Accounting plays a pivotal role in organizations by consolidating financial information, ensuring transparency, and aiding decision-making. This analysis explores the purpose of the accounting function, focusing on its role in meeting organizational, stakeholder, and societal needs. It examines regulatory and ethical constraints, such as adherence to GAAP, and highlights challenges like unethical leadership and cultural diversification. Additionally, the report evaluates the importance of budgetary planning and control, using Zwaner Ltd as a case study to prepare a cash budget and discuss its benefits and limitations. Financial statements and ratio analysis are also used to assess organizational performance over time, providing insights into profitability, liquidity, and efficiency. This comprehensive review underscores the critical role of accounting in driving organizational success.
Grab The Best Academic Assistance In Just One Click
Part 1: Valuation Of "Context And Purpose Of Accounting"
Analysis Of The "Purpose Of The Accounting Function" Within The Organization
The valuation of the major accounting function is generally described as a major process which is used for "consolidating financial information" to make things clear to each and every stakeholder and shareholder. Based on the research work of Nassereddine and Ahmad (2019), the major function of the accounting function is to properly evaluate overall accounting transaction which is occurred in the financial period with the appropriate description of the company's financial performance and cash flow. The accounting function at the organization has been mainly adopted in terms of creating effective ethics at the time of financial reporting.
The required changes in the way of taking a decision in business have been adopted at the time of using the critical accounting function approach. For example, the accounting function has been used by HSBC banking in order to have the proper valuation of their financial performance in an appropriate way. The uses of the accurate approach have the brief implication of taking accurate decisions by using "systematic recordings of financial transactions". On the other hand, adequate use of the financial function can help in avoiding the complexity at the time of recording transactions in an appropriate way.
Analysis Of The "Purpose Of The Accounting Function" Based On The Regulatory And Ethical Constraints
The accumulation of the major purpose for the accounting function based on the "regulatory and ethical constraints" has been discussed. Accounting quality is the required approach that has required by accounting professionals. As per the view of de Iudícibus et al. (2022), the appropriate regulations in the accounting function can help in having effective control of the business's accounting work. The guidelines of “Generally Accepted Accounting Principles (GAAP)” have played an effective role in preparing the accounting for companies in an appropriate way. For example, HSBC has used the guidelines of the GAAP in terms of painting accounts and creating effect over the entire work. The "regulatory and ethical constraints" in accounting have created a major issue at the time of operating work. The frequent changes in the guidelines for maintaining accounting in the company have created issues. The artists of confusion among the users of the accounts have obliged and made an issue over further proceeding for the data recording and reporting.
Figure 1: Ethical issues
The maintenance of adequate ethics and regulations has created an impact on conducting the work of recording and reporting the accounting function in an appropriate manner. On the other hand, the ethical issue is analyzed in terms of "unethical leadership, cultural diversification and unrealistic goals" which affect the company's growth. Unethical leadership can reduce the work efficiency of the employees and make effect over achieving the organizational goal.
Use Of The Accounting Function In Meeting Organizational, Stakeholder And Societal Needs And Expectations
The use of an effective accounting function can provide the accurate performance of the company. The valuation of the accounting report can make an impact on the stakeholders as the company uses the accounting report for representing the company's healthy financial position. In the opinion of Hlawiczka et al. (2021), effective specification in the accounting function can make an impact in preparing the accounting valuation of the company and comparing it with the company objective. the use of the appropriate way of painting finance in the company can help in making adequate decisions to meet the organizational goals in an appropriate way. The use of the accurate accounting function has furnished effective information which can help the company meet its organization's needs with the adequate assessment of the proper financial position.
Evaluate The Role Of Accounting In Information In Decision-Making To Meet The "Organizational Stakeholder And Societal Needs"
The required role of the accounting information in taking the appropriate decision has an effective impact on meeting organizational needs. Based on the research work of Johanson et al. (2022), the required role of accounting is to properly use the transactions which are recorded and make an impact over evaluating its performance based on analyzed value. The valuation of the company's financial performance helps in taking further decisions which is related to further development and meeting the organizational stakeholders' needs as well. The stakeholder of the company has a major need for the overall profitability of the company that is estimated with the use of the accounting function.
Preparation Of The Budget For Adequate "Planning, Control And Decision Making
Evaluate And Prepare A Cash Budget For Zwaner Ltd
Quarterly cash budget for Zwaner Ltd has been prepared based on the use of the accumulated data and information. The valuation of the total cash receipt for the first three months of 2022 has been analyzed as £106,000.00, £185,000.00 and £179,000.00 [Refer to appendix 1]. The use of the monthly cash receipt and payment value has helped in preparing the quarterly cash budget and creating impact overtaking the decision for estimation of the organization's goal and objective.
“Cash budget for Zwaner Ltd and amount in pounds sterling (£)
It was required that the company wanted to maintain the cash balance of £25000 and additional value was required to transfer the savings account of the company. The estimated value in the “high interest saving account” of each quarter is estimated as £84000, £106000, £102300 and £139060 respectively.
Discussion On The Benefits And Limitations Of "Budgets And Budgetary Planning, And Control" For The Organization
Benefits
Budgetary planning and controlling have one of the required benefits in terms of maximization of the company's profitability. An accurate budget planning has included a brief valuation of each aspect that can help evaluate and provide the specific aim and way to achieve it (Heald and Hodges, 2020). On the other hand, an accurate budget plan can "Creates Budget Consciousness and help in reducing the overall cost" of the company as well.
Limitation
The required limitation of budgetary planning and control is having an uncertain future that makes a negative impact on conducting the required work. On the other hand, certain changes in the work operation of the business can require major changes in budgetary planning and controlling. This is the required reason that makes effect the required revision of each stage of the budget plan. The required disadvantage of budget planning and controlling is estimated as "Conflict Among other Departments and depending on the top management for the plan and control".
Identification Of The "Corrective Actions To Problems Revealed By Budgetary Planning And Control"
The required step needed to take in terms of corrective action is the use of an effective plan with the consultation of top management. The valuation of major issues in budgetary control has been dealing with the use of adequate software which can guide in preparing an effective plan and control the entire work (Kabeyi, 2019). The use of appropriate software in terms of "Abila MIP Fund Accounting, AccountEdge and Budget Maestro" can help in preparing the appropriate budget plan for the organization. It can also conduct a sensitivity analysis that can help in having appropriate control over the budget.
Justification For "Budgetary Policy" On Provided "Budgetary Control Solutions And Their Impact On The Organizational Decision"
The use of the software for preparing the budgetary plan and control can help in having accuracy and make an effect on the entire valuation. The sensitivity analysis can also help in having an effective view over-evaluation of the company's performance. The accuracy rate of the budget can be high with the use of the software which is recommended for the company.
Part 2: Memorandum
Preparation Of Financial Statements From The Given Trail Balance
The interpretation of the following income statement is on the basis of the trial balance and the necessary adjustments. According to the income statement, the company has generated a gross profit of £35500. The total expenses that have been spent during the year include rent, utilities, insurance and other expenses of £22600. Therefore, the company has generated a net profit of £12900 which is 36.34% of the net margin. The balance sheet reflects total assets of £84250 which comprises computers, motor vehicles, inventories and other liquid assets. Similarly, the liabilities of the company consist of heads of capital and reserve accounts payable and outstanding gas bills which summed up to £84250.
Produce Financial Statements From The Given Trial Balance
The financial statements consist of the necessary adjustments that have been constructed on the trial balance gas payment been adjusted as the due is added to the utility expenses. The insurance also undergoes changes, where there has been the prepaid expense of £2500 as only £4000, has been paid overall in the year. The depreciation value of the motor vehicles is £8000 where the depreciation is 10% per annum and equipment is £3000 for 20% per annum. There is a bad debt as one of the clients has gone bankrupt where the expenses increases so this is included in the income statement and deducted from the account receivable in the balance sheet (Dewi et al. 2019).
Critical Evaluation Of The Financial Statements
The financial statement and position of the company show good performance during the year. The company has well managed to have a good net margin at the end of the financial. However, the company is required to focus on decreasing its expenses which can help them to improve its net margin efficiently (De Villiers and Sharma, 2020). Similarly, they are also recommended to have some investment in non-current assets in order to have a good assets position. Therefore, it can be concluded that the company's finances can be maintained by having accurate business financial planning.
Calculation and Presentation of Ratio Analysis
Memorandum
Date: 21st March 2023
To: XYZ Ltd.
From: Account trainee
Subject: Interpretation of the financial ratios and rate of Investment ratios
Figure 3: Ratio analysis of XYZ Ltd.
The following analysis and interpretation are regarding the calculation of all the financial ratios of the travel agency company XYZ Ltd. for six years from 2016 to 2021. This can be seen that there have been three types of financial ratios which are profitability ratio, liquidity ratio and working capital turnover. Net Profit margins have been selected where the ratio is calculated at 9.94% in 2016, 9.35% in 2017, 6.62% in 2018, 6.52% in 2019, 4.07% in 2020 and 5.07% in 2021. The liquidity ratio calculated value in 2016 is 1.94, in 2017 is 1.68, in 2018 is 1.83, in 2019 is 1.94, in 2020 is 2.42 and in 2019 is 1.93.
The quick ratio is also calculated as 1.61 in 2016, 1.41 in 2017, 1.49 in 2018, 1.56 in 2019, 1.61 in 2020 and 1.52 in 2021. The next ratio that has been considered is the Working Capital Turnover ratio which helps in the measurement of the efficiency of the company. The calculated value of this ratio is 5.20 in 2016, 5.46 in 2017, 4.53 in 2018, 4.01 in 2019, 3.38 in 2020 and 4.29 in 2021.
Comparison of the Performance of the Organization
This summary contains all the values and the interpretation is helpful for understanding the performance of the firm in the 6 years. The comparison of the values of the ratio can indicate the in-depth performance of the company in the context of profitability, liquidity, working capital and return on investment. There is a fluctuation in the value of the ratio where in 2016 the value of this ratio was 9.94% which dropped down to 4.05% in 2020. However, the company was able to recover the value of the ratio as it increased to 5.07% in 2021which is more than last year's value. In the current ratio, the highest recorded value is in 2020 which then decreased in 2021 which is due to the changes in the value of current assets. On the other hand, there is a similar value in 2016 and 2020 where there have been fluctuations in the six years where in 2021 the value has decreased in comparison to 2020. This can denote that the company's performance regarding the generation of enough funds to pay off the liabilities has been fluctuating over the span of 6 years.
This can be stated that the performance of the company has been fluctuating and there has been a drastic drop in the year 2020. However, the company was able to recover back all the losses and started to be on track with the increase in the value in the year 2021. There is also a gradual decline in the return on investment that can be seen from 2016 to 2020 where the lowest value is 3 in 2020. This can be seen that the company was able to recover in 2021 when the value increases to 4.9 which indicate the recovery of the performance.
Evaluate The Performance Of An Organization Over Time Using Benchmark
The analysis of the net profit margin which is under the profitability ratio is that values are under 10% which is the ideal ratio. There has been a significant decrease in the ratio which is due to the changes in the value of the net profit ratio (Husain and Sunardi, 2020). The value of the net value ratio has been decreasing against the fluctuating value of the sales revenue. This can be denoted that there has been a gradual decrease in the ability to generate a net profit ratio. The value of the net value ratio has been decreasing against the fluctuating value of the sales revenue. This can be denoted that there has been a gradual decrease in the ability to generate a net profit ratio. The ideal current ratio is denoted to be between 1.5 and 3 where the ratio value of the company is between 1.68 to 2.42 which states the company has a good performance (Husna and Satria, 2019). In the case of the quick ratio, the ideal value is 1 and the values of the company are ranging from 1.61 to 1.42 which denotes a good quick ratio.
Working capital ratio can be seen that there have been fluctuations in the value of the ratio in the six years of the operation of the travel company. The working capital ratio should be between 1.5 and 2 which denotes a good performance when compared with the firm's value being above the ideal value (Boisjoly et al. 2020). This can indicate that the company is required to generate extra capital that can help with the future growth of the company. The return on investment can indicate the profit or loss of the initial investment which denotes the potential value of the investment. The ideal value of the ratio is 10 where in the first year the company has the ideal ratio but then this ratio saw a gradual decline.
Limitations of using the ratio analysis which indicates the measurement of the performance is that this computation is related to the past values and not the current value. Furthermore, the calculation does not consider the external factors as well as the socio-economic factors where the inflation factors are not considered (Li, 2020). This computation method does not also consider the human factor which is the labour factor that increases the financial performance of the company.
Reference
Boisjoly, R.P., Conine Jr, T.E. and McDonald IV, M.B., 2020. Working capital management: Financial and valuation impacts. Journal of Business Research, 108, pp.1-8.
de Iudícibus, S., Katsumi Niyama, J., Pires da Silva, J. and Beuren, I.M., 2022. Influence of accounting theory on the objective of general purpose financial reporting. Revista Contemporânea de Contabilidade, 19(50).
De Villiers, C. and Sharma, U., 2020. A critical reflection on the future of financial, intellectual capital, sustainability and integrated reporting. Critical Perspectives on Accounting, 70, p.101999.
Dewi, N., Azam, S. and Yusoff, S., 2019. Factors influencing the information quality of local government financial statement and financial accountability. Management Science Letters, 9(9), pp.1373-1384.
Heald, D. and Hodges, R., 2020. The accounting, budgeting and fiscal impact of COVID-19 on the United Kingdom. Journal of Public Budgeting, Accounting & Financial Management, 32(5), pp.785-795.
Hlawiczka, R., Blazek, R., Santoro, G. and Zanellato, G., 2021. Comparison of the terms creative accounting, earnings management, and fraudulent accounting through bibliographic analysis. Ekonomicko-manazerske spektrum, 15(2), pp.27-37.
Husain, T. and Sunardi, N., 2020. Firm's Value Prediction Based on Profitability Ratios and Dividend Policy. Finance & Economics Review, 2(2), pp.13-26.
Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), pp.50-54.
Johanson, D., Madsen, D.Ø. and Berg, T., 2022. The Role of Benchmarking from a Management Accounting and Control Perspective: Evidence from Norwegian Firms. Available at SSRN 4250510.
Kabeyi, M., 2019. Organizational strategic planning, implementation and evaluation with analysis of challenges and benefits. International Journal of Applied Research and Studies, 5(6), pp.27-32.
Li, J., 2020, January. Research on Limitations of Financial Statement Analysis: Based on Data of Listed Companies. In 5th International Conference on Economics, Management, Law and Education (EMLE 2019) (pp. 378-382). Atlantis Press.
Nassereddine, H. and Ahmad, A.S., 2019. The role of management accounting systems in sustainable and development strategies. In Proceedings of the International Conference on Business Excellence (Vol. 13, No. 1, pp. 313-325).
References
Amanda, R.I., 2019. The impact of cash turnover, receivable turnover, inventory turnover, current ratio and debt to equity ratio on profitability. Journal of research in management, 2(2).
Arsyad, M., Haeruddin, S.H., Muslim, M. and Pelu, M.F.A., 2021. The effect of activity ratios, liquidity, and profitability on the dividend payout ratio. Indonesia Accounting Journal, 3(1), pp.36-44.
Hasanaj, P. and Kuqi, B., 2019. Analysis of financial statements. Humanities and Social Science Research, 2(2), pp.p17-p17.
Masztalerz, M., 2019. Profit levels and profitability ratios reported in the communications of public companies. Prace Naukowe Uniwersytetu Ekonomicznego we Wroc?awiu, 63(4), pp.19-28.
Salehi, M., Lari Dasht Bayaz, M., Mohammadi, S., Adibian, M.S. and Fahimifard, S.H., 2020. Auditors’ response to readability of financial statement notes. Asian Review of Accounting, 28(3), pp.463-480.
Sukmadewi, R., 2021. Analysis of the Effect of Current Ratio, Working Capital, Debt Ratio on the Performance of Various Industrial Companies Listed on the IDX. Husnayain Business Review, 1(1), pp.51-59.
