(U10473) Accounting assignment analysing the practice of financial accounting and management accounting
Question
Task: Demonstrate an understanding of basic theory and practice of financial and management accounting and its basic terms and concepts in the accounting assignment. Explain the value of financial and management accounting processes to a business. Demonstrate an understanding of the current contemporary issues affecting the accounting discipline.
Answer
Introduction
This particular accounting assignmentexplores the basic accounting theories and practices in financial and management accounting. It also strives to understandmanagement accounting and financial accounting practices alongside its fundamental concepts. It shows the accounting mechanism in the business scenario and the significance of both disciplines within the business scope. The accounting assignmentalso showcases the current issues in accounting that hamper its functioning provides the reader with sufficient knowledge on such aspects.
1. Understanding fundamental theory and application of financial accounting and management accounting with the accounting assignment
1.1 Fundamental theory of financial accounting and management accounting
The historical transactions theory is a crucial aspect of accounting that records the financial transactions that took place in the past. As per US GAAP, it is the basic aspect that records the financial transactions in historical costs despite current changes in theirworth.
The double-entry system in accounting assignmentrecords the transactions for each financial happenings(Maynard, 2017). In a double-entry system, there are two sides to transactions, one is debit and the other is credit. For instance, if X buys bread for $2, the purchase will be debited, while cash is credited. Both sides should have $2 as the amount tallying each other. As per the accounting assignment financial accounting analyses quantitative aspects of the transactions. It is more into the numbers, financial figures, and other quantitative items, rather than the transaction facts(Warren & Jones, 2018). The discipline is useful to forecastbusiness trends using various financial tools and models.
Like financial accounting assignment, management accounting also depends on historical transactions to identify, determine, analyse, and interpret facts and information for the managers. The phenomenon is important to contemplate suitable business decisions(Ameen, et al., 2018). To do so, the discipline explores the past functioning of the firm toimprove and attain a better outcome.
Management accounting differs from financial accounting assignment as it analyses both qualitative and quantitative aspects of the business. It analyses sorts of costs to identify unnecessary costs and reduces them to maximise profitability. The discipline also provides suggestions to managers to adopt effective strategies to enhance productivity. Management accounting functions to strengthen the workings of the firm internally(Weetman, 2019). The management accountants provide the managers with advice to improve their tactics and attain greater productivity. For this, they prepare accounting assignmentreports that are circulated internally, rather made public unlike, financial reports. The management accounting reports are confidential to the particular firms.
1.2 Financial accounting and management accounting practices
Financial accounting practices prepare sorts of financial reports such as income statement, cash flow statements, andbalance sheets among others. These accounting assignmentreports are quite useful in creating financial budgets, tracking product performance, analysing business trends, and extractingdifferent financial ratios(Maynard, 2017). These sorts of financial reports are used to strategize short and long-run business objectives.
Though financial accounting reports are prepared for external stakeholders like investors, the information is used by internal parties like management executives and staff also. The investors use the information to see whether the investment in the firm will be a viable idea(Warren & Jones, 2018). The creditors and suppliers go through the financial reports to see how well the organisation is equipped to pay them timely. The government and tax authorities evaluate the financial accounting information to see the tax liability of the company and the source of its fund. The management sees the financial accounting assignmentreports to understand the business trends, while the staff wants to know their growth trajectory from such reports.
Management accounting serves as a communication tool for internal management to analyse and interpret the strengths and weaknesses of the firm. They present accounting assignmentreports for the managers to help them to identify the performance gaps and chalk out effective strategies for a better outcome(Ameen, et al., 2018).
Management accounting comes up with different kinds of reports like budget reports, accounts receivable reports, accounts payable reports, and performance reports among others. These accounting assignmentreports are confidential to the company and limited to the DepartmentalHeads to take adequate measures to improve the organisational functions.
1.3 Fundamental concepts of management and financial accounting
Concepts in Financial Accounting assignment –
• GAAP–GAAP or the Generally Accepted Accounting Principlescomprise fundamental accounting rules and conventions to prepare financial reports.
• Business entity – The business entity concept shows the proprietor and the firm are distinct from each other and hold no obligations because of the other one.
• Going concern – In the going concern concept of accounting assignment, the business is supposed to continue its operations throughout the year and continue in upcoming years as well. It uses existing business resources and addresses financial obligations(Maynard, 2017).
• Money measurement – In the money measurement concept, the business records only those transactions that are expressed monetarily.
• Periodicity – The periodicity concept showsthe business can present its financial outcome for a particular period such as quarterly, yearly,or even, monthly.
• Accrual concepts –In the accrual concept of the double-entry accounting system, the business revenue or expense is recorded without the exchange of cash(Weetman, 2019). For instance, the journal entries in theaccounting assignmenton credit purchases and sales.
Concepts in Management Accounting assignment –
• Product costing–It deals with the total costs for the production of goods and services, wherein the costs are segregated into fixed, variable, direct, and indirect costs. It is used to assign overheads to each category of the product(Ameen, et al., 2018).
• Cash flow analysis – It determines the impact of cash resources in contemplating business decisions. It uses the accrual accounting assignmentconcept to understand the real financial health of the business(Weetman, 2019).
• Marginal costing – It considers the impact on the product cost by having one additional unit in manufacturing for contemplating short-term business decisions.
• Inventory turnover analysis –Through inventory turnover analysis, the management comes to know how much inventory has been sold and replaced within a given period.
• Capital budgeting – It is the financial accounting assignmentanalysis to evaluate the viability of an impending capital decision by working out its net present value (NPV), payback period (PBP), internal rate of return (IRR), and accounting rate of return (ARR).
5. Understandingexistingmattersdisturbing the accounting disciplines
5.1 Understanding the existingmatters in Accounting
(i) Financial fraud discussed in the accounting assignment
Financial fraud happens when an imposterdupes an individual his money or savings illegally. The phenomenon affects the financial health of the victim through identity or investment fraud(Geiszler, et al., 2017). Nowadays, people often encounter financial fraud when someone impersonatesa bank representative and calls. They askfor confidential information like credit card details.
(ii) Corporate governance discussed in the accounting assignment
Corporate governance is a significant aspect.It shows how companies should be controlled and directed to attain their business goals(Lins, et al., 2017). The Board of Directors takes care of corporate governance. Again, the shareholders do their part by selecting the Directors to depict the unique cycle of corporate governance in the business scenario.
5.2 Current issues affecting the accounting discipline
(i) Financial fraud discussed in the accounting assignment
Financial fraud and the accounting profession are connected as an individual may try to manipulate the financial figures of the company to show the financial position better to investors. The corporate scenario hasits share of financial frauds, whereinthe management, with the accountants, try to inflate the figures. The process may be successful for a short time, but eventually, the secret comes out(Granlund & Lukka, 2017). The unearthing of such financial frauds as it happened during the Anderson case tarnishes the image of the accountants. It shows that the accounting profession can be compromised, butthe truth cannot remain secret for longer time. Accordingly, the competent authorities brought provisions and conventions to uphold the ethics of accounting professionals while contemplating their jobs.
(ii) Corporate governance discussed in the accounting assignment
Corporate governance strives a significant part in organising the business functions. In contemporary businesses, disclosure is important to create transparency in the process. For this, accountants need to oblige the accounting conventions and rules to prepare and present financial reports efficiently(Cooper, et al., 2017). Ineffective corporate governance affects the investors’ confidence and shakes the fundamentals of the accounting profession. The accountants ought to ensure that the company undertakes proper measures to record inaccounting assignment and report the financial figures and data. It is crucial for an effective disclosure, and the accountants’ shoulder such responsibility, or else their credibility is at stake.
REFERENCES
Ameen, A., Ahmed, M. & Abd Hafez, M., 2018. The Impact of Management Accounting and How It Can Be Implemented into the Organizational Culture. Dutch Journal of Finance and Management, 2(1), p. 02.
Brewer, P. C., 2017. Redefining Management Accounting. London: IFAC.
Cascino, S. et al., 2021. The usefulness of financial accounting information: Evidence from the field. The Accounting Review, 96(6), pp. 73-102.
Cooper, D., Ezzamel, M. & Qu, S., 2017. Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research, 34(2), pp. 991-1025.
Geiszler, M., Baker, K. & Lippitt, J., 2017. Variable Activity?Based Costing and Decision Making. Journal of Corporate Accounting & Finance, 28(5), pp. 45-52.
Granlund, M. & Lukka, K., 2017. Investigating highly established research paradigms: Reviving contextuality in contingency theory based management accounting research. Critical Perspectives on Accounting, 45(2), pp. 63-80.
Lins, K., Servaes, H. & Tamayo, A., 2017. Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. The Journal of Finance, 72(4), pp. 1785-1824.
Maynard, J., 2017. Financial accounting, reporting, and analysis. London: Oxford University Press.
Rikhardsson, P. & Yigitbasioglu, O., 2018. Business intelligence & analytics in management accounting research: Status and future focus. International Journal of Accounting Information Systems, Volume 29, pp. 37-58.
Warren, C. & Jones, J., 2018. Corporate financial accounting. London: Cengage Learning.
Weetman, P., 2019. Financial and Management Accounting: An Introduction. Harlow: Pearson.
