Financial Accounting and Management Accounting

TASK 1

1.1 Difference between financial accounting and management accounting

Accounting has two branches, which are financial accounting and management accounting. Accounting has been elaborated as process of summarizing, recording and classifying in context of monetary aspect of all transactions of business; events and outcomes are interpreted. The financial position of the organization has been viewed by financial accounting to different parties and in turn, management accounting has the main objective that both information with respect to manager must be qualitative and quantitative, which will help in assisting decision-making and tend to maximise profit (Financial Accounting vs Management Accounting, 2018). The role of both accounting is to ensure the progress of management for better future. In context of helping management, management accounting gives broader aspect as compared to financial accounting. Financial undertakes responsibility of observing how the company is operating financially. Generally, it has been created for major stakeholders and some potential investors who observe financial accounts and take decision in context of investing in organization or not.

The risk of financial accounting can be easily observed as compared to management accounting; in this context, the best example is the Satyam case, in which accounts were manipulated. Reports are created for internal purpose by management accounting and even risk can not be easily visible. The key difference can be explained as below :

1.2 Purpose of different financial statements in profit and not profit organisations.

The accounting department compiles all the annual documents, which are termed as financial reports for elaborating financial position of organization. The financial position of both profit and non-profit entity has to be created with help of financial report. The profit organizations is approaching and even focusing more on profit as non-profit organizations lay special emphasis on research, services and programs which are given by organization. The main objective of annual report is to give normal cash flow of company for both non-profit and profit organizations (Kavussanos, Visvikis, and Alexopoulos, 2017). Non profit gives special focus on required operations for funding, which has been put for improvising community and giving support according to this need of services and programs. The profit organizations gives special emphasis on managing money, which is outgoing and incoming.

The annual report of non-profit entity starts from giving reminder to reader about statistics and objectives about advantages from programs, research and services. On contrary, annual reports of profit organizations starts from business owner's or CEO's letter. This letter gives special emphasis on previous financial year of the organization, which addresses the hardships which are known to public and even methods which have been undertaken by the organization for overcoming it. The most essential concept has been described about mutual goals and objectives of company. The profit entity have various objectives which give products of very high quality and represent high net worth and even potential investors are attracted. The non-profit entity have aim of providing extensive services to needy people (Financial reports to profit and non-profit entity, 2018).

The ending of annual report reminds reader of all good things which are planned for presenting all customers or public as well for fiscal year which is upcoming. The non-profit entity will be ending report by describing about programs or services which are very successful and ways for serving and gathering more people on broad scale. The profit entity will be describing information like launch of new products and services, which will be directly aiming for more margin for business. The balance sheet of profit organization represents assets which are owned by them and can be transformed as retained earnings to various shareholders. The non-profit entity's balance sheet represents assets on hands which can be used for achieving further mission of company. For tracking net income, the profit entity uses accounting system and non-profit entity traces excess of revenue on expenditures (Cooper, Ezzamel and Qu, 2017).

1.3 Determining groups of stakeholders and there requirements of various information

• Customers : These are referred to as actual stakeholders of organization as they are directly impacted by service quality and its value. The existence of business is always to serve customers. They require financial statements for knowing the financial position of that specific business in industry and the quality has also been determined for comparing with other brands (Robson, Young and Power, 2017).
• Employees: :Employees get direct stake in organization as they earn income for supporting themselves and many other benefits in monetary or non-monetary aspect. The business nature has been totally dependent and even employees have safety and health interest in terms of mining, oil and gas, transportation, construction, etc. They require financial statements for interpretation about salary, bonus and earnings of company.
• Investors: :These include debt holders and even shareholders as well. The capital has been invested in business by shareholders and there expectation is to earn certain rate of return. The financial statements play major role in decision of investing, so it is most essential requirement of investors. The concept of value of shareholder is most important concern.
• Suppliers: :The goods and services which are sold by vendors or suppliers usually rely on generating revenue for business, which is ongoing. There requirement is need of health and safety because they are directly linked with operations of organization (Types of Stakeholders, 2018).
• Communities : In large businesses, they have huge contribution as stakeholder. These get impacted by broad range which includes health, safety, economic development and even job creation. They need to estimate impact of employment, spending and income in that specific area.
• Government : The major stakeholder are considered as government in business. The taxes are collected by various corporations, payroll taxes and more spending which has been occurred by organization on goods and services. The overall Gross domestic product has been benefited by government, which is from contribution of organization.

We Promise Exceptional Assignment Writing & No AI Shortcuts !

View Samples Order Now Assignment help

TASK 2

2.1 Stratford Yachts Limited performance is terms of profitability and liquidity

• Net Profit margin: :The Stratford Yachts is indicating net profit margin in 2015 as 11%, which is higher than next year's 2016 as 8%. It represents about net income gained along with total sales which have been achieved. As per net profit margin of industry standards, it is not converting sales very effectively into actual profit. It should work on increasing sales (Mørch and et. al., 2017).
• Return on capital employed : It indicates amount of profit which has been employed on capital which has been generated. In 2015, it was above the industry standards but there was sudden decrease in 2016 was 22.5. The organization must try to make operations in very efficient manner so it will reflect in return and match the industry standard.
• Asset turnover ratio: It is represented as an efficiency ratio, which records the ability of an organization to generate sales with assets. The Stratford Yachts has used its assets in a very efficient manner. In 2015, it met the benchmark, and next year it will exceed the standards of industry.
• Accounts Receivable Collection Period: Usually it compares receivables that are outstanding to the business to its total sales. The company has a very strong position in receiving accounts as it is more than industry standards, which is 83 days, so the organization should utilise this money for generating funds or more resources so that money will not be blocked (Khamidah, Gagah, and Fathoni, 2018).
• Current ratio: The current ratio reflects the liquidity position of the organization. The standard of a specific industry is not matching, but it is improving from year to year. In small duration, it will match industry standards that are 1.5.
• Acid test ratio: It is indirectly linked to current ratio; it has more assets that cannot be easily converted into cash, so it cannot meet standards in both 2015 and 2016.
• Gearing ratio: It is referred to as the solvency ratio, as it is exceeding the industry standards. It has the ability to pay dividends in a very efficient manner and in large quantity.
• Distribution Costs as % of Sales: It can be elaborated by dividing the cost of distribution by sales revenue. The organization is not increasing its sales in this aspect. In 2015 and 2016, it is stable and less than industry standards, which have minor variation (Minnis and Sutherland, 2017).
• Administrative Costs As % Of Sales: The cost of administration and sales revenue indicates the performance. It is similar to distribution cost, which is not improving in both years and consists of minor variation.
• Labor Cost As % Of Sales: It indicates sales with respect to variable cost. The organization met standards in 2016 as it was having minor variation in ratio. For meeting standards, the organization has increased direct labour along with sales revenue, so it has exceeded the industry standards.
• Operating Costs As % Of Sales : The cost of operation which generated sales has been elaborated in this ratio. The industry standards has been exceeded in 2016 by increasing cost of operation and sales revenue has been also increased as compared to previous year.

Thus, Financial position in terms of profitability is very stable but according to liquidity, it is not able to generate good position in industry. The debt position has not been met by Stratford Yacht Limited; in other words, short-term debts are not covered easily as it can be elaborated by liquidity ratios (Cascino et. al., 2014).

GEt our online coursework help to get A+ grade!

CONCLUSION

From the above report, it has been concluded that financial resources should be managed in very appropriate manner because its represent the relevant information which helps in attaining goals and objectives. The above report has helps in understanding the importance of financial statements as it reflect the financial position of organizations. It has shown that financial accounting and management accounting sound similar but they have their own roles and functions, such as dependency and all. Further, it has been summed by providing different stakeholders with their own view on financial information and their requirements. The financial performance in context of profitability and liquidity has been determined in this report, which reflects that in terms of profitability, the organization is performing well but on contrary, its liquidity position is not maintained very well.

You may also like: Different Roles and Characteristics of Manager and Leader

REFERENCES

• Ashwell, M., 2014. Managing Financial Resources.Developing Skills for Business Leadership, p.401.
• Cascino, S. and et. al., 2014. Who uses financial reports, and for what purpose? Evidence from capital providers.Accounting in Europe. 11(2). pp. 185-209.
• Cooper, D. J., Ezzamel, M., and Qu, S. Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard.Contemporary Accounting Research. 34(2). pp.991-1025.
• Kavussanos, M. G., Visvikis, I. D., and Alexopoulos, I., 2017. Managing Financial Resources in Shipping. InShipping Operations Management (pp. 153-175). Springer, Cham.
• Khamidah, A., Gagah, E., and Fathoni, A., 2018. ANALYSIS OF THE EFFECT OF GROSS PROFIT MARGIN (GPM), EARNING PER SHARE (EPS), DEBT TO EQUITY RATIO (DER), NET PROFIT MARGIN (NPM) ON RETURN ON ASSETS (ROA) (Study on Property and Real Estate Companies listed on the Indonesia Stock Exchange Year 2012-2016).Journal of Management. 4(4).
• Minnis, M., and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence from small commercial loans.Journal of Accounting Research. 55(1). pp. 197-233.
• Mørch, O., and et. al., 2017. Maximizing the rate of return on the capital employed in shipping capacity renewal.Omega. 67.pp.42-53.
• Robson, K., Young, J., and Power, M., 2017. Themed section on financial accounting as social and organizational practice: exploring the work of financial reporting.Accounting, Organizations, and Society. 56. pp. 35-37.

UPTO55%

Avail The Benefit Today!

To View this & another 50000+ free

Enter Email

Submit