Unit 5: Accounting Principles, Financial Statements and Cash Budgeting Assignment Sample

Part A

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Introduction: Unit 5: Accounting Principles (Hibo)

Accounting Principles used in the accounting purpose of an organization help to gain financial information to understand the growth or deficit of an organization. The purpose and scope of accounting would be described to understand the importance of financial accounting to an organization. The efficiency of accounting reports had been identified by the decision-making of management for further activities. Branches of accounting and job skills would be valued at identifying the role of accounting in organizational activities. Implementation of modern technology in accounting impacts on financial report preparation and evolution going to be presented. Ethics, regulations, and compliances in accounting would be in analysis to identify the credibility of accounting for an organization.

Purpose and scope of accounting

The business activity of an organization operated through different types of operational activities: light production, distribution, marketing advertisement, and collection of revenue. The complex environment of an organization would be effectively identified through the preparation of financial reports, where the accounting system provides effective results by collecting financial information (van Helden and Reichard, 2018). Accounting scope in an organization has been considered as the continuous preparation of the accounting system through financial report analysis and preparation. Recording of each financial activity of an organization provides defined financial reports like profit and loss statements, balance sheets, and cash flow statements. The definition of a financial report evaluates the financial position of an organization that provides a complete financial report to management.

Organization operations have been conducted by the implementation of different financial policies, where control of financial policy has been operated through an accounting system. The formation of planning is being considered as an accounting scope for organizational productivity growth. Preparation of the budget is an effective accounting scope to identify an organization's future business prospects with limited financial resources (Kamau and Mungai, 2020). Another scope of accounting has been considered as cost control which provides effective results for managing business activity with cost management policies.

Evaluation of the efficiency of accounting for decision-making

Organizational activities have been operated by management, where decision-making ability influences future business activities and also impacts stakeholders and Society needs i.e., financial reports revaluation provides effective results of an organization's financial condition to identify the requirement of further business activities. The evolution of accounting functions on decision-making ability has been identified by organizational productivity growth which means effective productivity of an organization reduces the average cost of production, which provides extra leverage in comparative advantage by less price of products. Financial accounting evaluates an organization's total assets and liabilities that provide organization and long-term financial strength for business expansion (Pattyn et al. 2021). Business activity effective and financial reports that Stake of shareholders and societies to fulfill needs of financial gain. Operation of the cash flow statement provides information regarding availability in an organization that presents possibilities of business strength for business activities.

Cash flow preparation provides effective results to making decisions about future business activities that don't involve different types of prospects in business growth and financial Resource Management. Stakeholders and societal needs of this organization would value it to business operational activities by making managerial decisions but further financial Resource Management and impact on business activities to improve cash availability by reducing credit sales period. Investors and societal needs form an organization have been considered as a financial contribution to the economy, where financial reports provide information regarding an organization's financial conditions that are going to involve defining decisions regarding productivity growth or deficit of an organization (Wanjuki et al. 2021). According to accounting standards organization is considered a person, who has a social responsibility. Corporate social responsibility (CSR) organization according to its financial strength, where the accounting system provides information regarding available financial resources for corporate social responsibility.

Branches of accounting and job skills

Branches of accounting provide different financial activities to present a report of an organization, where financial accounting evaluates the organizational current state. Cost accounting is another branch of accounting that would be the financial position of an organization. Cost accounting activity measures the cost consumption of an organization which affects profitability. Using the cost accounting process, cost management would be able to decide possible ways to reduce cost consumption and improve productivity. Another accounting branch has been considered auditing Activities that provide transparency in financial recording and reports. Auditing practices in financial activities also provide effective results to produce adequate financial information for investors and stakeholders. Tax accounting has been conducted to identify financial resource contributions to an organization by identifying the total income of a financial period (DeFranco and Schmidgall, 2020). Tax accounting procedures also conducted different types of adjustment in tax activities that effectively result in organizational net profitability. Another accounting branch is forensic accounting which has been operated to identify different errors and misconduct in financial reports to establish financial transparency.

Role of technology in modern accounting

Modern accounting systems provide electronic accounting information that helps management get updates on business activities easily. Technology enhancement and implementation in modern accounting improvise the accounting system of organizations through different accounting software like Oracle, Zoho Books Accounting Software, and SAP. Implementation of technology in modern accounting developed an accounting system of an organization that provides effective information of each financial activity like productivity, distribution, and marketing (Thomas, 2022). Statistical analysis of financial reports by accounting software presents financial errors and a growth-effective source of financial change that provides effective resources to management for decision-making ability.

Using financial Software management would be able to identify productivity costs and its impact on the profitability of cost consumption by the organization. Modern technology implementation in the accounting system recorded each financial activity with a monitoring process that reduced human error. Additional information of the financial position of an organization is easily identified through automated accounting software that helps management to decide on further business activities for future growth. Automatic accounting software provides effective financial information to management that reduces the administrative cost of an organization. Cloud-based accounting system Store the financial record of an organization that helps to deliver effective financial results to management to identify financial errors in different activities.

Issues of ethics, regulation and compliance in accounting

Ethical issues and rules and regulations in accounting provide efficiency in financial report presentation and also different issues in accounting procedures. Ethical issues in accounting have been considered as productivity of financial reports by falling accounting structure impact on organizational activities in different ways, where management has limitations regarding financial activities and resource collection. Limitation in the accounting system also makes ineffective productivity in financial reports with lack of transparency. Integrity in accounting activity provides transparency and financial report presentation by following each financial rule and regulation that might lead to organization hiring of a legal accountant. According to the Cost Principle, an organization needs to adopt effective cost Management policies for productivity growth that also present the use of financial resources effectively for Organizational profitability. Cost principles act as constraints to organizations due to ineffective growth of output in productivity-oriented activities (Cangoz and Secunho, 2021). Impressive income statement presentation is required for each organization that provides constraints for organizations due to facing financial losses in organizations.

Management policies implementation in an organization provide leverage in financial condition and also act as limitations for the operational growth of the business. Additionally, accounting rules of Generally Accepted Accounting Principles (GAAP) provide different legitimate rules to accounting activities. Organizations have limitations to connect financial resources from the capital market and different types of criteria need to be considered by your organization to be listed in the capital market. Different accounting principles organizations have Limited options to operate their business with financial resources and activities (Nurmaganbetova et al. 2020). According to the absorption of financial debt needing to be levered rather than overleveraged, a covered organization would be identified as a financial burden for the economy. Ethical issues, rules, and regulations of accounting create constraints for business expansion.

Memorandum of hospitality and catering start-up business

Establishment of hospitality and catering start-up business required to present state financial activities that are going to ultimately present availability of financial resources to the organization along with the requirement of total financial resources. Cash budget presentation is going to describe different financial elements of startup business that are going to deliver effective cash requirements for business activity and also present total receipt and payment cash operation. Hospitality and catering business is going to start the operation with capital of £100,000 as owner capital. Additionally, a banking loan of £50000 is going to be used as additional financial requirement for startup business.

Table 1: Cash budget of 12 months Cash budget of this startup business has presented each month cash availability at the end of business operation. Closing balance of each month has been identified as a next month opening cash balance to continue business operation. Identification of each financial resource of business activity has presented total receipts of each month's business activity. Total cash receipt of 1 year has been calculated £90,50,264.40, whereas total cash paid has identified around £1,96,619.20. Ultimate Kaise availability after computation of one-year financial activities of the startup has been calculated at around £88,53,645.19 that indicates potentiality of the startup business expansion for business expansion.

Part B

Date- December 5, 2022, To Managing directors

Preparation of financial statements

Table 2: P&L Statement

Table 3: Balance sheet Statement

Financial statement preparation provides an appropriate financial report of the organization that is going to explore net profitability and assets with liabilities of financial years. The profit and loss statement of this organization has presented gross and net profitability of business operations of the last 3 years that conducted legitimate financial reports to produce financial activities to the government. According to the financial report, net profit of financial 2021 has been calculated at £4,13,162.00 after the deduction of operational cost, expenditure, and payment of income tax. In the next financial year 2021 (Reichard and Küchler-Stahn, 2019), the net profit of this organization has been identified as £5,17,660.00 which indicates continuous progress in net profitability. Additional information regarding the current financial year for fertility has been calculated as £18,51,949.00 after the deduction of expenses and taxes.

The balance sheet presents a presentation as reported toward the government regarding Assets and liabilities that conduct the initial position of this organization. Bad debt and outstanding payments have been registered in the current liabilities because of treating that element as a financial burden. Additionally, advance payment and debtors have been considered as current Assets of this organization to identify financial elements that would be recovered in the next financial year (Da Roit and Le Bihan, 2019). The matching principle has been considered to prepare a balance sheet. Inventory has been considered as current assets because of short-term financial assets of the organization. Contacting matching principles for balance sheet preparation evaluates total assets and liabilities with accounting balancing figures. Using different shapes of balance sheet preparation accrued income has been treated as a current asset for this organization.

Calculation of financial ratios

Table 4: Profitability ratio Profitability of this organization has been conducted through gross and net profit margin identification, using the financial formula ( gross profit/sales) X 100. Net and gross profit margin of this organization has conducted continuous growth in the last 3 years. Presentation of profitability ratio conducted contribution of profit percentage toward financial stability.

Table 5: Liquidity ratio Liquidity ratio has been conducted to identify current and acid test ratio, which is providing information regarding short term financial stability of the organization to conduct business operations. Accounting formula has been used to conduct the liquidity ratio (current asset / current liabilities).

Table 6: Efficiency ratio Efficiency ratio has been contacted to identify financial efficiency of the organization by using financial resources. Recently, it also conducted different aspects of initial activities impact on profitability (Nugroho, 2022). Asset and inventory turnover ratio and effective decision regarding financial efficiency growth of this organization.

Table 7: Investment ratio

Investment ratio has indicated return of financial resources toward organization profitability and financial stability. Conducting investment ratio debt and equity percentage has been identified that would be effective to gain knowledge about last three years change in capital structure.

Compare financial performance

Profitability analysis

Populated analysis of this organization has Syndicate continuous progression in last year's possibility of the ability that ensures the business growth but future years. Net profit percentage of the financial year 2021 has increased by 13.56%. Additionally, in the financial year 2020-21 has increased by 39.25%. The financial formula (gross profit/sales) X 100 was used to identify the gross and net profit margins and determine the organization's profitability (Mishkova,, 2018). This company's net and gross profit margins have grown consistently during the last three years. Presentation of the profitability ratio and the profit percentage's contribution to financial stability.

Liquidity analysis

Liquidity identification based on financial reports indicates organization of financial liquidity has increased in the last 3 years that provides financial flexibility to this organization. Additional leave this organization activities provide effective results to improvise in financial flexibility with 0.27 times (Kurniani, 2021). Additionally, the current ratio has been improvised by 0.07 times in FY 2021. Quick ratio analysis also determined organizational financial flexibility by managing inventory to increase current assets compared to current liabilities (Koopman and Cumberlege, 2021). In order to determine the organization's current and acid test ratios, which provide information about the organization's short-term financial stability, liquidity ratios have been undertaken. The liquidity ratio is calculated using the current asset / current liability accounting methodology. Quick ratio of this organization has been increased in the financial year 2021 by 0.03 times growth of current assets.

Efficiency analysis

Asset turnover ratio of this organization increased by 0.35 times FY 2021 Which indicates return toward assets used for organizational growth is positive. Inventory turnover ratio has presented Negative growth in inventory management that impacts the deficit in Returns of inventory. Efficiency ratio was created to determine the organization's financial efficiency when employing financial resources (Husain and Sunardi, 2020). It also recently executed several initial operations impacts on profitability activities. Effective decision-making with relation to the financial efficiency growth of this firm and asset and inventory turnover ratio (Ilman et al. 2021). Asset and inventory turnover ratio of conducted organization efficiency regarding financial resources work effectively that improvise organization financial stability managing debts and financial expenditures.

Investment ratio analysis

Debt to equity ratio of conducted business operation conducted effective positive growth in operational activities that reduce debt percentage in operational activities. Additional growth of equity in organizational operation delivered 12.28% in FY 2022 toward total assets. Efficiency ratio was created to determine the organization's financial efficiency when employing financial resources (Sari et al. 2018). It also recently executed several initial operations impacts on profitability activities. Effective decision-making in relation to this organization's financial efficiency growth, asset and inventory turnover ratio

Presentation of cash budget

Table 8: Cash budget

Presentation of benefits and limitations of budgets and budgetary planning

Benefits

Identification of possible cash operations: Presentation of cash budget organization to decide possibilities of future business activities with consideration of different operational expenditures. Productional activities of an organization are oriented with different cost and expenditure activities like direct labor cost, administrative cost, and operational expenditures. Those are inertial elements that have been considered in the cash budget that provide approximate requirements of cash financial activities and the ultimate cash balance in operational activities would be identified.

Evaluation of cash shortage: A cash budget has been prepared for a certain time period to get the present requirement of cash to continue business operation expected outcome identification. Invoice cost budget preparation delivered different costs involved in business activity impact on ultimate cash balance that ensure the requirement of the liquid has that would be effective for management to identify financial resources to reduce this type of cash shortage issues (Purnomo, 2018). The beneficiary of cash budgeting activities in the organization has been identified with official information regarding cash operations that evaluate possible cash inflow in the organization. Additionally, cash outflow from the business activities would be performed as a financial deficit in the cash balance, which is conducted to identify the requirement of cash for future activities.

Helps to regulate expenses: Business operations conduct different operational costs and expenditure consumption for product marketing that would be regulated by cash budget operations to mitigate the risk of excessive use of financial resources (Myshkavets and Tolkach, 2020). A positive approach in Cost management activities has become possible through cash budget planning that provides a deficiency in financial resource management with an optimal gain of profitability. The operational approach in regulated approach in operational activities. Related expenses approach by budget planning improvises using financial resource optimal production toward productivity growth.

Identify surplus and deficit: A cash budget preparation organization would be able to identify possibilities of surplus and deficit in business activities that are going to involve a different type of operational approach to improvise for other cash availability in organizational activities. Cash budgets identify different financial instruments' impact on cash resources that provide knowledge about different strategies implemented to improve availability in organization for the future growth of the business.

Limitations

Inefficient to identify threats: Using cash budget activities would not identify different types of uncertain threats that reduce efficiency of the cash budget. Additional limitations in cash budget have been oriented with different leggings to identify financial elements errors in business operation due to each financial element's impact on cash balance is not identified. Inefficiency of cash budget improves the probability of financial errors in business activity that are going to reduce financial resources of an organization (Sari et al. 2022). Identification of threats in the cash budget is determined by judgment on forecasted cash in and out flow. Financial expenditure and Cost would not be an adequate cost burden of an organization that would change the ultimate result of the cash budget.

Dependence on previous financial reports: Cash budget preparation for future business operation has been identified through previous financial reports that is going to be changed to the ultimate result of the cash budget. Positive approach toward operational activities organization required to identify financial resource requirement gain profitability which could be effective to make judgment on actual availability at the end of business operations (Ningsih, 2020). Previous financial reports used in broadcasting cash budgets would not be effective due to change of external financial elements like interest and inflation rate. Approaching which state cash budget business operation of an organization might be impacted by excessive cost of one business activities that would be reason for change in cash budget result.

Ineffective to calculate profit and loss: Budget of an organization ineffective to identify future profit and loss of an organization because of operation of cash budget depending on different types of assumptions that would be changed in future business activities. Identification of threats in the cash budget is determined by judgment on forecasted cash in and out flow.

Reference list

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