Financial Accounting Report: Funds, Business Units, and Comparison

This report, focusing on financial accounting, delves into various aspects crucial for business operations. It begins by evaluating diverse sources of finance available to business owners, categorizing them into long-term, short-term, and mid-term options, with detailed examinations of loans from financial institutions, issuing shares, bank overdrafts, trade credit, public deposits, and lease financing. The report then assesses different forms of business units, including sole proprietorships, partnerships, and limited companies, highlighting their respective benefits and limitations. Furthermore, it defines and compares financial accounting with management accounting, outlining their key differences in terms of objectives, users, reporting, and auditing requirements. The content provides a comprehensive understanding of financial concepts, making it valuable for both new and experienced professionals in the field. This assignment is available on Desklib, a platform offering AI-powered study tools and resources.

FINANCIAL
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Evaluate the sources of finance available to a business owner...................................................1
TASK 2............................................................................................................................................4
Evaluation of different forms of business units with their benefits and limitations...................4
TASK 3............................................................................................................................................6
Definition and comparison of financial accounting....................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
As working in a Deloitte Consulting firm, various information required by new as well
as old employee's. Basic of this report is financial accounting which means summarizing and
analyzing all records of finance activities of organization. Present report will provide information
about various sources of funds with its benefits and limitations. The report will critically
examine various units of business firm such as sole proprietorship, partnership and limited
company with their advantages and disadvantages. Later, this assignment will come up with the
meaning of management and financial accounting with their major differences.
TASK 1
Evaluate the sources of finance available to a business owner
To raise finance, every organization needs sources of fund to increase the working
capital. Funds are basically of three types i.e. long term, short term and midterm sources of funds
(Robson, Young and Power, 2017). Each category of funds includes various like venture capital,
government grants, retained earnings, loans, public deposits, lease financing, etc. some are
discussed under.
Loans from financial institution
Loans from financial institutions are the source to raise funds for business owner. It is an
important source of finance. Business owner can lend the money from bank. For this, owner has
to perform certain legal formalities to show that the organization is able to pay back lend money.
Advantages of loan from financial institution
 The burden of payback is less as it allows making repayment in easy installments. Financial institution permits long term loans which are not provided by commercial
banks (Beatty and Liao, 2014).
Disadvantages of loan from financial institution
 Loan from financial institution is a tough process because, too many formalities makes
the procedure time consuming.
 They do not grant the loan easily.
Issue of shares
The fund obtained by issuing the shares is known as share capital. Business owner can
raise funds by issuing the shares. The ownership of a company is represented by equity shares.
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Advantages of issue of share
 It is very appropriate for investors who is capable of assuming the risk of higher return. Payment of dividend is not compulsory for the shareholders.
Disadvantages of issue of share
 The cost of raising is generally less than the cost of equity shares.
 Issue of share can dilute voting power from the shareholders.
Following are short termed and midterm sources of finance -
Short term sources
The word short term sources mean the financing of less than one year. Short term finance
includes finance of the current assets of business like debtors, cash balance, raw material etc.
The two examples of short term sources are -
Bank overdraft
Bank overdraft is a short term source of fund available for business owner in order to
raise the finance. In bank overdraft owner can withdraw the money from bank more than his
balance (Henderson and et.al, 2015). In overdraft, bank allow taking the amount up-to certain
limit for raising the fund. For this agreement, bank charges some interest or it might ask for
security in the form of collateral. Therefore, if the organization is able to repay withdrawn
amount quickly then bank overdraft is best and valuable source of finance.
Disadvantages of bank overdraft
 Bank can charge higher rate of returns if organization wants to extend the limit. Rate of interest can be flexible due to change in budget
Advantages of bank overdraft
 Bank overdrafts are easy to organize
 Business owner has to pay only for whatever he has borrowed.
Trade credit
To purchase the goods and services trade credit is given by one trader to another. In trade
credit, one can purchase the supplies, without the immediate payment (Mullinova, 2016). Credit
given to buyers appears in the records of buyers as, sundry creditors and account payable.
Advantages of trade credit
 It increases the volume of sales. By this, more customers attract towards the seller.
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 Interest can be earned by seller, as he gets the installments which includes cost as well as
interest.
Disadvantages of trade credit
 High risk is involved, as seller is not sure about the customers' loyalty.
 It is difficult to recover or collect installments from the customers.
Mid-term sources
Midterm sources are those sources of fund which, are financed for three to five years.
These sources are usually taken for the expansion of business or to purchase the fixed assets
(Barth, 2015).
The two examples of midterm sources are -
Public deposits
These are those deposits which are directly taken form the public to raise finance. Public
deposits have higher rates of returns than bank deposits. By filling up the prescribed form any
person who is interested in depositing money can do this (Dutta and Patatoukas, 2016). In return,
organization can provide deposit receipt and the acknowledgment of debt.
Advantages of public deposits
 The process of public deposit is quite simple; it does not have any restrictions. The control of the company cannot be diluted because depositors do not have any voting
rights.
Disadvantages of public deposits
 It is generally difficult for new company to raise the funds through public deposit.
 The organization cannot rely on this, it is not possible that public give response at time
when company needs it.
Lease financing
Lease financing is type of agreement in which, owner allows to the lessee to use assets
for some time and return to owner (Christine and Martiano, 2015). Lease finance is the important
source for organization to jump into era of modernization and diversification.
Advantages of lease financing
 It allows to the lessee to take over asset with a lower investment. It is a simple process; it does not need lots of formalities or documentation.
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Disadvantages of lease financing
 If lease in not renewed it may affect the normal business operations.
TASK 2
Evaluation of different forms of business units with their benefits and limitations
Different forms of business units are -
Sole proprietorship
The word sole proprietorship consists of two words i.e. sole and proprietorship. The word sole
means 'single' and proprietorship means 'ownership'. Therefore, on combining these words, it
means a single owner of the organization (Otley, 2016). In other words, a sole proprietorship is
the easiest form of business in which there is only one person is owner of organization. In sole
proprietorship, the owner of firm is responsible for all aspects of business as well as profit.
Advantages of sole proprietorship
 A sole proprietor has all control over the business and decision making of an
organization. To start a business from sole proprietorship, is easy as compared to other business
because it does not require lots of formalities and paper work (Fullerton, Kennedy and
Widener, 2014).
Disadvantages of sole proprietorship
Owners are fully liable, if the debts of business keeps on increasing individual owner’s finances
will be effected.
 Continuity of business ends with the death of owner.
Partnership
Partnership is the association of two or more person running business together by sharing
profits and loss among them. The partnership firm is formed when two or more willing person
come together to form a business (Messner, 2016). They form business with the help of
partnership deed. Partnership deed is written agreement between partners before entering into the
business. In partnership business, both partners are liable for profits and losses of the
organization.
Advantages of partnership
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 The formation of partnership firm is easy because it does not need any legal formality
except partnership deed. Partners can enter into business when they are willing to form it. Huge losses can be shared, so there could not be burden on one person in the
organization. All partners share profit and losses.
Disadvantages of partnership
 If there is a disagreement between the partners, this may result in productivity of
organization.
 Frozen money i.e. investment in the business is very easy, but partners cannot withdraw
any fund from the business with consulting each other.
Limited company
Limited company is the organization in which liability of members are limited. It is the
company which registers a commercial profits i.e. company limited by shares or a non-profit
company limited by guarantee (Mullinova, 2016). In limited company business is officially
recognized as an entity in its own right.
Advantages of limited company
 The members of the company have the limited liability that means person who have
invested in limited company are only responsible for organization debt according to
investment. There are lots of tax benefits as in limited company only profits are subjected to tax.
Disadvantages for limited company.
 In limited liability, power is distributed in between members which may cause
arguments between members.
 Formation of limited company requires lots of paperwork due to numerous strict laws.
TASK 3
Definition and comparison of financial accounting
Financial accounting
Financial accounting is the field of accounting that summarizes, analysis, records all the
monetary transactions of the business. It includes making of journals, ledgers, trial balance,
trading profit and loss account, balance sheet of organization (Dutta and Patatoukas, 2016). It is
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governed by both local and international accounting standards. All the process of financial
accounting is done under certain standards and norms which every organization has to follow.
Management accounting
In the management accounting, managers use all provisions of accounting for decision
making. It includes the provision of financial and non-financial decision of business. It is the
systematic study which involves managerial decision making, devising planning, providing
expertise in financial reporting and control to direct management (Christine and Martiano, 2015).
The main purpose of making decision is to serve function of management i.e. planning,
organizing, directing and controlling all financial activities inside organization so that a process
of good decision making takes place.
Differentiating between management and financial accounting
Basis Financial accounting Management accounting
Meaning Financial accounting is the process of
recording analyzing all financial
activities inside organization.
Management accounting is the system
which provides relevant information to
make policies, plans and procedures of
efficient decision making process
(Otley D., 2016).
Information Financial accounting provides the
monetary information only.
Management accounting provides both
monetary and non-monetary
information.
Objective The main objective of financial
accounting is to provide a monetary
information to outsiders.
It helps in planning and decision
making process by providing the
information from various departments.
Format Financial accounting has a specified
format
It does not have a specified format.
Time frame It has definite time frame i.e. e financial
statements are prepared at the end of
financial year usually.
In management accounting, reports are
prepared when they are needed to the
organization.
User It includes both external and internal It does not allow any outsider for the
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users. purpose of decision making.
Reports In financial accounting, summarized
reports are made for financial position
of the organization.
Management accounting requires
detailed and systematic report of all the
information of the organization.
Auditing
and
publishing
Financial accounting requires to be
published and audited by the statutory
auditors.
Management accounting is not
published or audited by statutory
auditors.
CONCLUSION
By the above report, it can be concluded that financial and management accounting plays
important role in an organization. The purpose of report is to provide all information about
various sources of fund. As financial accounting is the important part of every business
organization. This reports provide differences between management as well as financial
accounting which helps owner to identify that which is better for its business. Various business
units are explained which helps new employee and retired employees for better decision making.
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REFERENCES
Books and Journals
Robson, K., Young, J. and Power, M., 2017. Themed section on financial accounting as social
and organizational practice: exploring the work of financial reporting. Accounting,
Organizations and Society, 56, pp.35-37.
Beatty, A. and Liao, S., 2014. Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2-3), pp.339-383.
Henderson, S. and et.al., 2015. Issues in financial accounting. Pearson Higher Education AU.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Mullinova, S., 2016. Use of the principles of IFRS (IAS) 39" Financial instruments: recognition
and assessment" for bank financial accounting. Modern European Researches, (1), pp.60-
64.
Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. Abacus,
51(4), pp.499-510.
Dutta, S. and Patatoukas, P. N., 2016. Identifying conditional conservatism in financial
accounting data: theory and evidence. The Accounting Review, 92(4), pp.191-216.
Christine, D. and Martiano, F., 2015. Review of the revenue recognition in accordance with
statement of financial accounting standard (PSAK) no. 23/2010 at Damri Corporation.
International Journal of Scientific & Technology Research, 4(8), pp.373-379.
Otley, D., 2016. The contingency theory of management accounting and control: 1980–2014.
Management accounting research, 31, pp.45-62.
Fullerton, R. R., Kennedy, F. A. and Widener, S. K., 2014. Lean manufacturing and firm
performance: The incremental contribution of lean management accounting practices.
Journal of Operations Management, 32(7-8), pp.414-428.
Messner, M., 2016. Does industry matter? How industry context shapes management accounting
practice. Management Accounting Research, 31, pp.103-111.
Granlund, M. and Lukka, K., 2017. Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting research.
Critical Perspectives on Accounting, 45, pp.63-80.
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