Role of Accounting

Published:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Part A

Question One

Role of Accounting

Accounting has been the art of managing and effectively using money in any business. It is providing successful information. Few of the key documents are generated in accounting including balance sheet and profit and loss account. Profit and loss account presents the way any organization is trading for a specific time period. Balance sheet entails mode of trade for any organization for any specific time period. Decision making and operations are not feasible in case of accounting absence.

Summarization and measurement of accounting process include activities and financial information interpretation as well as decision making and management processing. Organizational goals are achieved as financial information is managed and effectively available whenever required.

Financial Accounting

Financial accounting is used for the reparation of accounts and information pertaining to the organization financial position in order to satisfy all of the consumers. In order to enhance their participation, all of the investors and creditors must be ensured that they have been considered in decision making and material problems discussions. Financial accounts are used to provide all sorts of material financial information for stakeholders. Business is an operational and going concern concepts is used in this regard.

For Investors

Investors might be the other organizations, partnership firm members and sole proprietors who can on vest in the organization after financial information analysis. They do require a deep analysis report over the profitability and trend analysis in last few years.

For Creditors

Creditors are the persons who are in need of getting their loans secured as they provide financial help to organization. In order to provide them security and assuring long term dealings with them, it is necessary to produce financial information material for them.

For Management

Accounting produced for the managerial decision making and providing the cost analysis is useful as cut off in the expenses are possible. All sort of issues and problems are resolved in this essence and competitive edge is eminent after successful implication of this process. Financial accounting generates few documents including profit and loss document. It entails specific period financial detail for organization. Monthly management reports, providing costs and benefits for key metrics like budget and sales are provided for management decision making process (Georgescu & Ionescu, 2014).

Cost Accounting

Accounting used for the cost and expenses analysis for real time economic production is mandatory. Organizations provide an effective cost analysis and management can go for the amendments in budget as per the requirement demanding increase or decrease.

Management accounting and Financial Accounting

Financial accounting aims at providing financial information for investors and creditors whereas management accounting is far beyond the scope of financial and cost accounting. It includes, Information for management, Planning, forecasting and controlling, communication, system, flexibility, other business function’s appreciation staff education, limitations definition and gate keeping arrangements.

Differences

Following are the major differences in financial and managerial accounting.

Differences

Managerial Accounting

Financial Accounting

Accounting Standards

Financial Accounting Standard Board, Compulsory to include authentic information.

No compulsion and no defined rules.

Purpose

Information production for outsiders.

A process that ends with a start of implementation, planning and controlling activities.

Users

Stakeholders who are mostly unknown for the managers and company financial statement makers.

Managers and their assistants

Underlying Principles

Accounting Equation

Three different Accounting

Time Orientation

Talk like it was

Talk like it was and it will be

Information Nature

Financial Information

Non-Monetary Information like Labor costs, number of employees, monetary costs and Rupee amount of revenue.

Report Frequency

Most of the times, Annual Reporting.

Monthly and Weekly analysis.

Question Two

Income statements and balance sheet are used as the major financial statements for financial position communication with outside stakeholders. This section of study includes detailed analysis for income statement and balance sheet.

Income Statement

Income statement is one of the crucial statements used by the business owners and accountants. It is crucial as it presents the profitability for a specific time period. The business addresses what time period will be specified for income statement analysis. Income statement presents expenses, revenues, losses and gains. None of the cash receipts and cash disbursements are included in income statements. People pay heed towards profitability for many years. For instance, if an organization is not successful at working with profitability, the result at the bottom line will indicate net loss a lender, banker and creditor, might be reluctant to provide an extension for additional credit to the organization.

On the other side, there must be a net income result if an organization operates on the successful side and effectively. Ability to operate in profitable mode is edge over the other organizations for investors and current lenders, investors and potential leaders, competitors, company management, labor union, government agencies and others. The format of the profit and loss statement an income statement will be different as per the complexity for business organizations. Whereas, most of the organization will contain these elements in their income statements,

Gains and Revenues

Gain and revenue is the amount that is received through selling the units produced or through delivering services to clients. The amounts total before deduction of expenses is known as revenue. Revenues are further divided into two forms including primary activities and secondary activities. The revenue received from primary activities includes acquiring and selling expertise to the consumer (Boyle, Carpenter, & Mahoney, 2014). Fees earned and revenue services are used in this regard by those organizations who are involved in the service providing working. Revenue from secondary activities is also known as non-operating revenues. The example for this revenue include interest earning on idle cash by retail business or rent earning from any vacant place. These activities are outside the scope of selling and buying merchandises. Amounts received on the sale of assets and lawsuits that are outside the scope of organization’s primary activities is known as Gain (Lemmon et al., 2014).

Expenses and Losses

Expenses are also divided up in primary and secondary activities. Primary expenses include operating expenses whereas the secondary activities revenue is non-Operating activities revenue and expenses at secondary level are also pertaining to that level. Losses may be the difference in the amount of the asset at book value and the amount received on its sale (Uysal, 2010).

Balance Sheet

Balance sheet comprises of assets and liabilities to be paid and owned by the organization. In case of any organization, who can refer towards its managing and liability paying credibility must have its liabilities less in long term time period. Assets are further divided up in short term and long term assets. Assets those can be encashed in a time period of less than one year are known as short term or liquid assets. The long term or fixed assets are those whose encashment period is more than one year. Other form of assets are known as contingent assets, fictitious assets etc. Same is the case on liabilities side, containing, short term and long term liabilities with the owners’ equity (Izenstark, 2014).

Following are samples of the income statement and balance sheet for an organization. These are three years income statement for an organization as well as balance sheet.

Income statement

Period Ending

31-Dec-2015

31-Dec-2014

31-Dec-2013

Total Revenue

11,390

8,521

9,164

Cost of Revenue

1,680

1,291

910

Gross Profit

9,710

7,230

8,255

Operating Expenses

Research Development

-

-

-

Selling General and Administrative

8,598

7,122

6,167

Non-Recurring

-

-

-

Others

264

392

155

Total Operating Expenses

-

-

-

Operating Income or Loss

848

(284)

1,933

Income from Continuing Operations

Total Other Income/Expenses Net

-

-

-

Earnings Before Interest And Taxes

848

(284)

1,933

Interest Expense

-

3

44

Income Before Tax

848

(287)

1,889

Income Tax Expense

(66)

(20)

(100)

Minority Interest

(270)

(135)

-

Net Income From Continuing Ops

645

(402)

1,989

Non-recurring Events

Discontinued Operations

-

-

-

Extraordinary Items

-

-

-

Effect Of Accounting Changes

-

-

-

Other Items

-

-

-

Net Income

645

(402)

1,989

Preferred Stock And Other Adjustments

(41)

-

-

Net Income Applicable To Common Shares

604

(402)

1,989

Balance sheet

Period Ending

31-Dec-2015

31-Dec-2014

31-Dec-2013

Assets

Current Assets

Cash And Cash Equivalents

20,318

27,381

7,747

Short Term Investments

-

-

-

Net Receivables

565

559

2,791

Inventory

-

-

-

Other Current Assets

-

-

-

Total Current Assets

-

-

-

Long Term Investments

62,948

55,316

49,996

Property Plant and Equipment

3,250

2,985

3,080

Goodwill

104

104

104

Intangible Assets

-

-

-

Accumulated Amortization

-

-

-

Other Assets

1,054

927

823

Deferred Long Term Asset Charges

-

-

-

Total Assets

88,238

87,272

64,540

Liabilities

Current Liabilities

Accounts Payable

421

133

506

Short/Current Long Term Debt

-

-

-

Other Current Liabilities

78,657

78,882

56,021

Total Current Liabilities

-

-

-

Long Term Debt

-

-

-

Other Liabilities

269

369

210

Deferred Long Term Liability Charges

-

-

-

Minority Interest

2,907

2,637

2,502

Negative Goodwill

-

-

-

Total Liabilities

82,254

82,020

59,239

Stockholders' Equity

Misc. Stocks Options Warrants

-

-

-

Redeemable Preferred Stock

-

-

-

Preferred Stock

0

0

0

Common Stock

44

44

43

Retained Earnings

(365)

(977)

(552)

Treasury Stock

(341)

(341)

(341)

Capital Surplus

6,646

6,525

6,150

Other Stockholder Equity

-

-

-

Total Stockholder Equity

5,984

5,251

5,301

Net Tangible Assets

5,880

5,147

5,197

Question Three

Cash basis and accrual basis are two major forms of accounting and information recording in financial recording. The basic information related to these issues includes revenue and expense consideration. First the cash method is most common method used in small firms. In cash method income is recorded when cash is received apart from the goods transfer or contract completion. For instance, computer installation in organization is finished in November, and is not getting paid till the January, three months later. Under this method of recording, Payments will be recorded in January rather than in November or year end.

http://images.flatworldknowledge.com/cadden/cadden-fig09_001.jpgAccrual Method used in few organizations comprises over use of recording in same time period as per the details and contract completion. In the above said example, recording will be done in the November as per accrual based accounting method. It is not an easy job to determine that what exact date for accrual method of recording is. In this case, the key date is job completion date. Income must be recorded in the books as per the delivery of goods and services completion not before that time period. Goods must be delivered and installed by organization in case of recording an expense in organization on accrual basis. Following diagram explains the advantages and disadvantages for both recording methods. Cash method is simple, but it is only appropriate for cash specific organizations and distorts profitability. Accrual business is necessary as organization will lack in efficient working without any sales on credit. Accrual method has drawback for actual cash based position of business, and greater bookkeeping.

Example in this regard is twelve months amount paid for rent. In order to provide or record it under accrual basis, it must be recorded as cash basis method after completion of twelve months on whole and each month payment must be recorded by the end of each month. According to accrual method, it must be recorded at start in total and deducted as a liability on credit side of balance sheet meanwhile.

Question Four

CEO has provided a liability explanation. This liability is based upon the concept of contingent liability. Contingent liabilities are always based upon measuring and completion of any uncertain or conditional situation. Liability must be paid as the major responsibility and contingent liability must be paid according to the required level. It cannot be accrued for a long time as it is due.

Question Five

Following are the factory overhead and direct material as well as direct labor involved in given data.

Part A

Factory Overhead

Particular

Amount

Amortization expenses-Factory Patents

$16,000

Depreciation Expenses-Factory Building

133,000

Depreciation Expenses-Factory Equipment

78,000

Factory Utilities

115,000

Factory Supervision

74,000

Factory Insurance Expired

62,000

Factory Supplies Used

21,000

Property Taxes on factory equipment

14,000

Indirect Labor

26,000

Repair Expense-Factory Equipment

31,000

Total

$570,000

Part B

Direct Labor and Direct Material

Particular

Amount

Direct Material

Raw Material inventory, Dec. 31,2010

Raw Material Purchase

Raw material Available for use

Less: Inventory of raw material, Dec. 31, 2011

Direct Material

$60,000

313,000

373,000

78,000

295,000

Direct Labor

250,000

FOH

570,000

Total cost (Manufacturing)

1,115,000

Inventory for Goods in Process, Dec. 31, 2010

8,000

Cost of Goods (Total In process)

1,123,000

Less: Inventory for Goods in Process, Dec. 31, 2011

9,000

Cost for Manufactured Goods

1,114,000

References

Boyle, D. M., Carpenter, B. W., & Mahoney, D. P. (2014). Lease Accounting: Lessee Provisions of the Proposed Accounting Standards Update. Management Accounting Quarterly, 15(2).

Georgescu, F., & Ionescu, C. (2014). Harmonization of accounting in the process of globalization of economic activities. Journal of Economic Development, Environment and People, 3(1), 19-25.

Izenstark, A. (2014). Civil War Primary Source Documents: from the New York Historical Society. Reference Reviews, 28(1), 43-43.

Lemmon, M., Liu, l. X., mao, m. Q., nini, g., singleton, k. J., & schallheim, j. (2014). Vol. 69 contents for august 2014 no. 4.

Uysal, Ö. Ö. (2010). Business ethics research with an accounting focus: A bibliometric analysis from 1988 to 2007. Journal of Business Ethics, 93(1), 137-160.

Writing Services

Essay Writing
Service

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing
Service

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision
Service

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.