Financial Accounting and Management Accounting

TASK 1

1.1 Difference between financial accounting and management accounting

Accounting has two branches which are financial accounting and management accounting. Accounting has been elaborated as process of summarizing, recording and classifying in context of monetary aspect of all transactions of business, events and outcomes are interpreted. The financial position of the organization has been viewed by financial accounting to different parties and in turn management accounting has the main objective of both information with respect to manager must be qualitative and quantitative, which will helps in assisting decision making and it will tend to maximise profit (Financial Accounting vs Management Accounting,2018). The role of both accounting is to ensure about progress of management for better future. In context of helping management, management accounting gives broader aspect as compared to financial accounting. Financial undertakes responsibility of observing that how company is operating financially. Generally it has been created for major stakeholders and some potential investors who observe financial accounts and takes decision in context of investing in organization or not.

The risk of financial accounting can be easily observed as compared to management accounting, in this context the best example is of Satyam case in which accounts were manipulated. Reports are created for internal purpose by management accounting and even risk can not be easily visible. The key difference can be explained as below :

1.2 Purpose of different financial statements in profit and not profit organisations.

The accounting department compiles all the annual documents which are termed as financial reports for elaborating financial position of organization. The financial position of both profit and non profit entity has to be created with help of financial report. The profit organizations is approaching and even focusing more on profit as non profit organizations lay special emphasis on research, services and programs which are given by organization. The main objective of annual report is to give normal cash flow of company for both non profit and profit organizations (Kavussanos, Visvikis, and Alexopoulos, 2017). Non profit gives special focus on required operations for funding which has been put for improvising community and giving support according to this need of services and programs. The profit organizations gives special emphasis on managing money which is outgoing and incoming.

The annual report of non profit entity starts from giving reminder to reader about statistics and objectives about advantages from programs, research and services. On contrary, annual reports of profit organizations starts from business owner or CEO's letter. This letter gives special emphasis on previous financial year of organisation which addresses the hardships which are known by public and even methods which has been undertaken by organization for overcoming it. The most essential concept has been described about mutual goals and objectives of company. The profit entity have various objectives which gives products of very high quality and represents high net worth and even potential investors are attracted. The non profit entity have aim of providing extensive services to needy people (Financial reports to profit and non profit entity,2018).

The ending of annual report reminds reader of all good things which are planned for presenting all customers or public as well for fiscal year which is upcoming. The non profit entity will be ending report by describing about programs or services which are very successful and ways for serving and gathering more people on broad scale. The profit entity will be describing information like launch of new products and services which will be directly aiming for more margin for business. The balance sheet of profit organization represents assets which are owned by them and can be transformed as retained earning to various shareholders. The non profit entity's balance sheet represents assets on hands which can be used for achieving further mission of company. For tracking net income profit entity uses accounting system and non profit entity traces excess of revenue on expenditures (Cooper, Ezzamel and Qu, 2017).

1.3 Determining groups of stakeholders and there requirement of various information

• Customers : These are refereed as actual stakeholders of organization as they are directly impacted by service quality and its value. The existence of business is always to serving customers. They require financial statements for knowing the financial position of that specific business in industry and the quality has been also determined for comparing with other brands (Robson, Young and Power, 2017).
• Employees :Employees get direct stake of organization as they earn income for supporting themselves and many other benefits in monetary or non monetary aspect. The business nature has been totally dependent and even employees have safety and health interest in terms of mining, oil and gas, transportation and construction etc. They require financial statements for interpretation about salary, bonus and earnings of company.
• Investors :These include debt holders and even shareholders as well. The capital has been invested in business by shareholders and there expectation is for earning certain rate of return. The financial statements play major role in decision of investing, so it is most essential requirement of investors. The concept of value of shareholder is most important concern.
• Suppliers :The goods and services which are sold by vendors or suppliers usually rely on generating revenue of business which is ongoing. There requirement is need of health and safety because they are directly linked with operations of organization (Types of Stakeholder,2018.).
• Communities : In large business they have huge contribution as stakeholder. These get impacted by broad range which includes health, safety, economic development and even job creation. They need to estimate impact of employment, spending and income in that specific area.
• Government : The major stakeholder are considered as government in business. The taxes are collected by various corporate, payroll taxes and more spending which has been occurred by organization on goods and services. The overall Gross domestic product has been benefited by government which is from contribution of organization.

TASK 2

2.1 Stratford Yachts Limited performance is terms of profitability and liquidity

• Net Profit margin :The Stratford Yachts is indicating net profit margin in 2015 as 11% which is higher than next year 2016 as 8%. It represents about net income gained along with total sales which has been achieved. As per net profit margin of industry standards it is not converting sales very effectively into actual profit. It should work on increasing sales (Mørch and et. al., 2017).
• Return on capital employed : It indicates amount of profit which has been employed on capital which has been generated. In 2015 it was above the industry standards but there was sudden decrease in 2016 was 22.5. The organization must try make operations in very efficiently manner so it will reflect in return and match the industry standard.
• Asset turnover ratio : It is represented as efficiency ratio which records ability of organization for generating sales with assets. The Stratford Yachts ha used its assets in very efficient manner. In 2015 it met the benchmark and in next year it has excess the standards of industry.
• Accounts Receivable Collection period :Usually it compares receivables which are outstanding to business to its total sales. The company has very strong position in receiving accounts as it is more than industry standards that is 83 days so organization should utilise this money for generating fund or more resources so that money will be not blocked (Khamidah, Gagah and Fathoni, 2018).
• Current ratio : The current ratio reflects the liquidity position of organization. The standard of specific industry is not matching but it is improving from year to year. In small duration it will match industry standards that is 1.5.
• Acid test ratio : It is indirectly linked to current ratio, it has more of assets which cannot be easily converted into cash so it cannot met standards in both year 2015 and 2016.
• Gearing ratio : It is referred as solvency ratio, as it is exceeding the industry standards. It has ability to pay dividends in very efficient manner and large quantity.
• Distribution Costs as % of Sales :It can be elaborated by dividing cost of distribution to sales revenue. The organization is not increasing it sales in this mentioned aspect. In 2015 and 2016 it is stable and less than industry standards which has minor variation (Minnis and Sutherland, 2017).
• Administrative Costs As % Of Sales :The cost of administration and sales revenue indicates the performance. It is similar to distribution cost which is not improving in both year and consists of minor variation.
• Labour Cost As % Of Sales :it indicates sales with respect to variable cost. The organisation has met standards in 2016 as it was having minor variation in ratio. For meeting standards organization has increase direct labour along with sales revue so it had exceeded the industry standards.
• Operating Costs As % Of Sales : The cost of operation which generated sales has been elaborated in this ratio. The industry standards has been exceeded in 2016 by increasing cost of operation and along with sales revenue has been also increased as compared to previous year.

Thus, Financial position in terms of profitability is very stable but according to liquidity it is not able to generate good position in industry. The debt position has not been met by Stratford Yacht Limited in other words short term debts are not covered easily as it can be elaborated by liquidity ratios (Cascino and et. al., 2014).

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CONCLUSION

From the above report it has been concluded that financial resources should be managed in very appropriate manner because its represents the relevant information which helps in attaining goals and objectives. The above report has helps in understanding the importance of financial statements as it reflects the financial position of organisation. It has shown that financial accounting and management accounting sounds similar but they have their own roles and function such as dependency and all. Further it has been summed by providing different stakeholders have their own view on financial information and their requirement. The financial performance in context of profitability and liquidity has been determined in this report which reflects that in terms of profitability organization is performing well but on contrary its liquidity position is not maintained very well.

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REFERENCES

• Ashwell, M., 2014. Managing Financial Resources.Developing Skills for Business Leadership, p.401.
• Cascino, S. and et. al., 2014. Who uses financial reports and for what purpose? Evidence from capital providers.Accounting in Europe.11(2). pp.185-209.
• Cooper, D. J., Ezzamel, M. and Qu, S. Q., 2017. Popularizing a management accounting idea: The case of the balanced scorecard.Contemporary Accounting Research.34(2). pp.991-1025.
• Kavussanos, M. G., Visvikis, I. D. and Alexopoulos, I., 2017. Managing Financial Resources in Shipping. InShipping Operations Management(pp. 153-175). Springer, Cham.
• Khamidah, A., Gagah, E. and Fathoni, A., 2018. ANALYSIS OF THE EFFECT OF GROSS PROFIT MARGIN (GPM), EARNING PER SHARE (EPS), DEBT TO EQUITY RATIO (DER), NET PROFIT MARGIN (NPM) ON RETURN ON ASSETS (ROA)(Study On Property and Real Estate Companies listed on the Indonesia Stock Exchange Year 2012–2016).Journal of Management.4(4).
• Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence from small commercial loans.Journal of Accounting Research.55(1). pp.197-233.
• Mørch, O. and et. al., 2017. Maximizing the rate of return on the capital employed in shipping capacity renewal.Omega. 67.pp.42-53.
• Robson, K., Young, J. and Power, M., 2017. Themed section on financial accounting as social and organizational practice: exploring the work of financial reporting.Accounting, Organizations and Society.56.pp.35-37.

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