced by applying this
method properly in the administration.
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Balance sheet is used to quantify the asset and liabilities in the administration. The assets should
be more to depict a healthy situation of the administration. All the transactions of business
should be enlisted in the administration within cash flow statement and this is another key
statement of the administration. It is used to quantify the details of transactions. From the
discussion, it can be stated clearly that all the statements are important to augment the
effectiveness of administration. Transparency and the authenticity can be increased if the
financial reports can be analysed properly by the stakeholders.
2. Set the standard of financial reporting
Financial reporting of an administration should be managed by putting the correct standard in it.
The standard of financial reporting should be set by the administration under the GAAP publicly
traded administrations (Brown and Jones, 2015). Administrations should be enlisted in the
security exchange to become eligible in share trading and issuing shares to public. The security
exchanges of the country are responsible to maintain and control the administrations and trading
of shares in it.
Question 2
Stakeholders are the people who have interest in the profit and loss of the administration. Two
major types of stakeholders are related to the administrations such as the internal stakeholders
and the external stakeholders. Internal stakeholders are the people who are related to the internal
processes of the administration such as the board members and the employees (Chan et al.,
2016). The external stakeholders are those individuals who are not internally related but analyses
the performance of administration through the financial statements and reports. Four important
external stakeholders are the suppliers, government, shareholders and creditors.
Internal stakeholders
Internal stakeholders are the people whose profit and loss depends on the financial condition of
the administration. Two important internal stakeholders are management and employees
(Christensen et al., 2016). Now the interests of these stakeholders and the reason of the interests
of these stakeholders in the profit and loss of the administration will be analysed.
Management
Management is interested in the profit of the administration, as progress of the business is the
main responsibility of them. Management people are responsible for making strategy and
implementing the same in the administration. Depending on the decision of management, the
profit and loss of the administration is relied upon. If the company is not making profit, the
managers should change the strategy (Hayoun, 2018). Appraisal of the management depends
upon the profit. The management can decide further goals by analysing the financial report and it
is useful for resource allocation for accomplishing goals.
Employees
Employees are involved in analysing financial report because it ensures them to measure their
own future progress within the administration. A profit making administration will help the
employees to add value to their career on the other hand if the administration is making loss
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chances of further growth in than administration is very less and that will not be desired by any
of the employees. The employees have a very strong reason to be interested towards the financial
report of administration. It will build a trust between the employees and the administration
(Henderson et al., 2015). Transparency of the financial situation will be cleared and the efforts of
the employees can be praised by the financial statement analysis. The appraisals of the
employees are also made by analysing the financial report and profitable report will provide a
positive appraisal to the employees.
External stakeholders
External stakeholders are not directly related to the administration but the profit and loss of the
administration are related to the situation of external stakeholders. Some of the important
external stakeholders are government, suppliers, shareholders and creditors. All the people have
their own cause of attention in the financial situation of the administration.
Government
The financial situation of a large administration can be helpful for the country and it is used to
grow the financial situation of the country. The economic situation of the country can be
flourished by the contribution of profitable administration (Hoyle et al., 2015). The financial
reports of the large administrations are analysed by the government to know the total amount of
tax to be paid by the administration and to analyse the numbers of employment that can be
increased by the administration. A profitable administration can help the country by providing a
huge amount of employment as well as taxation. The shares can be issued by the administration
to the government and public. In the time of investing in the shares of those large companies, the
growth rate of the administration i-s analysed by the government.
Suppliers
Suppliers are interested to analyse financial statements of the administration to know the amount
of growth in the future supply of the administration. The suppliers analyse the situation of the
company and the rate of growth to understand if the business with this administration should be
continued or not (Kieso et al., 2016). Administrations with high growth will help the suppliers to
know that the chances of augmenting the quantity of orders will be higher and the business
should go further. It will further augment the trust within the suppliers and administration.
Shareholders
Shareholders are most interested to know the profit of the administration as the investment
pattern depends on the past performance of the administration (Kimmel et al., 2016). The
performance is analysed by the shareholders to know the growth of the administration. Mainly
the PE ratio and three statements are analysed by the shareholders.
Creditors
Creditors are mainly interested in the amount of debt and assets of the administration. Balance
sheet is the main target of the creditors. Amount of present debt will help the creditors to know
the chances of meeting the financial obligation. High amount of debt will depict that the
administration is not capable enough to meet the financial obligation and the creditors should not
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continue the credit relationship with them (Klychova et al., 2015). The administration is less
amount of debt is more desirable by the creditors generally and if an administration has not been
taken any credit, the credit score of that administration will not be satisfactory.
Conclusion
The report has described the financial accounting and the reporting techniques in detail. Different
purposes of this method and the importance of financial analysis has been described in the report.
Interests of stakeholders and the reason of being interested have been clarified in the report and
the report will helpful to provide a thorough learning about financial accounting.
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Client 1
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