Conducts an in-Depth Analysis on Accounting

Question: Discuss about the Conducts an in-Depth Analysis on Accounting. Answer: Introduction: The report mainly evaluates the significance of management and financial accounting, which are used by companies to make adequate decisions. In addition, the study also focuses on evaluating the significance of latest softwares that could improve the financial growth decision of an organization. Furthermore, the study also shows the overall classification of cost, which might help organizations in making adequate decisions. In addition, the novices with the help of examples are able to portray the objective of preparing budgets, standard cost and variance analysis. Lastly, the study sheds light on favourable and adverse variances of budget, which might help organizations in making budgets that are more suitable for its future growth. Evaluating the need for investing in the latest software of management accounting as well as financial accounting in an organisation: In addition, with the help of latest softwares in management and financial accounting J Sainsbury Company could effectively increase the efficiency of the report generated by accounting software. Moreover, the boost in technology has mainly helped in increasing the overall accuracy of analyzing the demand and sales on particular seasons. Furthermore, with the help of this advanced softwares Sainsbury could effectively minimize the overall expenditure and maximize its profitability. Gogus and Ozer (2014) argued that continuous investments in latest softwares could increase the overall expenditure of the company and might affect its cash reserves. However, Boulianne (2014) stated that adoption of latest technology in the business could help in improving the overall decision-making process and might increase investment scope of an organization. Financial accounting Management accounting It mainly helps in communicating financial position of the company It helps in the decision making process of the company It is a mandatory system that need to be adopted by organist ions It is not mandatory for organizations Financial accounting mainly regulates under GAAP, IAS and IFRS It is does not have any kind of guidelines or regulations Its only portrays the past transactions conducted by the company It mainly portrays the overall future growth estimated by the company It is prepared for external audience like shareholder, government etc of an organization It is mainly prepared for internal directors committee of a organizations Table 1: Showing the difference between financial and management accounting (Source: Taipaleenmaki and Ikaheimo 2013) Evaluating the significance of classifying costs on the basis of behaviour, function, relevance and types in business decision making: Estimating and evaluating cost in organization is a significant role, which mainly helps companies to survive in the competitive market. In addition, with the help of cost classifications companies are able to evaluate the overall expenditure conducted on different levels. In this context, Drury (2013) stated that organizations with the help of cost classifications companies are able to effectively price their products and maintain the competitive edge in the market. On the other hand, Mensink et al. (2013) criticized that wrong classification of cost could results in loss and might reduce the overall capital invested by the company. Figure 1: Showing the different Cost classification in a manufacturing organization (Source: Lopez et al. 2015) With the help of figure 1, the overall different costs that are conducted in a manufacturing company can be effectively evaluated. In addition, these classifications mainly help in evaluating the different cost, which are currently conducted by the company. Huynh et al. (2014) stated that cost classification also help management to make adequate investment and expansion decisions, which might help in improving productivity of the organization. Refer to appendix 1 for examples of cost classification. The main significance of cost classifications are as follows: Reduction in excess expenditure: In addition, with the help of cost classifications on different organizations are able to segregate the indirect and direct costs that are related to production. Moreover, theses segregation mainly helps in reducing excess expenditure conducted by the company. Lopez et al. (2012) mentioned that companies that use cost classifications effectively are able to reduce their expenditure and maximize their profits from sales. However, Wang et al. (2014) argued that cost classification is an expensive process, which is mainly conducted by organizations to manage their uncontrolled expenditure. Increase efficiency of the decisions making process: Furthermore, with the help of effective cost classifications manufacturing companies are able to evaluate different costs situated within the levels of production. In addition, cost classification also helps the management to make adequate decisions regarding adoption of new machinery or budgeting process to reduce the overall rising costs. Marshall et al. (2011) mentioned that cost classification mainly help companies to make adequate expansion plans, which might help in increasing their revenue generation capacity. On the contrary, Pan et al. (2015) argued that during an economic crises cost classification could lose its friction due to the rising expenditure and low revenue generated by the company. ABC being a manufacturing company has both direct and indirect cost, which helps in generating the required revenue. However, cost classification could help ABC Company to make adequate decisions in reducing its overall expenditure on non-productive activities. Furthermore, it could be effectively concluded that ABC Company could increase efficiency of its decisions and reduce excess expenditure conducted in its manufacturing process. Evaluating the objectives of preparing budgets with appropriate examples of operational budgets: Budgets are an essential part of planning, which help companies to identify the required liquidity needed in their production function. In addition, budget also helps in reducing the overall expenditure and improves profitability of the company. In this context, Taft et al. (2013) stated that with the help of budget companies are able in effectively managing their liquidity and productivity, which in turn increases their capacity to make sustainable profits. On the other hand, Li and Dong (2014) criticized that change in future inflation rate is not included in budgets, which in might raise projected expenditure and reduce profits of the company. Moreover, the objectives of budgets are as follows. Predicting future cash flows: The main objective of preparing budgets is to predict the future cash flows that could be conducted by the company. In addition, the estimations of future cash flows mainly help the company in maintaining the required funds, which could help in supporting adequate level of productivity. Joshua and Mohammed (2013) stated that projected cash flow from budgets mainly help companies to make relevant marketing decisions, which in turn increases its profitability and customer base. On the other hand, Berman (2015) criticized that budgets could lose its friction during an economic crisis, which in turn might reduce revenue generation capacity of the company. Evaluating Scenarios: Furthermore, with the help of budget companies are able to determine different courses, which could be taken to reduce risk from external environments. In addition, budgets also help in preparing the companies for the worst-case scenario that could negatively affect its productivity. On the contrary, Raudla (2013) mentioned that budgets only evaluates financial outcomes and does not consider external factors, which might negatively affect operation of the company. Measuring performance: In addition, with the help of budget companies are able to measure their overall performance. Moreover, companies mainly use variance analysis to measure difference between actual and budgetary figures, which in turn helps in evaluating accuracy of its budgeting process. In this context, Li and Dong (2014) argued that variance analysis is losing its friction as companies are using budgetary slack method to modify their budget and achieve targeted objectives. On the other hand, Arbatli and Escolano (2015) cited that increased variance could hamper productivity of the organization, which in might project the incompetency of its budgeting team. Allocating financial resource: Moreover, budgets also help companies to make adequate financial resource allocation decisions, which mainly help them to make the required productivity level. On the other hand, Joshua and Mohammed (2013) criticized that viability and authenticity of the budget conducted hampered if inexperienced executives have prepared it. However, Berman (2015) mentioned that sound budget could only be prepared if companies have not used any unethical measures in preparing their financials report. Income Actual Budget Difference Sales Sales - Qtr 1 45,000 48,000 (3,000) Sales - Qtr 2 37,000 44,000 (7,000) Sales - Qtr 3 44,000 48,000 (4,000) Sales - Qtr 4 55,000 53,000 2,000 Other - Total Sales 181,000 193,000 (12,000) Cost of Goods Beginning Inventory 12,000 14,000 (2,000) Goods Purchased or Manufactured 33,000 30,000 3,000 Shipping Charges 3,500 2,500 1,000 Labour (wages and payroll) 22,000 21,000 1,000 Other 2,300 1,800 500 Less Ending Inventory 14,000 10,000 4,000 Cost of Goods Sold 58,800 59,300 (500) Gross Profit 122,200 133,700 (11,500) Total INCOME 122,200 133,700 (11,500) EXPENSES Operating Expenses Advertising 1,500 1,000 500 Depreciation 2,300 2,300 - Insurance 4,000 3,500 500 Office Supplies 1,200 1,500 (300) Rent 3,600 4,000 (400) Salaries and Wages 12,000 12,500 (500) Other 3,600 3,800 (200) Total Operating Expenses 28,200 28,600 (400) Net Profit 94,000 105,100 (11,100) Table 2: Showing the example of operational budget (Source: As created by author) Determining how standard costs are used for variance analysis and discussing about favourable and adverse variances: Variance analysis is mainly conducted to evaluate the difference between actual and budgeted amount of an organization. In addition, companies use standard costing method, when actual costs are hard to derive. Furthermore, standard costing method is mainly used by manufacturing companies to derive the actual cost of production, which in turn might help in evaluating the profits derived in current fiscal year. In this context, Badem et al. (2013) suggested that standard cost method help organizations to make effective production budget and allocate adequate funds in the manufacturing process. On the other hand, Oker and AdÄ ±guzel (2016) criticized that some companies uses unethical measure in creating favourable variance to achieve targeted goals. Moreover, standard costing is mainly used as a base, which helps variance analysis to compare the actual costs of the company. Standard Cost for Tamer Manufacturing Company Particulars Per unit Amount Amount Material 10 1.8 18 Labour 6 hours 5.5 33 Overhead 4 hours 6 24 Total 20 13.3 75 Actual Cost Particulars Per unit Amount Amount Materials 1 9 2 18 Labour 7 5 35 Overhead 3 5.4 16.2 Total 19 12.4 69.2 Material Usage Variance -2 Unfavourable Labour Efficiency Variance 3 Favourable Variable Overheads Efficiency 2.4 Favourable Total variance 18 Favourable Table 3: Showing the example of Standard Cost (Source: As created by author) Table 3, mainly helps in evaluating the different variance that are favourable or unfavourable for Tamer Manufacturing Company. In addition, standard costing also uses favourable and adverse variance to determine the overall viability of cost conducted by the company. Furthermore, with help of favourable variance analysis the company is able in effectively maintaining its productivity and liquidity. On the other hand, CPA and Shi (2016) criticized that some companies uses unethical measures in their standard costing process, which in turn inflates their balance sheet. However, Oker and AdÄ ±guzel (2016) stated that with the help of standard costing method manufacturing companies are able to prepare adequate budgets, which help in maintaining the required level of productivity. The manipulation in standard cost might provide favourable variance, but negatively affect profit generation capacity of the company. Moreover, adverse variance mainly helps the company to reduce their overall cost of production, which in turn might help in improving its overall profitability. In addition, the adverse variance analysis mainly indicates the incompetency of the accountant in determining the standard cost of a particular production process. Badem et al. (2013) cited that unfavorable variance analysis motivates the organization to make suitable changes in their administrative department, which could help in supporting its future endeavours. On the other hand, CPA and Shi (2016) criticized that standard costing loses its friction due to intense competition, which eventual reduces profitability of the company and hamper its future endeavours. Conclusion: The study mainly helps in evaluating different cost and budgeting process that could be used by companies to increase their productivity. In addition, the report also sheds light on the use of latest financial and management accounting software. Furthermore, the novice effectively evaluates the significance of cost classification, which could help in reducing overall cost of production. Moreover, the assignment also provides details on the objective of preparing budgets and an effective example of operational budget. 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