Financial records help to monitor the expenditure as well as the gains that a business organization has made. The purpose of financial records is to submit such information to the shareholders of the business as well as other financiers of the organization. The records help them to evaluate the progress of their invested cash and assess if they are likely to suffer a loss or a profit. The requirements are that these records must be governed by both legal and ethical guidelines. They should be able to meet the organization standards and provide full evidence that transactions were made in case of any arising scandal. The records are kept in different forms which include: sales and purchases records, bank statements and cash books just to mention but a few.
The techniques that are used for recording information in financial records include the following: manual recording, electronic recording, daybooks, use of accounts, and the cash register. Manual recording involves use of a pen and a paper to record the sales and purchases of the business. Electronic recording embraces the modern technology by using computers and tills to store financial information. The method is the most preferred considering its efficiency and reliability. Day books on the other hand have columns for the quantities and the values of goods sold on a daily basis. Transactions made are therefore debited or credited on this books. Accounts are prepared in situations of credit transactions. They may also be made to show records of loss or profit of the business as well as its sells and revenues. All financial records should be audited for accountability.
The legal requirements are that business organizations should keep financial records which act as evidences in the case where a scandal arises. In addition, following the growth of the business the organizational work can only be simplified through record keeping. The organizational requirements differ with the type of organization. For instance, some businesses are formed through partnerships and therefore the signed agreement should be followed in record keeping.
Financial statements are useful to different stakeholders of the business in different ways. Managers use these records to make decisions on how to run the organization depending on the financial status of business. Shareholders use them to decide on whether to invest more or less. Financiers on the other hand use financial statements to assess how their funds are spent. The records are also important to customers as it helps them to gauge the stability of the business.
The following are the differences between management and financial accounting:
i) Management accounting is future oriented while financial accounting is based on already conducted transactions.
ii) Financial accounting is more important in a business than management accounting which can sometimes be partly assumed.
iii) Management accounting is used to make decisions that concern relationships with other organizations whereas financial accounting is used to make decisions that affect both the business itself and its external environment.
iv) Unlike financial accounting, management accounting does not consider legal and accounting standards.
The budgetary control process comprise of four basic steps: Formation of policies, forecasting the company’s future position, budget preparation and forecast combination. A comparison must be made between the actual amount available and the budgeted amount. Normally, the budgeted value should not exceed the actual value. Managers are entitled with the budgetary control process and should make the necessary adjustments which include reducing on wastage to create an effective budget.
Costing methods are used by businesses to determine the price of their goods and services. There are different costing methods. The method employed depends on the type of the business in question. Some of these methods include:
i) Contract costing – this is effective for jobs that require huge expenditures and a longer time before their completion. An example of such jobs is a road construction project.
ii) Process costing – this is employed where goods are manufactured through a series of processes. An example is the making of clothes which entails several different channels.
iii) Multiple costing – it is also referred to as composite costing. It is applied for goods that are made up of multiple parts such as the electronic appliances.
Other costing methods include: operating costing, batch costing, variable costing and unit costing among others.
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