Table of Contents

WHAT IS ACCOUNTING?......................................................................................................2
PURPOSE AND SCOPE OF ACCOUNTING...........................................................................2
THE MAIN BRANCHES OF ACCOUNTING..........................................................................3
1. Financial Accounting.........................................................................................................3
2. Management Accounting...................................................................................................3
3. Tax Accounting..................................................................................................................3
4. Forensic Accounting..........................................................................................................3
5. Tax Consulting..................................................................................................................3
6. Auditing.............................................................................................................................4
JOB SKILL SETS AND COMPETENCY FOR ACCOUNTING...............................................4
1. Job skill sets for accounting...............................................................................................4
2. Competency for working in accounting..............................................................................5
THE ROLE OF ACCOUNTING...............................................................................................5
Lenders.................................................................................................................................5
Stakeholders and investors....................................................................................................6
THE ROLE OF TECHNOLOGY..............................................................................................7
THE ISSUE OF ETHICS, REGULATION, AND COMPLIANCE RELATING TO
ACCOUNTING........................................................................................................................8
1. Inappropriate Statements on Financial Statements............................................................8
2. Lobbying Activities............................................................................................................8
3. Interest Disclosure.............................................................................................................8
REFERENCE LIST................................................................................................................10

1
WHAT IS ACCOUNTING?
Accounting is the process through which your company collects, categorises, and
comprehends its financial data.
You may receive a detailed view of your financial situation through accounting. It
provides information on your company's current assets and liabilities, your cash flow,
whether you're earning a profit or not, and which areas of your organisation are genuinely
profitable (Smith, 2022).

PURPOSE AND SCOPE OF ACCOUNTING

The accounting field is governed by generally accepted accounting principles (GAAP)
established by the Financial Accounting Standards Board (FASB). GAAP's mandate is to
provide guidance on recording significant events such as changes in ownership or control in
order to produce fair values for assets and liabilities.
Accounting systems can be applied to the entire enterprise, or to a subset of an
enterprise that includes only the activities being accounted for. Accounting is applied broadly
to all types of businesses, not-for-profit organisations, governments, and other institutions. If
there is no cost for using equitable accounting and ethical accounting one must ask why we
are doing it? The answer is only to provide information which could be used by the
owners/management. Why do they need it? It provides guidance for decision making on
financial matters like how much money should be spent on a project or how much money
should go into a reserve fund (Smith, 2022).
Accounting is used to track actual costs during the trial of an asset, which helps to
provide evidence for decisions about timing and extent. It also helps managers to determine
whether their business complies with legal and regulatory requirements, thereby protecting
themselves from financial, legal, and organisational risks. Accounting is part of a broader
group of financial activities called managerial finance, which also includes performance
measurements (Woods, 2019). The system can be used for internal reporting (to managers) or
external reporting (to shareholders). Accounting information provides an overview of the
organisation as well as some insight into its internal operations. For example, depreciation
may be reported on a company's income statement in order to reflect the cost associated with
long-term assets.

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 Complex operating environments (COEs) challenge managers to improve their
performance and their efficiency because of dynamic changes in the external environment
and internal challenges. Accounting information can be one of the tools used in order to
achieve this goal. For instance, there is a complex operating environment when organisations
face political uncertainty or institutional risk because it could affect their ability to operate
normally without compromising their reputation or legality (Smith, 2022).

THE MAIN BRANCHES OF ACCOUNTING

1. Financial Accounting
This branch of accounting deals with the formal reporting of financial data. It is often
used to analyse trends and projections to assess a company’s performance (OpenStax, n.d.).

2. Management Accounting
This branch of accounting focuses on fairly simple analytics, like calculating the cost
of production and sales. In essence, management accountants are tasked with making sure the
company is spending money wisely, monitoring inventories and tracking expenses that might
have been forgotten about otherwise.

3. Tax Accounting
This branch deals with keeping records for tax purposes and filing taxes for clients on
a timely basis so they don't get into trouble with authorities or incur penalties for late filings
(OpenStax, n.d.).

4. Forensic Accounting
This field of accounting is dedicated to auditing after fraud has already been
committed, in order to discover what happened and who was involved so that the guilty
parties can be brought to justice.

5. Tax Consulting
This branch helps businesses understand the tax rules their business will be operating
under, as well as help them figure out how they can reduce their tax burden while making
sure they are not breaking any laws when doing so (OpenStax, n.d.).

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6. Auditing
The CPA and Auditing are the branches of accountancy that provide assurance,
advice, and financial tools such as taxes to their clients. Specifically, auditors are responsible
for assuring the integrity of their client’s financial records, advising their clients on the best
way to keep their books, and providing the expertise necessary to complete tax reporting
(OpenStax, n.d.).

Figure 5: Main Branches of accounting (OpenStax, n.d.)

JOB SKILL SETS AND COMPETENCY FOR ACCOUNTING

1. Job skill sets for accounting

Generally, to working in accounting, one might be required to have these qualities:
Knowledge of basic maths, analytical reasoning, economics, computer systems, electronic
data processing procedures, principles of management and marketing are usually required in
this position according to the U.S Bureau of Labor Statistics (BLS). Other requirements
include good oral communication skills as an accountant deals with communicating complex
information to both internal staff members or external constituencies such as creditors or
investors on a regular basis (Ottawa University, n.d.).

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2. Competency for working in accounting
To be a competent accounting worker, you should have the following competencies:
Methods of information gathering, solving problems, analysing and evaluating issues,
applying critical thinking skills, learning from new situations and improving performance.
Generally speaking, to be an effective accountant there are a few things you should know
about: Methods of information gathering, solving problems, analysing and evaluating issues
aren't specifically required for auditors but it is important that you have good analytical skills
and an ability to learn from new situations. Another important attribute that most accountants
have is the ability to deal with large amounts of data (Ottawa University, n.d.).

THE ROLE OF ACCOUNTING

The connection between accounting data and decision-making is reciprocal. Without
the required accounting data, neither you nor anybody else can make judgments. But why are
wise judgments so crucial? Because without them, you cannot make wise decisions. In other
words, without accounting data, you cannot effect any meaningful change in the present.
However, if you want to make changes in future then there must be a decision-making
process. Hence, a set of rules and procedures are instituted to determine who has the authority
to decide and when they have the authority to decide (Power D.M.S, n.d.). In such an
environment, one decision can have many effects with different outcomes, thus the
importance of accounting decision making rules becomes more crucial and essential.

Lenders
Whether your company is just getting started or has been around for a while, you
might want to think about getting a business loan. How do you tell whether you need to look
into loans? You can do this, of course, by looking at your accounting data. But how does a
lender decide whether or not to offer you money for your business? The lender also needs
your accounting data.
Financial organisations (like banks) require access to your financial information in
order to assess your company's creditworthiness (Power D.M.S, n.d.). Creditors might decide
how much money you are eligible for in loans based on your financial information (Power
D.M.S, n.d.). Or, depending on the data you supply, the lender may determine that you are
ineligible for a loan.

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 Accounting information enables creditors to determine whether you are eligible for a
credit card if you require one for business purposes but are not looking for a loan.
What type of accounting information must you provide to lenders to influence their choice?
Financial data for businesses includes:
❖ Income statements
❖ Cash flow statements
❖ Business tax returns
❖ Balance sheets
Financial accounting is a crucial source of data for investors and lenders to learn
about the risks and financial stability of firms. Access to information is the main advantage of
financial accounting and the one that the Financial Accounting Standards Board (FASB)
highlights the most (Ross, 2022).
The typical lender or investor does not have continual inside access to a company's
ongoing business activities. To give reliable and easily comparable information, they instead
rely on financial accounting (Ross, 2022).

Stakeholders and investors

If you're a starting business owner or just trying to expand, you must give any
possible investors accounting information. Why? Making decisions regarding investing in
your firm is aided by accounting knowledge.
How do investors make use of accounting data? And how do account information's
users use it? Financial data is used by stakeholders and potential investors to assess your
company's value. Additionally, they do a credit analysis using the data.
It all comes down to the fact that investors and stakeholders want to know how
healthy your business's finances are before making a choice. They are able to determine the
profitability, identify your funding sources, and gauge any hazards (Kosinski, 2022).
For instance, stakeholders and investors can request to examine your company's
income statement. The line items provide specifics on any one-time and recurring income
transactions to demonstrate whether your revenue is regular or inconsistent. If your
accounting records demonstrate that you generate consistent revenue, an investor could opt to
proceed with investing in your company (Kosinski, 2022).
Through the tracking of prospective losses over time, your bookkeeping may also
demonstrate to stakeholders that your company poses a financial risk (Ross, 2022).

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Accounting information serves as a tool for investors to make decisions by informing them of
potential risks, losses, and profits before they invest money in your business.

THE ROLE OF TECHNOLOGY

One role that technology plays in accounting is saving time, which saves money. To
avoid redundant work and to make sure there are no errors (or mistakes) made by human
intervention during filing processes, many companies turn to technology like online
bookkeeping software or cloud accounting packages (Rubino, 2021). This will also help save
space which not only costs money but also requires more staff time with day-to-day
operations. Let me be clear, what I am talking about are large corporations with staff
numbering in the hundreds and thousands, who can afford to automate as much of their
business processes as possible. What is not being discussed here is the small business
individual who has no means of doing so and must continue to use manual methods. Cloud
accounting might be a good fit for many
small businesses. A cloud accounting
package lets you access your financial
records from anywhere with an internet
connection. Cloud accounting software, like
Quickbooks Online, lets you upload all your
accounting data directly into their system
rather than having to manually enter
information one by one (Rubino, 2021).
Generally, one of the most important roles that technology plays in accounting is
internal accounting controls. These are controls that are in place to protect the business from
fraud and theft, such as tracking unauthorised and abnormal transactions through access logs.
Another example is some businesses using two-factor authentication to keep unauthorised
users from accessing their accounts or using TPM modules to encrypt all of their valuable
data (Rubino, 2021).
A big part that technology plays in accounting is reporting. Reporting required
financial information to different stakeholders like investors, regulators, audit committees and
even the general public. The advent of the internet as a source for financial data makes it
easier for companies to update their investors and stakeholders with financial information
(Kosinski, 2022). For example, using SPDR Portfolio+ to track portfolio performance across

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US, international and fixed income markets companies can provide real-time portfolio
updates with the click of a button.

THE ISSUE OF ETHICS, REGULATION, AND COMPLIANCE RELATING TO

ACCOUNTING
There are a number of ethical principles that could be used to judge whether an
organisation is acting ethically. There are tendencies towards unethical behaviour in
organisations, which is why there is a need for regulation. A third cause of unethical
behaviour is the pressure to not make mistakes because making mistakes could lead to
sanctions or rulings against the organisation. In this blog post, I am going to look at ethical
issues faced by organisations and how they should respond appropriately without
compromising their ethics and compliance processes in order for them not to be classified as
threats. I will also talk about how these ethical issues may affect an organisation's success or
failure and if any regulations may help prevent those consequences from happening (Fathima
& Narmadhaa, 2021).

1. Inappropriate Statements on Financial Statements

While presenting said financial statements there are many issues that could arise for an
organisation. For example, if factoring financial assets into the statement of financial position
is done inappropriately then this may be misleading to the public that examines these
statements (Fathima & Narmadhaa, 2021).

2. Lobbying Activities
An organisation's lobbying activities could have an effect on its ability to meet public interest
criteria as well as to protect its internal interests. These general interest criteria could include
fundraising activities and political activities (Fathima & Narmadhaa, 2021).

3. Interest Disclosure
When an organisation undertakes lobbying or fundraising activities it should disclose those
interests to the public for added benefit. This is particularly important if these organisations
are big and powerful as it allows the public to make their own decisions in which they may be
interested, therefore increasing their contribution to these organisations (Fathima &
Narmadhaa, 2021). However, there is also a need for an organisation to have full disclosure

8
of its interests being openly discussed with the public because this will allow them to take
action accordingly (Fathima & Narmadhaa, 2021).

9
REFERENCE LIST

Smith, R. (2022, March 4). What is accounting and why it matters for your business: Bench
accounting. Bench. Retrieved January 9, 2023, from https://bench.co/blog/accounting/what-
is-accounting/#mvbv2

Woods, D. (2019, July 30). The role of accounting in business and why it's important. CPA
Firm Tampa. Retrieved January 9, 2023, from
https://www.pdr-cpa.com/knowledge-center/blog/role-of-accounting-in-business/
#:~:text=Why%20Is%20Accounting%20Important%3F,used%20in%20making%20business
%20decisions.

3.3 define and describe the initial steps in the accounting cycle - principles of accounting,
volume 1: Financial Accounting. OpenStax. (n.d.). Retrieved January 9, 2023, from
https://openstax.org/books/principles-financial-accounting/pages/3-3-define-and-describe-
the-initial-steps-in-the-accounting-cycle

Kosinski, J. (2022, October 24). Accounting information in decision making: How it helps
your business. Patriot Software. Retrieved January 11, 2023, from
https://www.patriotsoftware.com/blog/accounting/accounting-information-decision-making/

Ross, S. (2022, July 13). How do investors and lenders benefit from financial accounting?
Investopedia. Retrieved January 11, 2023, from
https://www.investopedia.com/ask/answers/041015/how-do-investors-and-lenders-benefit-
financial-accounting.asp

Understanding the role of Technology in Accounting. Rubino. (2021, July 1). Retrieved
January 12, 2023, from https://rubino.com/understanding-the-role-of-technology-in-
accounting/

Fathima, A, Narmadhaa, N. (2021, July 26). Ethical issues in business: What are they and
how to handle them. Tech Talk Down Under. Retrieved January 12, 2023, from
https://www.zoho.com/en-au/tech-talk/ethical-issues-in-business.html

What is regulatory compliance and why is it important? PowerDMS. (n.d.). Retrieved

January 12, 2023, from https://www.powerdms.com/policy-learning-center/what-is-
regulatory-compliance-and-why-is-it-important

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10 Best Accounting Skills. Ottawa University - Prepare for a Life of Significance. (n.d.).
Retrieved February 23, 2023, from https://www.ottawa.edu/online-and-evening/blog/july-
2021/10-best-accounting-skills

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 MEMORANDUM

The adventages and disadventages of budgets and budgetary planning.

TO: Mr. Vu
FROM: Nguyen Hoang Son, QT21.2
DATE: February 23, 2023
SUBJECT: Accounting Principle

Introduction

The management control process's most obvious use of accounting data is in the planning and
control of the budget. The majority of the critical information for overall planning and
management is created by the accountant in performance objectives and feedback reports on
variances. In order to evaluate whether corrective action is required and to calculate the false,
budget control is the process of comparing actual revenues and expenditures to predicted
figures/income or planned expenditures. The organization's general goals are established with
the help of the financial control system and are then zealously pursued. It allows businesses
to reduce expenses.

The adventages and disadventages of budgets and budgetary planning and control for
an organization.

A budget is a numerical statement for a given time frame. It turns strategic plans into
operational actions. A budget has a precise structure to follow. Usually, budgets are divided
into discrete time periods. The time frame might be either quarterly or monthly. It makes it
possible to keep tabs on spending and assists in planning out costs according to the objective.
A budget may not be limited to just financial outlays. A budget is a plan or projection of one's
financial outlays over a predetermined time period. This strategy can incorporate financial
flows, receipts, obligations, scale volume anticipated, and other expenses. It is based on
earnings and other outlays. The budget may take many different forms because it is not just
for businesses (Prasanna, 2022).

Adventage of budgets and budgetary planning and control

Budgets and budgetary planning and control provide a lot of benefits:

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  The most significant characteristic of a budgetary planning and control system is
arguably that it forces management to consider the future. In order to anticipate and
give the organization a purpose and direction, it forces management to write forth
specific plans for reaching the objectives for each department, operation, and
(preferably) each manager.

 Encourages cooperation and dialogue.

 Areas of duty are expressly defined. makes budget center managers accountable for
the accomplishment of budget goals for the activities under their direct supervision.

 Provides a foundation for performance evaluation (variance analysis). In essence, a

budget serves as a standard by which actual performance is measured and evaluated.
Comparisons of actual outcomes to the budget plan give control. The causes of budget
deviations may then be classified into elements that are under your control and those
that are outside of your control.

 Allows corrective action to be conducted as deviations are discovered.

 Encourages staff members to participate in budget creation.

 Enhances the distribution of limited resources.

 By employing the management by exception approach, management time is saved.

Disadventage of budgets and budgetary planning and control

However, it also has a lot of disadvantages

 The behavior of budgeting affects how motivated employees are.

 Budgets that are imposed rather than agreed are demotivating.

 Establishing improbable goals makes people less motivated.

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 Battles over budget allocation are one way that budgets fuel departmental conflict.

 Spending within your means might lead to a "use it or lose it" mindset, where you
overspend in order to save money for the next year.

 If goals are too low, there will be budgetary slack.

 Although a "name, blame, and shame" culture might emerge, managers should only
be held accountable for deviations that were under their direct control.

Create a cash budget for a company using the provided data and a spreadsheet.
Raw Data.
You need a master budget for the upcoming year for your business, which is just getting
started. The information below has been compiled to help in creating the master budget:
a. As of December 31 (the end of the prior year the company’s general ledger showed the
following account balances:
b. Actual sales for December and budgeted sales for the following months are as follows:
c. Sales are x% for cash and y% on credit. All payments on credit sales are collected in
the month following sale. The accounts receivable at December 31 are a result of
December credit sales.
d. The company’s gross margin is 60% of sales. (In other words, cost of goods sold is
40% of sales.)
e. Monthly expenses are budgeted: £30,000 per month including: rental cost: £6,800;
marketing expenses: £3,200; salary: £11,000; depreciation (non-cash expenses) £9,000
and other expense: £100.
f. Each month’s ending inventory should equal 25% of the following month’s cost of
goods sold.
g. One-half of a month’s inventory purchases is paid for in the month of purchase; the
other half is paid in the following month.
h. During February, the company purchases a new copy machine for £3,700 cash.
i. During March, the company outsources an advertisement project for £1,800 cash.
j. During {you can choose the month}, the company purchases a computer for £2,000
cash
k. During August (you can choose the month), the company outsources a company for the
maintenance service for £2,100 cash.
l. During {you can choose the month}, the company outsources a company for an
advertisement project for £4,500 cash.
m. Management wants to maintain a minimum cash balance of £16,000. The company
has an agreement with a local bank that allows the company to borrow in increments of
£1,000 at the beginning of each month, you need to assume for the rate and payment of

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the interest

1. Schedule of expected cash collections

 Here is the formula to calculate the above table:

Sales = Sale volume x Price
Cash sales = Sales x 70%
Credit sales = Sales x 30%
Total cash collection = Current month’s cash sales + Previous month’s credit sales

The company's anticipated cash collecting timeline is shown in Table 1. The company's
total sales, as is common knowledge, are equal to the sales volume times the price per
unit. In addition, I assume that 30% of sales are made on credit and 70% are made with
cash. In other words, cash sales are calculated by multiplying sales by 70%. Similar to
total sales increased by 30%, credit sales operate similarly. As all credit card payments
are collected in the sales of the next month, the final cash collection of the month's sales
consists of both cash sales from the current month and credit sales from the month before.

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COGS = Sales x40%

Desired ending inventory = 25% x Following month’s COGS

Beginning inventory = Previous month’s ending inventory

Required purchase = Total needs - Beginning inventory.

The company's anticipated budget for goods purchases is shown in Table 2. 60% of sales is
the gross margin allocated. The anticipated cost of products sold is thus 40% of sales
(COGS). A further requirement is that the closing inventory for this month's sales should
equal 25% of the anticipated COGS for the next months. The projected COGS plus the
ending inventory of that month's sales, therefore, equal the entire needs. The necessary
purchases are then calculated by deducting the original inventory from the month's sales
(which is also the ending inventory of previous month). Because December's closing
inventory from the prior fiscal year was higher than January's expected goods purchases, no

additional purchases of goods are necessary.

50% of this month's buy plus 50% of last month's purchase equals the total cash payout for
purchases.

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Table 3 displays the anticipated cash disbursement schedule for item purchases. The total
cash outlay for purchases equals the sum of the inventory purchase within the current month
and the inventory purchase from the previous month because the inventory purchase in the
current month's sales is divided in half and paid for in that month's sales and the following
month's sales, respectively.

Total expense equals wages and salaries plus marketing, rentals, equipment, depreciatio (a
non cash expense), and other expenses.

Overall cash outlay for S&A costs is calculated as follows: Total expense - Depreciation
(Non-cash expense).

Table 4 displays the expected cash distribution plan for selling and administrative charges.
All expenses, including employee salaries and wages, marketing costs, rent payments,
equipment costs, maintenance service costs, and depreciation, are added together. Therefore,

17
we must exclude non-cash expenses, such as depreciation, from the total cash expenses in
order to get the overall cash outlay.

Cash balance plus Cash Collection equals Total Cash Available.

Total cash outlay equals the sum of the cash outlay for the acquisition of the item plus the
S&A expenditure.

Excess is calculated as Total Cash - Excess.

Total Financing = Loan + Repayments + Interest Total Financing + Ending Cash Balance

The management of the firm aims to maintain a minimum cash level of £18,000. The cash
budget will show the ending cash balance for each month. According to the cash budget, the
firm will keep the extra income for as long as the threshold of £18,000 is met, therefore if the
budget is followed, borrowing won't be necessary.

 Scenario

Scenario 1

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A price reduction of 20% multiplies the original price by 80%, while a sales volume increase
of 10% multiplies the original sales volume by 110%. The ending cash balance varies along
with the cash collection. Thus, we may draw the conclusion that a lower price with a bigger
quantity may result in a significantly smaller company's closing cash balance over a fiscal
year.

Scenario 2

In scenario 2, the business will spend 10% more on marketing, which will result in a 20%
increase in sales. The overall amount of money collected will rise due to the higher sales, and
it will also do so because of the higher marketing expenses. We observe a drop in the final
cash balance since the sales rise was not very big. The modification in scenario 2 has an
impact on the cash collection schedule, cash disbursements for selling and administrative
costs, and cash budget. The final cash balance has increased dramatically and is now almost
twice as large as predicted, with a marketing budget of 110% and sales of 120%.

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Scenario 3

Instead of paying 50% during the month of purchase and 50% in the next month, the
company in this scenario 3 will pay 100% of the purchase in the month following the
purchase. The variance shows a difference in the overall cash disbursement for purchases and
the final sum of the new cash budget. The decrease in cash outflow will raise the ending
balance, with the exception of January, which contains no purchases. The rest of the table is
the same as the first budget.

Scenario 4

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In the final scenario, monthly expenses for renting out real estate would be reduced by 15%.
In the case of our firm, the initial lease cost will be reduced by 15%, bringing the monthly
rental cost down to £5,780 as shown in the table. The fixed monthly expenses will also be
decreased to £20,080, which will result in a decrease in the overall cash outlays for marketing
and administrative expenditures. The scenario 4 variations table shows that the reduction in
cash outflows will result in a cumulative increase in the ending balance over the course of a
year. These alterations are only visible in the table of cash disbursements for selling,
administrative, and cash budget costs. All other entries are kept same.

CONCLUSION

This letter discusses how budgeting may be used to help and direct, as well as to better
manage resources and make decisions. Accounting provides a wealth of financial data,
statistics, and data on key performance indicators (KPIs), which is typically supported by
reliable accounting software. Accounting helps organizations make informed decisions about
how to execute strategy effectively and meet the firm's original goals.

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REFERENCE LIST

Prasanna. (2022, April 20). Advantages and disadvantages of budget: What is budget?,
advantages and limitations of budget. A Plus Topper. Retrieved February 23, 2023,
from https://www.aplustopper.com/advantages-and-disadvantages-of-budget/
#:~:text=A%20budget%20provides%20a%20structured,in%20effective%20handling
%20of%20expenses.

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