Advantages of Accounting
It is a systematic and comprehensive process to identify and record the financial transactions relating to the business. Accounting is just not about recording the financial data but it also entails classifying, summarizing, analysing, interpreting and reporting of such data in the form of relevant information. It helps the firm to know to determine its profit and loss by recording appropriately all the incomes earned and expenditures incurred in the business for a particular period. It records the accounting details of all assets and liabilities of the entity along with the details of the owner’s capital (Godfrey, 2010).
- It helps in providing financial information about the business:
Process of accounting convert the raw accounting data into relevant financial information that can be used by various users of the financial reports (Pysh & Brodersen, 2014). Accounting is basically recognised as the language of business which is used by the business entity to communicate with its stakeholders about the financial position of the company. Accounting enables the manager to determine the profitability position of the company.
- Accounting process helps the managers:
Accounting helps the managers in various ways. Also, it helps them in setting the goals and objectives of the company. It provides the necessary and relevant information to top level managers so that they can devise the appropriate strategies and policies for their business to operate and grow successfully.
- It also serves information to evaluate the performance of data:
Accounting information serves the data to business managers to evaluate the effectiveness of the business by comparing financial results of the company with other firms of the similar industry or the results of two years of similar business or the actual results compared with the planned results in terms of profitability, liquidity, solvency etc.
- It helps the managers in making sound decisions:
Accounting information carters the needs of the managers to have sufficient data to make several economic decisions.
- Accounting Information can also be used as legal evidences:
There are various regulatory bodies that requires firms to prepare the financial statement using the accounting system as per their regulatory framework and thereby increasing the authenticity of financial information and hence this information can be served as a legal evidence in various cases.
- It provides information for business valuation:
Accountancy process helps in determining the correct value of the business through the use of various methods like net asset method, dividend or earnings models etc.
The system of accountancy merely takes into consideration the financial data and does not incorporate the non-financial information in the books of accounts and financial statements of the entity. Non-financial data like the reporting of company’s initiatives towards fulfilling the corporate social responsibility etc.
- Use of unrealistic assumptions or estimates:
Many a times, the estimates that are made in the accounting function are based on the unreliable or incorrect data which leads to provision of misleading financial information to the users.
- Information provided by it can be manipulated:
Accounting information is often manipulated by the management of the entity to indulge in the practices of earnings management when they have the motives like personal profiteering (Shaub, 2011).
|
Revenue |
$ 14,390.00 |
|
|
Other Income |
– |
$ 14,390.00 |
|
Total Revenue |
$ 14,390.00 |
|
|
Operating Expenses |
||
|
Rent |
$ 2,740.00 |
|
|
Salaries And Wages |
$ 7,145.00 |
|
|
Supplies Expenses |
$ 580.00 |
$ 10,465.00 |
|
Earnings Before Depreciation |
$ 3,925.00 |
|
|
Depreciation |
$ 665.00 |
|
|
Earnings Before Interest And Tax |
$ 3,260.00 |
|
|
Interest |
$ 45.00 |
|
|
Net Income |
$ 3,215.00 |
|
Owner’s Capital (as given ) |
$ 10,640.00 |
||
|
Add |
Net Income |
$ 3,215.00 |
|
|
Less |
Drawings |
$ 800.00 |
|
|
Balance sheet Statement of Financial Position |
|
|
|
|
Current Assets |
|||
|
Cash |
$ 7,680.00 |
||
|
Accounts Receivables |
$ 810.00 |
||
|
Supplies |
$ 1,160.00 |
||
|
Prepaid Rent |
$ 1,965.00 |
||
|
Total Of Current Assets |
$ 11,615.00 |
||
|
Non-Current Assets |
|||
|
Equipment |
$ 11,400.00 |
||
|
Accumulated Depreciation |
$ 840.00 |
$ 10,560.00 |
|
|
Total Of Non-Current Assets |
$ 10,560.00 |
||
|
Total Assets |
|
$ 22,175.00 |
|
|
Current Liabilities |
|||
|
Notes Payables |
$ 6,000.00 |
||
|
Accounts Payables |
$ 2,140.00 |
||
|
Salaries Payable |
$ 360.00 |
||
|
Interest Payable |
$ 40.00 |
||
|
Unearned Income |
$ 580.00 |
||
|
Total Current Liabilities |
$ 9,120.00 |
||
|
Non-Current Liabilities |
– |
||
|
Total Liabilities |
$ 9,120.00 |
||
|
Net Assets |
$ 13,055.00 |
||
|
Capital |
$ 13,055.00 |
|
Breakeven Sales (Units) |
Total Fixed Cost = 10,80,000 |
||
|
|
Contribution Per Unit 27 |
||
|
|
Therefore, breakeven sales will be at 40000 units (Cafferky, 2010).
|
Desired Sales ($)= |
Total Fixed Cost+ Desired Profit |
Current Income Proposed Income
|
Selling Price Per Unit |
$ 90.00 |
$ 90.00 |
|
Variable Cost Per Unit |
$ 63.00 |
$ 63.00 |
|
Contribution Per Unit |
$ 27.00 |
$ 27.00 |
|
No. Of Units |
45000 |
49000 (working note) |
|
Total Contribution |
$ 12,15,000.00 |
$ 13,23,000.00 |
|
Less: Fixed Cost |
$ 10,80,000.00 |
$ 11,88,000.00 |
|
Net Income |
$ 1,35,000.00 |
$ 1,35,000.00 |
Therefore, additional 4000 units to be sold to achieve the breakeven when additional fixed cost of $108,000 is incurred (DRURY, 2013).
Working Note:
|
Net Income (i) |
$ 1,35,000.00 |
|
Add: Fixed Cost (ii) |
$ 10,80,000.00 |
|
Additional Fixed Cost (iii) |
$ 1,08,000.00 |
|
Desired Contribution (I + ii+ iii) |
$ 13,23,000.00 |
|
Contribution Per Unit |
$ 27.00 |
|
No. Of Units |
49,000 |
|
Selling Price Per Unit |
(90×1.20%) |
$ 108.00 |
|
Less: Variable Cost Per Unit |
(63×1.10%) |
$ 69.30 |
|
Contribution Per Unit |
$ 38.70 |
|
|
Total Fixed Cost |
( 10,80,000+210,000) |
$ 12,90,000.00 |
|
Breakeven Units |
33333 Units |
Therefore, the new breakeven point will be achieved at the sales level of 33333 units.
Disadvantages of Accounting
Cash Budget
|
PARTICULARS |
JUNE |
JULY |
AUGUST |
|
Opening Cash Balance |
$ 50,000.00 |
$ 50,000.00 |
$ 50,000.00 |
|
Cash Sales |
$ 90,000.00 |
$ 2,55,000.00 |
$ 1,95,000.00 |
|
Credit Sales Cash Collection |
$ 81,000.00 |
$ 54,000.00 |
|
|
$ 87,000.00 |
$ 58,000.00 |
||
|
$ 54,000.00 |
|||
|
Total Cash After Sales Collection (A) |
$ 2,21,000.00 |
$ 4,46,000.00 |
$ 3,57,000.00 |
|
Purchases |
$ 1,50,000.00 |
$ 1,50,000.00 |
|
|
$ 1,25,000.00 |
$ 1,25,000.00 |
||
|
$ 52,500.00 |
|||
|
Selling And Admin Expenses |
$ 48,000.00 |
$ 48,000.00 |
$ 48,000.00 |
|
Dividend |
$ 1,05,000.00 |
||
|
Equipment Purchased |
$ 30,000.00 |
||
|
Bank Interest |
$ – |
$ 180.00 |
$ 394.53 |
|
Total Payment (B) |
$ 1,98,000.00 |
$ 4,28,180.00 |
$ 2,55,894.53 |
|
Balance Remaining (C)= (A)-(B) |
$ 23,000.00 |
$ 17,820.00 |
$ 1,01,105.47 |
|
Borrowed Amount (50000-C) |
$ 27,000.00 |
$ 32,180.00 |
|
|
Repaid Amount |
$ 51,105.47 |
||
|
Total Of Closing Balance |
$ 50,000.00 |
$ 50,000.00 |
$ 50,000.00 |
The process of managerial decision making in undertaken by the executives in making the strategic decisions for the business. It is a comprehensive process which involves considering and analysing several aspects of the business.to reach at a final decision. The managerial decision making is considered as the most crucial part of the business as it may involve choosing a particular option from a set of alternatives to solve a specific issue or to meet certain challenges (Goodwin & Wright, 2014). An effective decision offers the business with the profitable results, whereas an inappropriate decision may cause a business to suffer heavy losses. With each decision, there remains associated various risks and rewards and hence the managers of the business requires to employ different kinds of tools and techniques that supports their decision making process to reach as the best suited course of action or decision for the business (Wang, 2011). In order to decide on a particular option, the consideration of its costs and benefits is not the only necessary part in managerial decision making rather the business managers must also consider the qualitative factors that directly or indirectly influence the implementation of decided course of action. All the possible alternatives must be given due consideration while identifying the best judgement for the business.
Managerial decision making entails steps such as identification of purpose for which decision making purpose is carried out. It evaluates the whole purpose behind any decision making so that the suitable decision in context of that purpose can be taken (Harrison, 1995). Then comes the step of gathering information from various sources that can enable the managers to reach at a concrete decision (Dawid et al., 2016). The information can be generate from both internal as well as external sources. Considering the alternative decisions must be then conducted at the third step by considering the qualitative and quantitative factors such as organisational culture, goals and targets of the company etc. these factors influence the choice of decision to a great extent. At the forth step the best suitable alternative will have to selected and implemented after all the researches about it feasibility and other checks. The execution of the ultimate decision will involve turning the planned ideas into a practical shape. Lastly, the managers will have to evaluate the correctness of actual decision that has been made at previous step. This step is undertake to incorporate any precautions in future, if any failure is experienced in the implementation of the decision (Zsambok, 2014).
Therefore, it can be said that managerial decision making is a critical function that managers have to undertake in order to operate successfully and it entails a series of actions to implement the final decision made by them.
References
Cafferky, M., 2010. Breakeven Analysis: The definitive guide to cost-volume-profit analysis. Business Expert Press.
Dawid, H., Doerner, K.F., Feichtinger, G., Kort, P.M. and Seidl, A. eds., 2016. Dynamic Perspectives on Managerial Decision Making: Essays in Honor of Richard F. Hartl (Vol. 22). Springer.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Godfrey, J., Hodgson, A., Tarca, A., Hamilton, J. and Holmes, S., 2010. Accounting theory.
Goodwin, P. and Wright, G., 2014. Decision Analysis for Management Judgment 5th ed. John Wiley and sons.
Harrison, E.F., 1995. The managerial decision-making process (Vol. 4, pp. 1-39). Boston, MA: Houghton Mifflin.
Kinney, M. & Raiborn, A., 2011. Cost Accounting: Foundations and Evolutions, 8th Ed, Mason, OH: South-Western Cengage Learning, pp. xviii, 893.
Pysh, P. & Brodersen, S., 2014. Warren Buffett Accounting: Reading Financial Statements for Value Investing, Pylon Publishing, USA.
Shaub, M.K., 2011. Issues in Accounting Education, 26, pp. 257-259
Wang, C., 2011. Managerial Decision Making Leadership: The Essential Pocket Strategy Book. Wiley.
Will, I., What is Accounting?. Science, 4, p.16.
Zsambok, C.E., 2014. Naturalistic decision making. Psychology Press.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
