ACCOUNTING PRINCIPLES

LEARNER NAME HASNAIN QUDRAT ULLAH

SHAHAB
ASSESSOR NAME SIR ZEESHAN
BTEC PROGRAM TITLE: BTEC HIGHER NATIONAL
DIPLOMA IN BUSINESS
UNIT NUMBER: UNIT 5: ACCOUNTING
PRINCIPLES
ASSIGNMENT TITLE: ACCOUNTING CONTEXT IN
BUDGETARY CONTROL
PRODUCTION AND
INTERPRETATION OF
FINANCIAL STATEMENT
DATE ASSIGNMENT SUBMITTED: 2 JANUARY, 2024

ASSIGNMENT TASK REFERENCE EVIDENCE SUBMITTED

TASK 1 BUDGET
TASK 2 FINANCIAL STATEMENT

LEARNER DECLARATION

I certify that the work submitted for this assignment is my own. I have clearly referenced any
sources used in the work. I understand that false declaration is a form of acceptance.

LEARNER SIGNATURE: HASNAIN QUDRAT ULLAH SHAHAB

DATE: 2 JANUARY, 2024

TASK 1

PURPOSE & SCOPE OF ACCOUNTING:

Accounting has been defined as a purpose that includes recording, categorizing and summarizing
financial transactions for decision-making purposes as it takes back thousands of years and is
now an important tool for individuals, businesses and organizations on analyzing their financial
performances and make decisions after analyzing. Accounting permits different stakeholders on
comparing their results with industry values or competitors where it helps them analyze the
financial health of an organization by observing the key ratios like liquidity, solvency and
profitability. It also underwrites to legal compliance where by following recognized standards
and regulations, different businesses can fulfill their responsibilities and with that, this will not
only help them function smoothly but can build trust on each other.
The purpose of accounting is that accounting is important for different organization where it
deals financial information on providing decision-making, satisfying legal requirement and
managing resources professionally and also helping different businesses evaluating their
financial stability, analyzing profitability and plan for the future. Another thing is that accounting
is also known as the language of the business where it records and reports financial transactions
perfectly, allowing different stakeholders on analyzing different organizations’ performances and
position and also, different investors uses that result on deciding whether to buy shares or deliver
funds (Chris Anderson, 2023).
On the other hand, the scope of accounting involves all financial transactions and activities of a
company where it involves recording, categorizing and summarizing financial information on
providing precise and timely reports. Accounting also track down the performances of a business
and can help make the crucial decision about its future where it can measure liquidity,
profitability and solvency and also the financial statements prepared by the accountants can also
analyze the affluence of an organizations (Anon).

A CRITICAL EVALUATION OF THE ACCOUNTING FUNCTION:

The accounting functions play a vital role in informing the decision-making and meeting the
needs of various stakeholders like shareholders and society as a whole. There are some functions
that critically analyzes the effectiveness of the accounting function:
1. Informing decision-making, where it helps managers on assessing the financial
performance and position of the company, identifying areas of improvement and making
informed decision. However, accounting involves judgement and estimation where it
might introduce partiality and bias into financial report, and thus could affect the
exactness and reliability of the information used for the decision-making.
2. Meeting stakeholder needs, where accounting also assists the needs of various
stakeholders like shareholders, creditors and regulators. However, there might be a
conflict of interest between short-term shareholder value and long-term sustainability,
where accounting practices that arranges short-term financial results might not capture
the long-term value establishment creation of an organization.
3. And lastly societal needs, where accounting has a wider societal role as it subsidizes to
economic stability, transparency and accountability. However, accounting standards and
practices might not support the ethical principles, leading to expecting conflicts between
financial performance and ethical behavior thus damaging the trust in the accounting
function and the dependability of financial information (Anon, 2023).
THE MAIN BRANCHES OF ACCOUNTING AND JOB SKILLSETS AND
COMPETENCIES:
There are various branches of accounting which are:
1. Financial accounting, where it involves recording and expounding business transactions
along with preparation and presentation of financial statements. It also describe the
company’s balance sheet and implements profit and loss statements that recommend
management or stakeholder in regard to loans, investments or acquisitions.
2. Managerial accounting, where it deliver information to a company’s internal structure,
namely management and unlike financial, managerial accountants observe the use of
money rather than amounts of money. It also help on improving the company’s
management, improving its profit and providing the management with financial reports
that effect planning and budgets.
3. Cost accounting, where it analyzes the manufacturing cost on preparing and presenting
reports that notify decision-makers on how to reduce the cost or when to increase more.
4. Tax accounting, where it follows state and federal tax rules during tax planning or
preparing tax returns and it reports the effect of tax on businesses and might suggest
services on minimizing taxes or the consequence of tax decisions (Anon).
There are various job skills that could help an accountant:
1. Proficiency in accounting software, where many accountant’s job requires applying
common spreadsheet and account settlement software and other software where general
accountant should be expert which are database reporting, financial reporting and
analysis, financial statements, compliance and project management.
2. Ability on preparing financial statement, where financial statements record the
organizations’ business activities and financial positions and the three primary financial
statements are income statement, cash flow statement and balance sheet.
3. Ability on analyzing data, where an organizations’ financial data is one of the greatest
possessions as it can notify decisions in nearly area of the operations and is important for
assuring the ongoing success of an organization.
Accounting competencies are the technical competencies that add value to a business and
underwrite to a thriving society. There are various accounting competencies which are:
1. Risk assessment, analysis and management, where that competency assess, analyze
and manage risk using suitable frameworks, professional judgement and suspicion for
effective business management.
2. Measurement analysis and interpretation, where it categorize and apply appropriate,
reliable and demonstrable measurements on analyzing data for a given purpose and
anticipated use.
3. Research, where it categorize, assess and apply applicable professional frameworks,
standards and guidance, as well as other information for analysis to make an informed
decisions.
ACCOUNTING SYSTEM AND THE ROLE OF TECHNOLOGY IN
MODERN- DAY ACCOUNTING:
An accounting system is a set of accounting processes with combined procedures and
controls. The purpose of an accounting system is to record business transactions, summarize
those transactions into an aggregated form, and create reports that can be used by decision
makers to monitor, analyze, and improve operations. There are two types of accounting
system:

1. A single entry system of accounting is usually used by very small businesses for its
simplicity. A single entry system does not require complicated software. An excel
spreadsheet or something similar is all that’s needed to input the information. For instance, a
single entry system transaction could look something like this:

Date Description Expense Income Tax Pay Method Balance

04/07/18 Pen set N/A $85.80 $5.80 Cash $7,800

2. Double Entry System is where every transaction is recorded both as a debit and credit in
separate accounts. A double entry system of accounting does require software to properly
manage it. Business owners should look online for software that is easy to understand
(designed for business owners, not for accountants) and one that provides instant access to a
number of reports, such as:

 Profit & Loss statement

 General Ledger
 Chart of accounts
 Sales tax summary
 Invoice summary
 Payment summary
 Expense reports

Accounting is an unpredictable process where accounting trends continuously evolve and

redefine themselves. So, technology plays a vital part in making the accounting process easier to
handle. Advancement in technology always enhances accounting systems that are becoming
increasingly easy to operate. New technologies of accounting apps and software enable
accountants to conduct operations and keep records and track financial data. Some of the popular
software used by small businesses are Zoho, Zero, QuickBooks, FreshBooks, and more. This
rapid change has compressed various aspects of business operations at the same time.
Accounting, in particular, has been immensely affected by this change. Accounting Software
now replaces conventional paper ledgers and accounting books. These software packages come
with various specialized features customized to various business needs. The most important
impact of technology is the use of computerized systems to track and record financial
transactions. Paperwork, manual spreadsheets, and hand-written financial statements have all
transformed into computer systems that can quickly show individual transactions into financial
reports.

ISSUES OF ETHICS, REGULATION & COMPLIANCE:

Ethical issues in accounting and finance are a major fear for accountants and finance
professionals. Confidentiality, independence, professional competence, objectivity, fraud, and
professional conduct are some of the ethical issues that accountants and finance professionals
face. By maintaining high standards of ethical behavior and complying with professional
standards and regulations, accountants and finance professionals can guarantee that they provide
high-quality services to their clients and maintain the trust and integrity of the accounting and
finance profession.
The accounting profession is matter to a lot of regulation. This can make it challenging to keep
up with all the changes and ensure compliance. These rules vary from country to country and
even from state to state within countries, so it can be hard for an accountant in one place to know
what’s expected of them when they move somewhere else. This can be a challenge, especially
for small businesses that may not have the resources to keep up with all the changes. This means
that accounting professionals need to stay on top of all the changes in the industry so they don’t
get caught off-guard by new laws that affect their clients.

IMPORTANCE OF BUDGETARY CONTROL:

Budgetary control refers to the process of planning, controlling, and monitoring the
organization’s revenue and expenses to guarantee that they align with the budget. It involves
creating budgets for various business activities, monitoring actual performance against the
budget, identifying variations, and taking corrective actions to bring the budget back on track.
There are some roles of budgetary control as budgetary control sets out a plan for income and
money to be spent, providing a direction for the company’s financial activities over a
predetermined period. This ensures that the company’s financial resources are carefully
allocated and productively employed. With the help of budgetary control, management has
contact to precise and timely information on the organization’s financial performance. Making
wise decisions about the allocation of resources, capital expenditures, and other important
business decisions can be accomplished with the use of this information.

Having budgetary control in an organization can be helpful as budgetary control allows the
employees of the organization to participate in the process and underwrite their maximum
effort towards achieving the goal. It copes the cost of production of the company by effective
planning of financial activities and ensures that the resources are being used properly so that
there is minimum wastage. The budgetary control performances as a tool for measuring
performance. It helps compare the result achieved by the organization and the objectives that
were set earlier while planning. However, there might be a problem for having budgetary
control as the other issues like customer satisfaction, employee benefit, safety issues, etc. are
ignored. Budgetary control depends on specific capital and limited time but can create rigidity
in the organization as the employees might not be ready for a change and keep new ideas and
projects to themselves, which would have benefited the organization.

When improving the budgetary control, the organization should set goals or objectives that are
practical, doable, and in line with the organization’s overall plan as it is the first step in the
budgetary control process and can work only when the organization is working according to
the strategy planned and making a budget. As part of the budgetary control process, actual
performance should be regularly compared to prearranged budgetary goals where it allows
managers to spot any deviations in the early stages of the process of budgeting and take steps
to fix them.

CASH BUDGET:
 TASK 2
GRADUATE TRAINEE
CITY, ABC
2ND JANUARY, 2024

MARSHAL
OWNER OF THE COMPANY
MARSHAL COMPANY
CITY, XYZ
 SUBJECT: FINANCIAL STATEMENT ANALYSIS AND RECOMMENDATIONS

DEAR MARSHAL,
I’m pleased to share you the financial statement for Marshal Company for the fiscal year ending
31 march, 2019, along with attached table of financial ratios that compares Marshal Company’s
ratios to industry average. These are the following financial statement;
MARSHAL
INCOME STATEMENT FOR THE END OF THE YEAR 31 MARCH, 2019
$ $ $
SALES 95800
COST OF GOODS SOLD:
OPENING STOCK 10780
PURCHASE 48340
RETURN OUTWARDS 960

47380
CARRIAGE INWARD 3600
CLOSING STOCK 12600
49160
GROSS PROFIT 46640
OTHER INCOME:
DISCOUNT RECEIVED 5300
OTHER EXPENSES:
INTEREST PAYMENT 2400
WAGES OF MOTOR VEHICLE 9200
RENT AND INSURANCE 7250
LIGHT AND HEAT 5080
PROVISION FOR DEBTS 359
GENERAL AND MARKETING 6200
DEPRICIATION (M.V) 1000
CARRIAGE OUTWARDS 5200
DEPRICIATION (PREMISES) 1200
37889
NET PROFIT & LOSS 14051

MARSHAL

BALANCE SHEET AS AT 31 MARCH, 2019

$ $ $

NON-CURRENT ASSET: COST DEPRICIATION NBV

PREMISES 60000 13200 46800

MOTOR VEHICLES 20000 16000 4000

80000 29200 50800

CURRENT ASSET:

INVENTORY 12600

DEBTORS 18500

LESS: PROVISION FOR DEBTS 919

17581

CASH 270

PREPAID INSURANCE 450

30901

TOTAL ASSET 81701

LIABILITIES:

NON-CURRENT LIABILITIES:

BANK LOAN 30000

CURRENT LIABILITIES:

CREDITORS 9750

BANK OVERDRAFT 1680

INTEREST PAYMENT 2400

LIGHTING ACCRUED 130

43960

CAPITAL:

CAPITAL AT START 35000

DRAWINGS 11310

NET PROFIT & LOSS 14051

37741

TOTAL LIABILITIES AND EQUITY 81701

SELECTED RATIOS FOR MARSHAL COMPANY

201 201 2019
 7 8
LIQUIDITY RATIOS:
CURRENT RATIO 1.56 1.7 0.70
ACID TEST RATIO 1.1 1.22 0.42

LEVERAGE RATIOS:
DEBT RATIO 0.56 0.55 1.42
DEBT TO EQUITY RATIO 0.94 1.05 1.26

PROFITABILITY:
GROSS MARGIN RATIO 0.23 0.32 0.49
RETURN ON ASSET RATIO 0.52 0.59 0.45
RETURN ON EQUITY 1.1 1.25 2.74

ASSET USAGE:
INVENTORY TURNOVER RATIO 2.25 2.6 10.97
ASSET TURNOVER RATIO 0.89 1.95 3.10
RECEIVABLES TURNOVER RATIO 0.25 0.16 5.18
DAY SALES OUTSTANDING RATIO (IN DAYS) 56 62 -28214500

CRITICAL EVALUATION ON THE PERFORMANCE:

The Marshal Company has improved themselves as its sales and profit of the Company has
increased and also an increase in ROA ratio and ROE as its ROA ratio increases by 49% and
ROE by 274% which shows the change of its assets and capital of the Company. The data also
shows that there is a decrease in current ratio and acid test ratio compared to the last two years of
the financial statement, but its asset usage increases in the last two years of the financial
statement, in which there is an increase in receivables and inventory turnover.

LIMITATIONS OF USING FINANCIAL RATIOS:

There are limitations of using financial ratios as information used in the analysis is based on real
past results that are released by the company. Therefore, ratio analysis metrics do not necessarily
represent future company performance. If the company has changed its accounting policies and
procedures, this may significantly affect financial reporting. In this case, the key financial
metrics applied in ratio analysis are altered, and the financial results recorded after the change
are not comparable to the results recorded before the change. Lastly, an analyst should be aware
of seasonal factors that could potentially result in limitations of ratio analysis. The incapability to
adjust the ratio analysis to the seasonality effects may lead to false clarifications of the results
from the analysis (Corporate Finance Institute, 2022).
BENEFITS OF CONTEMPORARY ACCOUNTING
SOFTWARE PACKAGES:

There are some advantages of contemporary accounting software

packages as accounting data is safely secured on the cloud. This
means that the data is covered under layers of high-end encryption
algorithms, making it a lot safer than keeping it on the office shelf and
the best part is that all of the data is synced at all times. So not only is it
more secure, but it’s also fresh. When using cloud accounting software,
if newly created journal entries don’t balance, the system will notify
you immediately and highlight the potential error. This way, you’ll be
warned of the error before even obligating to it. Lastly, all the financial
data including journal entries, financial statements, and reports is
online. Whatsoever invoice, record, or entry is created, it is all kept
under layers of encryption in the cloud. Easily accessible by anyone
that has the right permission. Examples of contemporary accounting
software packages include FreshBooks, QuickBooks online and Xero.

CONCLUSION AND RECOMMENDATIONS:

After calculating the financial statement, it is better to know about the

sales, assets and its receivables and to know how much profit has been
made within a year. So, I would recommend you to focus on your
target.

Regards,

Graduate Trainee

GRADUATE TRAINEE
CITY, ABC
2ND JANUARY, 2024
JOHN, DAVID, SUE

PARTNERS AT THE COMPANY

TRISTAR COMPANY

CITY, XYZ

SUBJECT: FINANCIAL STATEMENT ANALYSIS AND

RECOMMENDATIONS
DEAR JOHN, DAVID & SUE,

I’m pleased to share you the financial statement for Tristar

Company for the fiscal year ending 30 April, 2011, along with
attached table of financial ratios that compares Tristar Company’s
ratios to industry average. These are the following financial
 TRISTAR
BALANCE SHEET AS AT 30 APRIL, 2011
$ $ $
NON-CURRENT ASSET: COST DEPRICIATION NBV
MOTOR VEHICLES 16000 5760 10240
FIXTURES & FITTINGS 30000 20500 9500
46000 26260 19740
PREMISES 44750
TOTAL NON-CURRENT ASSET 64490
CURRENT ASSET:
INVENTORY 28100
TRADE RECEIVABLES 45000
PROVISION FOR DOUBTFUL DEBTS 2250
42750
BANK 7560
PREPAID GENERAL EXPENSE 4200
TOTAL CURRENT ASSET 82610
LIABILITIES:
TRADE PAYABLES 54700
ACCRUED RENT 2500
TOTAL LIABILITIES 57200
TOTAL ASSETS & LIABILITIES 89900
PARTNERS' EQUITY:
CAPITAL: JOHN 40000
CAPITAL: DAVID 35000
CAPITAL: SUE 15000
90000
CURRENT ACCOUNT: JOHN 2500
CURRENT ACCOUNT: DAVID 1500
CURRENT ACCOUNT: SUE 1000
CAPITAL TRANSFER: SUE 10000
INTEREST ON CAPITAL:JOHN 1600
INTEREST ON CAPITAL:DAVID 1400
INTEREST ON CAPITAL:SUE 1000
SHARE OF PROFIT:JOHN 6600
SHARE OF PROFIT:DAVID 6600
SHARE OF PROFIT:SUE 3300
33500
DRAWINGS:JOHN 10000
DRAWINGS:DAVID 10000
DRAWINGS:SUE 12000
INTEREST ON DRAWINGS:JOHN 500
INTEREST ON DRAWINGS:DAVID 500
INTEREST ON DRAWINGS:SUE 600
 -100
TOTAL PARTNERS' EQUITY 89900

SELECTED RATIO FOR TRISTAR COMPANY

2009 2010 2011
LIQUIDITY RATIOS:
CURRENT RATIO 1.78 1.94 1.44
ACID TEST RATIO 1.32 1.25 0.95

LEVERAGE RATIOS:
DEBT RATIO 0.54 0.35 0.69
DEBT TO EQUITY RATIO 0.87 0.85 0.64

PROFITABILITY:
GROSS MARGIN RATIO 0.69 0.55 0.48
RETURN ON ASSET RATIO 0.52 0.59 0.23
RETURN ON EQUITY 1.1 1.25 2.33

ASSET USAGE:
INVENTORY TURNOVER RATIO 4.5 4.2 6.57
ASSET TURNOVER RATIO 2.23 2.65 2.54
RECEIVABLES TURNOVER RATIO 6.5 5.8 4.66
DAY SALES OUTSTANDING RATIO (IN DAYS) 60 64 78

CRITICAL EVALUATION ON THE PERFORMANCE:

The Tristar Company’s financial performance went well as asset usage increases in the last two
years, in which there is an increase in receivables, assets and inventory. However ROA ratio and
ROE decreases within the last two years and Debt ratios didn’t go so well.

LIMITATIONS OF USING FINANCIAL RATIOS:

There are limitations of using financial ratios as information used in the analysis is based on real
past results that are released by the company. Therefore, ratio analysis metrics do not necessarily
represent future company performance. If the company has changed its accounting policies and
procedures, this may significantly affect financial reporting. In this case, the key financial
metrics applied in ratio analysis are altered, and the financial results recorded after the change
are not comparable to the results recorded before the change. Lastly, an analyst should be aware
of seasonal factors that could potentially result in limitations of ratio analysis. The incapability to
adjust the ratio analysis to the seasonality effects may lead to false clarifications of the results
from the analysis (Corporate Finance Institute, 2022).
BENEFITS OF CONTEMPORARY ACCOUNTING SOFTWARE
PACKAGES:

There are some advantages of contemporary accounting software packages as accounting data is
safely secured on the cloud. This means that the data is covered under layers of high-end encryption
algorithms, making it a lot safer than keeping it on the office shelf and the best part is that all of the data
is synced at all times. So not only is it more secure, but it’s also fresh. When using cloud accounting
software, if newly created journal entries don’t balance, the system will notify you immediately and
highlight the potential error. This way, you’ll be warned of the error before even obligating to it. Lastly,
all the financial data including journal entries, financial statements, and reports is online. Whatsoever
invoice, record, or entry is created, it is all kept under layers of encryption in the cloud. Easily
accessible by anyone that has the right permission. Examples of contemporary accounting software
packages include FreshBooks, QuickBooks online and Xero.

CONCLUSION AND RECOMMENDATIONS:

After calculating the financial statement, it is better to know about the sales, assets and its receivables
and to know how much profit has been made within a year. So, I would recommend you to focus on
your target.

Regards,

Graduate Trainee

REFERENCES:
Anderson, C. (2023). What is The Purpose of Accounting? [online] Bizmanualz. Available at:
https://www.bizmanualz.com/improve-accounting/purpose-of-accounting.html.
Unacademy. (n.d.). Scope of Accounting. [online] Available at:
https://unacademy.com/content/ca-foundation/study-material/accountancy/scope-of-accounting/.
Studocu. (2023). [Solved] A critical evaluation of the accounting function in informing - BTEC
Level 3 - Studocu. [online] Available at:
https://www.studocu.com/en-gb/messages/question/3919197/a-critical-evaluation-of-the-
accounting-function-in-informing-decision-making-and-meeting.
Indeed Career Guide. (n.d.). 12 Branches of Accounting: What They Are and What They Do.
[online] Available at: https://www.indeed.com/career-advice/career-development/accounting-
branches.
Corporate Finance Institute (2022). Limitations of Ratio Analysis. [online] Corporate Finance
Institute. Available at: https://corporatefinanceinstitute.com/resources/accounting/limitations-
ratio-analysis/.