Introduction
In order to meet the needs that have been established by the business, the report has been written in a manner that is consistent with the accounting concepts, customs, and principles that are being used in the accounting process. This has been done in order to fulfil the specifications that the firm has laid down. This was accomplished in order to meet the established requirements. Adhering to these procedures, which were required by the organisation, was vital to verify that the report complies with the standards that have been established by the corporation. This was done to ensure that the report met the criteria set forth and that, in doing so, it successfully attained the desired aim. This activity was completed because it was required to finish it in order to meet the requirements. The double entry system will be the main topic of the assignment, with an emphasis on how to correctly prepare and reconcile the control accounts as well as the statements. This will cover the proper methods for setting up and balancing the control accounts.
“LO1 Examine the Context and Purpose of Accounting”
“P1: Examine the Purpose of Accounting function within an organisation”
The subfield of accounting known as "financial accounting" is one that is specifically related to businesses and is under the umbrella of accounting. Every asset, production system, and financial transaction that takes place inside of an organisation is recorded and reported as the ultimate purpose of financial accounting. A review of a corporation's financial and legal responsibilities gets under way right away with an inquiry into how the business used the in question assets. Utilizing this could be beneficial for you if the main goal you have for it is to present bank accounts. The results of the numerous studies that can be conducted on accounting data can then be used in a variety of ways to achieve a wide range of different objectives. On the other hand, if stakeholders are unable to draw valid conclusions from your financial data, this will highlight the most crucial feature in figuring out the nature of the organisation you are dealing with. From a managerial standpoint, accounting is regarded as the most crucial element since it enables managers to more clearly map out the evolution of their organisations and to make better-informed decisions. When a group of people owns a company, they are also in charge of running it and ensuring its long-term viability (Marotta et al., 2022). (2002) (Marotta et al.
There are numerous accounting specialisations, tasks, and skill sets available. Principal Accounting Divisions Accountant Principal Accounting Divisions There are eight different criteria to use when deciding which accounting techniques are the most effective to use in practise. A firm can maintain track of its present financial situation by using the resources of the corporation's several departments and divisions. The diagrams that follow show how the different branches of the tree are organised:
There are several different subfields that fall under the umbrella of forensic accounting, some of which are more well-known than others. Here is a list of some of these subfields, such as cost accounting, auditing, and financial accounting.
“D1: Critically Evaluate The Role Of Accounting In Informing Decision Making To Meet The Organisational Stakeholders And Societal Needs Within Complex Operating Environments”
Striking a balance between the requirements of organisational stakeholders and those of society is crucial while working in complex settings. Technology advancements will have an impact on how ethical business practises are integrated into organisational structures in this industry, which includes accounting. The entire industry will be impacted by these changes. Due to the increased demand for accountants, businesses are relying more and more on these standards to assess whether or not the financial records they maintain are correct (Dalimunthe, and Pane, 2021). As a direct result of this evolution, clients have come to expect that accountants will offer automated services and specialise in particular fields to help them achieve requirements and overcome obstacles. A lot of development has been achieved in the management of cloud computing systems over the past few years. The manager has undergone the most transformation and is now regarded as the most important element.
“P2: Assess The Accounting Function In The Context Of Regulatory And Ethical Constraints”
Context-specific Rules After the FASB was created, the generally accepted accounting rules (US GAAP) were developed and enhanced. The Public Company Accounting Oversight Board, or PCAOB, is in charge of making sure that the SEC-established auditing requirements are followed. The Public Company Accounting Oversight Board's goal is to ensure that auditing procedures are followed in a manner that safeguards the interests of the general public. In the United States, accounting is regulated by the Financial Accounting Standards Board and the Public Company Accounting Oversight Board. The organisations that oversee international accounting are the International Financial Reporting Standards Foundation and the International Accounting Standards Board (IASB).
Legal System Modifications
Accounting regulations are constantly being changed to meet the demands of a dynamic economy. A string of scandals that shook the accounting industry at the start of the 2000s. These occurrences were brought on by financial statement fraud intended to mislead shareholders, creditors, and/or investors. People's faith in businesses and accountants has drastically decreased as a direct result of regulatory shortcomings that enabled these disasters to develop.
Ethical Constraints
Accountants often encounter challenging ethical dilemmas. In order to create value, accountants work to increase income while decreasing expenses. The ultimate goal of an accountant is to aid in the success of their client or company. Public interest is another factor that accountants must consider. It is unethical to convey information in a way that is neither true nor fair since doing so is morally wrong. On the other hand, even when they are not present, accountants could feel under pressure to generate favourable outcomes for a corporation. Do you regard fulfilling client demands more highly than advancing the public interest via truthful and accurate reporting? Have you broken any of the guidelines or rules? How many accountants do you believe abuse their authority? How far away is it?
Effective accounting practises may improve a person's quality of life and business performance. They provide the necessary strategy to handle a range of scenarios, which makes this achievable. Although it is required of accountants to act ethically, the standards for this behaviour are not always obvious. This implies that using one's judgement in one's job is something accountants often have to do. What is meant by "doing the right thing" is to conduct in a way that is consistent with our own standards of what is right and wrong and to refrain from engaging in behaviour that we perceive to be unethical.
Ethical Guidelines for Certified Public Accountants from the AICPA
The ethical guidelines that accountants should adhere to are set out in the AICPA Code of Professional Conduct. Respect for Individual Members' Duties Members are required to act in an ethical and professional manner while performing their duties. The primary responsibility of an accountant is to always act in the interests of the general public. Customers, businesses, investors, creditors, and other stakeholders are all included in the public interest.
The guiding principle is the habit of keeping one's word. Strict ethical standards must be upheld by accountants at all times. The degree of popularity and honesty of a person are inversely correlated. In accordance with the Principle of Objectivity and Independent Judgment. [Note: This means that you have a responsibility to act in a way that is fair, honest, and devoid of any potential biases.
The rationale for using reasonable caution is this. Members of the accounting profession must always be aware of the ethical and technical standards that are expected of them. Certified Public Accountants are required to consistently provide work of the highest quality and at a high level of skill.
Memorandum
The Managing Director,
Digitax Pvt Ltd,
This memo, which provides an update on the status of the company's finances, should have been distributed to each and every employee of the organisation. In the course of this research, a number of different ratios were utilised extensively in order to provide an accurate picture of the present health of the company's finances. The computations made use of a variety of ratios, some of which include the profitability ratio, the investment ratio, the quick ratio, and the efficiency ratio. You'll be able to determine whether or not the corporation has sufficient cash on hand if you look at these data. One is able to ascertain the state of an organization's finances through the examination of these ratios and then make use of the resulting knowledge to direct company strategy.
The financial statement of position contains an in-depth study of the current state of the company's finances as well as projections for the future. Since it was determined that the firm's gross profit margin was equal to its total revenue, it is not difficult to reach the conclusion that the company is functioning in a profitable manner. A business is considered to be in a stable position when the ratio equals exactly one. Calculations were done using Digitax to determine the liquidity ratio. This ratio takes into account both the current ratio and the fast ratio; the quick ratio now stands at 2.259. If the company maintains these metrics at this level or higher, it indicates that it is outperforming its competitors in some way.
In order for the fast ratio to be viewed as a favourable ratio for the company, it must either be exactly one or exactly two. In the end, but certainly not least, the efficiency ratio was something that was required. This ratio illustrates the level of success and productivity achieved by the company. Considering that the company's efficiency ratio is 178.37, utilising a ratio of 50 will ensure that it is operating at its highest possible level of performance. Based on this case study's findings, the company's efficiency ratio was calculated to be 1783.37 percent. In spite of the uncertain situation of the economy, the company is nevertheless managing to maintain a steady and lucrative business operation, as shown by the financial statements of the company. Efficiency ratios are a typical tool that are used in the business world as a measure of a company's capacity to accomplish its existing duties as well as its level of commercial success. The management of additional assets in addition to the management of liabilities may, nevertheless, have an effect on the overall financial state of the company. A/R and inventory turnover ratios are also taken into consideration within the efficiency indicators. When competing in the same market, these ratios are often seen as the most formidable competitors to go up against.
I believe that conducting financial analysis is the most effective method that can be utilised to monitor the actions of a company. Now that we have all of these statements and analyses, we can integrate them in order to ensure that each department is adhering to the same set of criteria. It is possible for the management level of each department to discuss the current financial situation of the firm, in addition to the budgeting goals and targets.
Businesses in every region of the world are making significant investments in the formation of highly effective boards of directors. These boards of directors are comprised of persons who have a wide range of experience as well as those who have financial connections in the industry. This effort's eventual goal is to boost revenue for the corporations' boards of directors, which is why it's being undertaken in the first place. In order for these boards to be effective, their membership must be comprised of individuals who have a demonstrated history of success in their respective disciplines. On the other hand, having a thorough understanding of finance and accounting is required for directorships. In addition to this, it is anticipated that pupils would have the capability of comprehending the content that is being presented to them.
This brief message is directed toward board members who do not have specialised experience in financial matters, as they are the target audience. This communication needs to be delivered to each and every person on the aforementioned list. During the course of this programme, you will acquire the skills necessary to carefully monitor risk, conduct financial data analysis, apply the capital structure that best suits your needs, find the most promising merger and acquisition (M&A) prospects, and use valuation techniques. Reading this could provide board directors with new information because it explains how to keep a look out for potential risks. In addition to this, the members of the board are given direction about the management and monitoring of risks.
In addition to these regulations, the board of directors is supplied with guidelines for risk management and oversight. The Board of Directors believes it to be of the utmost importance that this duty be met as quickly as is reasonably possible. At the very end of this document, for your convenience, you will find a list of the sources that were utilised in the construction of this note. If you are interested in gaining further knowledge, you have access to supplementary materials.
Directors who have an understanding of financial matters are in a better position to forecast the most likely results of strategic decisions, maximise the value of the components that contribute to the value of a firm, and evaluate the ways in which board decisions will effect performance. Directors of a firm are better equipped to analyse the activities of the business if they have a fundamental awareness of the company's financial concerns. These findings have been arrived at as a result of the fact that knowledgeable financial directors are in a better position to comprehend the myriad of factors that influence the profitability of a firm.
“LO2 Prepare Basic Financial Statements for Unincorporated and Small Business organisations in accordance with accounting principles, conventions and standards”
P3: Prepare Financial Statements from the given trial balance for sole traders, partnerships and non-profit organisations to meet the accounting principles conventions and standards”.
“M2: Produce financial Statements from the given trial balance, making appropriate adjustment”
LO3: Interpret the financial Statements
P4: Calculate and Present the financial ratios from the set of the financial accounts
Ratios and Its Formulas
Formulas
Gross Profit Ratio = Gross Profit/Sales
Liquidity Ratio=Current Assets-inventory/Current Liabilities
Efficiency Ratio=Bank charges/net revenue
Investing Ratio=net income/ordinary
Interpretation of Ratios
A company's financial health can be assessed using the money that is left over after selling its goods. This will be handled by financial professionals (COGS). The gross profit margin can be expressed as a percentage of total sales, or as the gross margin ratio, which is also known as the gross profit margin percentage. To calculate your profit in the simplest way possible, divide your entire gross profit by the complete amount of money you sold (also known as "gross margin") (Mahsun, 2020).
The gross profit margin of a business can be calculated by deducting the cost of goods sold from the total revenue (gross revenues minus returns, allowances, and discounts). This amount can be multiplied by the total net sales of the business to get and display the gross profit margin. Since this would allow them to preserve their current financial status while pursuing other objectives, Digitax would want a sales profit margin of 1. There are numerous ways to interpret this ratio.
Net Profit of a Business
Poor management, poor product quality, or possibly both, can have a major influence on a company's gross profit margin. At some point in the future, a corporation's operational procedures could need to change; this is perfectly okay. Given these facts, it is pointless to take past market volatility into account (Palepu et al., 2020). A company's supply chain, for instance, can require a significant initial expenditure to automate, but the items it provides will be less expensive because no longer need human labour. Price fluctuations for particular products can also have an effect on a company's gross margins. Even if all other variables remain unchanged, a company's gross margin will rise if the price of its products rises. Consider raising the price of your products if you want to increase your profit margin. A more expensive product will be bought less frequently, which lowers the company's market share.
A Swiftness of Motion
A company's ability to meet its immediate obligations can be determined using the fast ratio. How swiftly a company can fulfil its urgent responsibilities is determined. The acid test ratio is a helpful tool for figuring out how quickly a company can pay off its debt by selling its assets that are near to cash (also known as assets that can be quickly turned into cash). By comparing a company's debts to its assets, one can gauge its general financial health. Liquid assets can be readily converted into cash and don't vary in value when traded on the open market. The examples of promises and debts that must be paid off in the upcoming fiscal year are shown below. The company's quick ratio was 2.259, as shown in the ratios table above. A fast ratio is said to start between 2.50 and 2.60. The organisation can now make logical plans for the future.
Effectiveness Ratio
A common technique for assessing a company's asset and liability management is the "efficiency ratio." An efficiency ratio can be used to calculate an organization's equity holdings, daily inventory and equipment usage, loan repayment frequency, and equity availability. The performance of commercial and investment banks can be tracked and analysed using this ratio. Efficiency ratios, often known as "activity ratios," can be used to evaluate the present, past, and future performance of a business. Each of these ratios examines the company's existing assets and liabilities to assess its health. The amount of revenue a business generates in relation to the resources it has at its disposal determines how effective the business is. For instance, an efficiency ratio examines a company's many characteristics, such as how long it takes to transform goods into cash or collect money from clients. An efficiency ratio is significant since it frequently results in increased profitability. The company's projected efficiency ratio was 175.88. The efficiency ratios are shown in the above table. Based on the company's efficiency ratio, which is 178.58 and indicates that the efficiency has reached its maximum maturity, it is clear that the company's overall performance is great. In this sense, the company is consequently held to a high standard.
Ratio of Profit to Issued Shares
Earnings per share is calculated by dividing net income by the total number of common shares that the company has issued (EPS). Potential investors might evaluate a company's financial health and profitability by examining its earnings per share (EPS). Earnings per share (EPS) and stock value rise as a company's financial status is better since more money could be distributed. Most businesses use a per-share ratio to calculate their success, which takes into account both one-off events and the possibility of stock dilution. A key indicator of a company's profitability is the ratio of its earnings to the cost of its common stock. This ratio is calculated over a three to twelve month period. The earnings per share of a corporation cannot be used by analysts to draw any conclusions about its long-term health. The earnings-per-share ratio of a company is a more accurate predictor of its long-term health since it can be compared to other companies in a similar scenario. The computed earnings percentage for a single firm share is 28%. The earnings-to-share ratio is determined using these data, as was already indicated. The corporation can use this as a baseline to gauge how solid its current position is. This ratio trades between 1 percent and 99 percent on the open market. Investors will also profit from the corporation's 28 percent stake.
“M3: Evaluate the Performance of Organisation over time using financial ratios with reference to relevant benchmarks”.
Interpretation of Ratios
To assess the present health of a company's finances, traders and analysts often use ratio analysis. The most current financial data of a company is compared to its past financial data in a ratio study. Similar data may be used to examine a company's past performance and predict its future possibilities. Users are welcome to use these details to compare the firm to its competitors in the market by doing an analysis using them. A company may learn how to expand its market share in the target industry by using benchmarking and comparative research, respectively. The results of these comparisons and analyses may help determine whether or not things can continue as usual. In addition to how straightforward it is to do a ratio analysis, the data required to calculate the ratios is often already available in the financial records of a company. This enables the speedy and precise delivery of findings. Many different parts of a corporation may benefit from using ratios as performance indicators. We estimated that this ratio would be 0.15077 in 2019 and that it would rise to 0.177 in the following year, 2020. To be deemed successful, the company's gross profit margin must be higher than 1.5077 and lower than 0.177.
Another important measure of how well the business was performing overall was the operating ratio. The operating profit margin as a percentage of sales was 0.01529 in 2019 and 2020, but it grew to 0.01648 in 2020. The study shows that the proportion did not vary between the two time periods. It is predicted that a larger amount of revenues would go toward paying operational expenses in 2020. Given that a higher ratio indicates a more stable operating margin, this is the case. Anyone with even a little amount of inventiveness can immediately see the improvement. If this trend continues, it would seem that the organisation is moving in the right direction. Third, the ROI forecasts showed a significant increase over the next two years, from 0.84072 in 2019 to 1.3774 in 2020. The fastest rise was seen in 2019 and 2020. The interest rate that is added to the interest rate has gone up since this time last year, which is a sign that interest rates are going up overall. The firm is expected to maintain or improve its ratios in 2019 and 2020, placing it in a great position for both years.
How to Interpret Each Ratio on the Balance Sheet and What It Means
In order to analyse the company's financial performance, researchers calculated a variety of financial ratios using the balance sheet. This study took into consideration the day sales to inventory ratio, the asset turnover ratio, the current ratio, the acid test ratio, the cash ratio, the debt ratio, the debt to equity ratio, the asset turnover ratio, and the accounts receivable turnover ratio. The most important ratios to consider were those that compared current assets to total liabilities, acid test ratios to total assets, cash on hand to total debt, and debt to equity. Acid test ratios to entire assets were additional pertinent ratios.
When taken as a whole, these ratios demonstrate a considerable increase in the firm's performance, and the forecasts for 2019 and 2020 imply that there won't be any appreciable changes. The current ratio in 2020 was 8.249 percent. This is a substantial improvement above the score of 6.61 obtained in 2019. The acid test ratio was then calculated and found to be 7.04 in 2020 and 5.571 in 2019. It was 5.571 to 1 in the year 2019. The actual result for 2019 was a far more modest 1.889, despite estimates for 2020 indicating a cash ratio of 2.1354. This supports the claim that the company's financial situation is stable and improving. Investors and other stakeholders in BMCG should see the business as a true rival for their money at all times. If they want, this business might serve as a launching pad for further investment possibilities. The investigation's conclusions show that the business is in good condition and is operating as it should.
M4: Identify Corrective Actions to Problems Revealed by Budgetary Planning and control for effective decision making in organisation”.
Why Is It Necessary to Have an Expenditure Plan?
For Jonathan Limited to be successful as a whole, each of its parts must successfully execute the key tasks assigned to them. Because of this, chief executive officers struggle to make the company's vision and goals clear to the employees of the companies they lead. All employees must be aware of the organization's general goals, regardless of their position within the company, if it is to reach its full potential. Every worker in a company contributes in some way to the budget-making process. Participating in social activities has gotten easier as a direct result of this.
A conference call with a substantial number of CEOs will be held to discuss the organization's financial status as it stands at the moment. Managers from the company's many divisions will gather to discuss the yearly budget review and any modifications that might be necessary. Representatives from several organisations gather to discuss and debate how Jonathan Limited should divide its existing funds and other resources during the budgeting process. A company is more likely to prosper in the long run if it can produce precise economic projections and quickly respond to shifting market conditions (Rao, 2021). (Rao, 2021). The term "communication process" has recently grown to signify a wider range of things due to the increasing complexity of business processes.
What Are the Potential Outcomes?
When compared to actual operations, predicted expenditures can be an excellent predictor of potential problems. Early diagnosis can help save money and resources by assisting in the reduction of these risks. Taking this measure is one way to prevent the situation from getting out of hand. Once the flag is flown, commanders are free to quickly change their plan as they see fit. Because of this, businesses may decide to borrow money or, if necessary, alter their products and marketing strategies in order to survive.
The best method for resolving internal organisational difficulties with how corporate resources are distributed is collaborative budgeting (Siimann, 2018). The corporation's chief executive officer issued directives requesting monthly briefings from each division on how it may aid the company in achieving its financial goals for the following year. The overarching objectives of the firm as a whole are now connected to the particular objectives each division within the organisation has set for itself. A company's financial plan's framework needs to consider a number of factors. In addition to providing guidance, creating a budget shows the relationships between various management duties.
Increasing the Range and Depth of the Body of Work Already Done
In light of the established financial goals, it is critical to evaluate how each level of responsibility has been managed. Performance evaluations can be finished quickly and effectively if managers use pre-established criteria. Managers may decide to allocate more resources to a particular region if the results are significantly better than anticipated due to the economy's dynamic nature (Dokulil, et al., 2018). When it comes to maintaining their neutrality in this situation, managers may find that having a solid basis for decision-making in the form of a budget can be quite helpful to them. Based on the findings of the metrics, management may need to reorganise the tasks in order to address the patterns of chronic inefficiency observed in the data. One benefit of utilising this method is the ability to quickly make adjustments in an effort to lessen losses or eliminate them totally.
Current Financial Situation of the Company
The financial plan for Jonathan Limited was developed, as previously stated, to make it simpler to anticipate the company's short-term income and spending trends (Jovanovi, and Vaiek 2021). The company's budget can be used to analyse Jonathan Limited's current financial status. Reviewing the business budget is the quickest and simplest way to get a comprehensive picture of Jonathan Limited's present financial status. Examining Jonathan Limited's budget is the most reliable way to acquire a complete picture of the current condition of the company's financial situation because it includes all of the company's spending. This is the state that developed as a result of the limitations imposed by the company's financial resources. In the last section, we spoke about how the budget was created and how the company's actual budget position was taken into consideration.
The data in this budget was utilised successfully to achieve this aim. These plans have also been fully and accurately evaluated and documented. For the next three months, Jonathan Limited has carefully laid out its operating budget. The corporation is expected to have much more cash and other liquid assets available to it in September than it did in any of the three months prior to that combined, according to the budget (Antunes, 2022). This is because the corporation's liquid assets will be more easily accessible in the future. Even if the company hasn't accomplished all of its year-end activities yet, this is the situation right now. The company is now in a position to increase its financial investments as a result of an unexpected turn of events, which will eventually assist to increase the company's total profitability.
Conclusion & Recommendations
It's conceivable that we may contend that procedures like budgeting and accounting can be applied to effectively manage the organization's operational activities. The assertion needs to be supported by some sort of statement. This result is a result of the interdependencies between each of these processes. To engage in any way, each and every one of the organization's stakeholders must have access to the financial documents the organisation keeps. This group includes a number of extra stakeholders in addition to the owners. The original report, which is included in this section of the book, presented a basic explanation of accounting and budgeting that wasn't overly wordy.
This stage must be completed before making any decisions that require the use of accounting principles. The business must update all of its financial records to conform with the recently adopted criteria, according to the organisations in charge of setting standards and norms. As a direct result of this alteration, the corporation will be able to fulfil all of its obligations to its clients and stockholders. Therefore, if you want to attract a wider spectrum of possible investors for your firm, using this method is highly recommended. Numerous different preventive measures could be taken to ensure that a similar catastrophe doesn't happen again. This action must be taken in order to draw more potential investors' attention to the project.
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