Financial and Managerial Accounting of the Business Enterprise - Essay Example

?Introduction This paper is based on our efforts to document the value of accounting as a system and of the accountants who work on it to business enterprises. The goal of writing this paper includes the identification of concrete uses and application of data that have been generated through both financial and managerial accounting. The specific tasks and duties of an accountant are detailed herein, based on answers provided by a real-life accountant who has been requested to be a part of this research endeavor. An account of the owners of the business enterprise - as the employer of the account - is also included. Methodologies Used A preliminary literature study enables a research to get a feel of the topic to be covered (Goddard & Melville 2007: 19). Thus, secondary research has been undertaken after the identification of the research topic and the specific industry to focus on. The researcher has utilised textbooks written by renowned experts in the field of accounting for the purpose of gathering information that would be confirmed or negated in the later part of the research when the interviews with selected parties have been concluded and the results thereof have been orderly put together. After doing some secondary research, the particulars of the enterprise to be made subject of the research were next planned out. Finding the right enterprise was, indeed, a challenge that had to be dealt with. After all, managers or owners of business enterprises are usually the kind of people who are busy and are keen on never wasting their time on unimportant things. They also are likely to turn down the proposition to have their enterprises covered in a research paper such as this, especially if they see that it offers them no personal or commercial advantage. (Saunders, etc. 2007: 5) Requests that interviews be granted were sent and upon obtaining such permission, the researcher next worked on composing the questions to be asked. It has been established that in the conduct of interviews, a researcher must keep in mind what it is like to be in the shoes of the subjects interviewed (Andrews 2003: 1). Doing this would serve as an effective way to check on the quality of questions asked and the manner in which they are asked. Only relevant questions must be asked and a polite manner must be consistently adopted throughout the interview. These inputs from relevant sources have served to guide the researcher throughout the interviewing processes that had to be carried out as an integral part of this research. Interview answers - which represent data gathered from primary sources - then had to be compared with the information gathered from the textbooks - which, in turn, represent data from secondary sources. Similarities and differences were processed to get to findings and to deliver the results of this research. Results The subject of the research is one of the small-sized diners of London that is called "Sunday Diners." Located in the busy district of the city, it caters to college students and young professionals who drop by for quick meals or drinks on their way to school or to work. The diner's accountant and owner both graciously consented to be interviewed as their unique way to contribute to an important school project of one of their regular customers - the researcher. The latter undertook the interview procedures by visiting the diner during its less hectic hours for a week. The accountant, Miss Elizabeth Jones, maintains the books all by herself. She does the cash register, the cash disbursement register, the journal voucher, the general ledger and summarizes them all monthly through the generated financial statements - the balance sheet, the income statement and the statement of changes in cash position. As if she does not yet have her hands full, Miss Jones also takes care of the subsidiary ledgers for both the accounts receivable and accounts payable of the diner. It is a good thing that the bank reconciliation statement does not anymore have to get in the way of adjusted cash balances. This is because Miss Jones makes an entry of all reconciling items at the end of each week after obtaining the balances per bank. While Miss Jones also handles the inventory records per books, a younger lady attends to the inventory per count. This lady, Miss Susanna Hyde, takes care of the storeroom supplies, the kitchen supplies, the food and drink items and makes sure that all purchases and releases thereof are accordingly recorded in her stock cards. Once a month, Miss Jones sets to reconcile her inventory count per books with the numbers in Miss Hyde's cards. All discrepancies are then traced and records are corrected, as necessary. While Miss Jones applies management accounting procedures in the preparation of monthly budgets, the cost-volume-profit, break-even analyses and variance analyses, she applies financial accounting in generating the monthly financial statements for Mister James Floyd, the owner, and in interpreting them through the use of financial ratios. Miss Jones works as a full-time accountant of the diner. She takes care of the accounting records as well as all other documents pertaining to the diner's transactions with the banks and the taxation authorities. She also produces financial reports for the diner's suppliers so as to secure the continuity of the credit lines extended to the diner. Mr. Floyd, in turn, acknowledges that Miss Jones is a big help to his enterprise. Thanks to her financial accounting capabilities, all the records are accurate and updated; he, thus, knows exactly how much income is generated by the diner's operations. And thanks to Miss Jones' management accounting capabilities, Mr. Floyd is well-advised on the amounts that he can afford to take out of the enterprise's bank account as returns for his investments without compromising its healthy and financially liquid state. He has noted, as well, that Miss Jones has succeeded to motivate the workers of the diner to do their share in the overall efforts to reduce overhead costs. Discussion A textbook says that managerial accounting is useful in helping managers access or generate relevant and timely information that they need to make sound decisions concerning the operations of their businesses. On the other hand, financial accounting provides both managers and external users with financial reports that detail the operating results of the business operations, the financial condition that the business is in and the general movement and supply of cash that the business has. The stockholders or owners of the enterprise, the creditors, government agencies, the suppliers and the general public are amongst the external users of financial accounting reports. (Warren, etc. 1987: 2-4) All these serve to have been confirmed by the results of the interviews conducted at the diner. In a food-service operation, food and beverage cost analyses stand out as very important accounting procedures due to the portion of the business capital that is spent on food and beverage and due to their perishable nature. (Weygandt, etc. 2009: 24) This bolsters the importance of Miss Jones' role in the diner. Without her adept management accounting skills, the diner would be wasting good money on excessive volumes of perishable inventory items. Inventory items have to be managed so as to ensure that they are all continually available to keep the operations running smoothly and to keep the costs of purchasing and storing them at the lowest possible level without adversely affecting the operations (Brigham & Houston 1998: 632) Years ago, most businesses were run under the assumption that the customer would just accept and spend their money on any product or services that happen to be offered to them; competition was then weak and customers were mostly passive. This, however, is not anymore the case during the present times. Customers now know their right to demand only the best quality and businesses have to comply to survive. (Atrill & McLaney 2009: 2) This explains why efficient analysis (e.g., analysis of variable costs) has to be regularly performed. While the diner endeavors to use premium ingredients, to serve premium food and drinks and to provide premium service to its customers, the bottom line figure has to be accurately budgeted and approximated. Based on financial ratios, the profile of a business entity can be determined in terms of its economic condition, its competitive advantages, and its unique operating, financial and investment characteristics. (White, etc. 1998: 141) This truth was confirmed by Miss Jones, who regularly computes the ratios based on the diner's financial statement figures to determine in concrete terms its liquidity level, its profitability level and its asset management efficiency. Textbooks define the T-account as a convention for obtaining the accurate ending balances of accounting entries. (Stickney, etc. 2007: 51) However, Miss Jones does not make use of T-accounts to arrive at the debit or credit balances of the various accounting entries in the diner's books. T-accounts must, therefore, be not so indispensable - it can be done away with so long as one takes utmost care to secure the right balances of accounts. Otherwise, one gets stuck with a total debit balance and a total credit balance that do not agree; this would have to mean re-computing the balances of the individual entries all over agian. Costs are budgeted based on standards that have been set for each cost item and it is said that involving more people in looking out for cost reductions generally solicit higher commitment from the workers to meet targets (Macintosh & Quattrone 2010: 26). This observation on the social dynamics that prevail in enterprises like the subject diner is well reflected in the cooperative stance of the employees therein and in the net profit figures that are periodically generated by the diner's operations. List of References Atrill, P. & McLaney, E. (2009). Management Accounting for Decision Makers. England: Pearson Education Limited. Andrews, R. (2003) Research Questions. Cornwall, UK: MPG Books Brigham, E. & Houston, J. (1998) Fundamentals of Financial Management. Orlando, FL: The Dryden Press. Goddard, W. & Melville, S. (2007) Research Methodology: An Introduction. Lansdowne: Juta & Co., Ltd. Macintosh, N. & Quattrone, P. (2010) Management Accounting and Control Systems: An Organizational and Sociological Approach. West Sussex, UK: John Wiley & Sons Ltd. Saunders, M., Lewis, P. & Thornhill, A. (2007) Research Methods for Business Students 4th Ed. England, UK: Pearson Education Limited Stickney, C., Weil, R., Schipper, K. & Francis, J. (2007) Financial Accounting: An Introduction to Concepts, Methods and Uses. Mason, OH: South-Western Cengage Learning Warren, C., Reeve, J. & Duchac, J. (2009). Managerial Accounting. Mason, OH: South- Western Cengage Learning Academic Resource Center Weygandt, J., Kieso, D., Kimmel, P. & De Franco, A. (2009). Hospitality Financial Accounting. New Jersey: John Wiley & Sons, Inc. White, G., Sondhi, A. & Fried, D. (1998) The Analysis and Use of Financial Statements. New York: John Wiley & Sons, Inc. Read More