Unit 5: Accounting Principles

Unit code Y/618/5038

Unit type Core

Unit level 4

Credit value 15

Introduction
Management accounting is a profession that supports management decision making,
planning and performance management systems. Management accountants provide
expertise in financial reporting and control to assist management in the formulation
and implementation of an organisation's strategy by providing appropriate financial
information and undertaking related accounts administration.
The overall aim of this unit is to introduce fundamental accounting principles that
underpin financial operations and support good and sustainable decision making in
any organisation. Students will develop a theoretical and practical understanding of a
range of financial and management accounting techniques.
On successful completion of this unit, students will be able to assist senior colleagues
in producing and analysing budgets, drawing up simple financial statements and
using financial ratios to interpret performance. Students will also explore wider
aspects of accountancy, especially ethics, transparency and sustainability, and gain
fundamental knowledge and skills that will enable them to progress to a higher level
of study.

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Learning Outcomes
By the end of this unit a student will be able to:
LO1 Examine the context and purpose of accounting
LO2 Prepare basic financial statements for unincorporated and small business
organisations in accordance with accounting principles, conventions and
standards
LO3 Interpret financial statements
LO4 Prepare budgets for planning, control and decision making using spreadsheets.

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Essential Content

LO1 Examine the context and purpose of accounting

The accounting function in an organisation:

Different branches of accounting, e.g. financial, management, auditing, tax and
forensic accounting.
Career opportunities in accounting and roles and responsibilities, e.g. accounts
clerk, accounts assistant, qualified accountant.
Roles in commercial finance, e.g. cost analyst, business controller, pricing
professionals and the global business services, e.g. purchase to pay (P2P)
professionals and report to report (R2R) professionals.
Skills required for positions in accountancy and finance, e.g. numerical skills,
problem solving, integrity, negotiation, customer service.
Key skills and competences for accounting roles, e.g. managing the sale and
purchase ledger, ensuring accounts are up to date, supplier reconciliations,
inputting sales invoices on an accounts system and recording payments
received.
Users and uses of financial information.
Interrelationships between the accounting and finance functions of other areas
of the organisation and increasingly complex operating environments.

Context and purpose of financial and management accounting:

Purpose and scope of accounting, to include recording, reporting, and analysing
information to inform decision making.
Aims of financial forecasting and management for the organisation, including
ensuring a return on investment for the stakeholders of the organisation.
Role of supporting and new information technologies to support accounting and
decision making.
Management accounting information, including systems, e.g. cost accounting,
inventory management, job costing.
The benefits (streamline reporting, accuracy), risks and limitations (security
threats, loss of data through power outages) of management accounting
information.
Presenting financial information in a reliable, accurate, timely and persuasive
way to satisfy needs of internal and external stakeholders.
Accounting in an increasingly complex and fast-changing business environment,
e.g. increased regulation and accountability, role of International Financial

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 Reporting Standards (IFRS), risk management, reputation, sustainability,
governance.
Pros and cons of shared service centres and outsourcing accounting services.

LO2 Prepare basic financial statements for unincorporated and small business
organisations in accordance with accounting principles, conventions and
standards

The accounting concept:

The accounting concept as the foundation for all financial statements.

Capital and revenue items:

Classifying revenue and capital income and expenditures.

Producing basic financial statements:

Preparation of a profit and loss statement (income statement) and balance sheet
(statement of financial position) for unincorporated organisations from a given
trial balance.
Different types of income statements for sole trader, partnership and
not for profit organisations.
Adjustments required for accruals, prepayments, bad debts, depreciation.
Value of using digital software for accounting and preparing for financial
statements, e.g. QuickBooks, Sage, Xero.

LO3 Interpret financial statements

Importance and purpose of analysing financial statements:

To communicate financial positions and intentions with a range of stakeholders.
Financial forecasting to predict future revenues, expenses and cash flow.
Evaluating performance and effectiveness for making decisions and formulating
plans.

Ratio analysis:
Calculate profitability, liquidity, efficiency and investment ratios from given data.
Using calculated ratios to evaluate organisational performance.
Apply and critique relevant benchmarks, including time series, competitors,
sector and internal.

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 Limitations of ratio analysis:
Ratio analysis as one means of measuring and evaluating the performance of an
organisation, e.g. use of qualitative/non-financial measures.
Limitations of using ratios as a performance measurement tool.
The interrelationships between ratios.

Importance and purpose of analysis of financial statements:

The interpretation and analysis of financial statements in the business
environment.
Interpreting the relationship between the elements of the financial statements,
profitability, liquidity, efficient use of resources and financial position.
Interpreting financial statements for meeting key performance indicators (KPIs)
and sustainable performance.
Application of financial statements in different business contexts and value of
presenting to end user of the financial statements.

LO4 Prepare budgets for planning, control and decision making using
spreadsheets

Nature and purpose of budgeting:

Budgets as a key management accounting tool.
Definitions and reasons organisations use budgets.
Stages in the budgeting process, master and functional budgets.
Corrective action to inform resource allocation and decision making.

Budget preparation and budgetary control:

Importance, role and limitations of budgets in controlling activity.
Budget-setting cycle: limiting or key factors; functional budgets, cash budgets,
the preparation of sales budgets, debtors' budgets, creditors' budgets,
production cost, raw materials and finished goods budgets.
The principal budget factor and budget types, including fixed, flexible, zero
based, incremental, rolling, activity based, value proposition.
Variance analysis.
The steps for the preparation of a cash budget.

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 Producing a spreadsheet:
The numerical and other information requirements for a spreadsheet and how it
should be structured to meet user needs.
Using a spreadsheet and techniques to enter, edit and organise numerical and
other data.
How to format spreadsheet cells, rows, columns and worksheets effectively using
appropriate tools and techniques
Use of formulas and filters to enter, edit and present numerical data.
Visual representation of data and data analysis using pie charts, bar charts
and graphs.
Inserting spreadsheet data into Word® documents.

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Learning Outcomes and Assessment Criteria

Pass Merit Distinction

LO1 Examine the context and purpose of accounting
P1 Examine the purpose of M1 Evaluate the context D1 Critically evaluate the role of
the accounting function and purpose of the accounting in informing
within an organisation. accounting function in decision-making to meet
meeting organisational, organisational, stakeholder and
P2 Assess the accounting
stakeholder and societal societal needs within complex
function within the
needs and expectations. operating environments.
organisation in the context
of regulatory and ethical
constraints.
LO2 Prepare basic financial statements for
unincorporated and small business organisations in
accordance with accounting principles, conventions and
standards.
P3 Prepare financial M2 Produce financial LO2 and LO3
statements from a given statements from a given D2 Critically evaluate financial
trial balance for sole trial balance, making statements to assess
traders, partnerships and appropriate adjustments. organisational performance
not-for-profit using a range of measures and
organisations, to meet benchmarks to make justified
accounting principles, conclusions.
conventions and
standards.
LO3 Interpret financial statements
P4 Calculate and present M3 Evaluate the
financial ratios from a set performance of an
of final accounts. organisation over time.
using financial ratios with
P5 Compare the
reference to relevant
performance of an
benchmarks.
organisation over time
using financial ratios.

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 Pass Merit Distinction
LO4 Prepare budgets for planning, control and decision
making using spreadsheets.

P6 Prepare a cash budget M4 Identify corrective D3 Justify budgetary control

from given data for an actions to problems solutions and their impact on
organisation using a revealed by budgetary organisational decision making
spreadsheet. planning and control for to ensure efficient and effective
effective organisational deployment of resources.
P7 Discuss the benefits
decision making.
and limitations of budgets
and budgetary planning,
and control for an
organisation.

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Recommended Resources

Textbooks
ATRILL, P. and McLANEY, E. (2018) Accounting and Finance for Non-Specialists.
11th Ed. Harlow: Pearson.
DRURY, C. (2015) Management and Cost Accounting. 9th Ed. Cengage Learning.
SEAL, W. et al (2018) Management Accounting. 6th Ed. Maidenhead: McGraw-Hill.
WEETMAN, P. (2019). Financial and Management Accounting: An Introduction.
Harlow: Pearson.

Websites
www.accountingcoach.com Accounting Coach
Online free courses
(General reference)
www.accaglobal.com Association of Chartered Certified Accountants
(General reference)
Chartered Institute of Management Accountants
www.cimaglobal.com Tutor Resource Hub
Corporate Finance Institute
Resources
www.corporatefinanceinstitute.com Knowledge
(General reference)

Links
This unit links to the following related units:
Unit 10: Recording Financial Transactions
Unit 21: Financial Reporting
Unit 22: Management Accounting
Unit 23: Financial Management
Unit 29: Managing and Running a Small Business

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