AP Draft
AP Draft
Accounting’s purpose is to collect and present the business's past activities, including its
financial situation, operating efficiency and cash flow. It continuously provides data about the
business's performance to managers to help them grasp the business's performance and make
decisions on how to manage the business and invest in the business (Bragg, 2023). Another
purpose is to provide verified information on a company's financial resources and obligations.
Assisting companies in meeting their tax, legal, and financial obligations. Ensuring the certainly
of legal rules and preventing any potential legal or financial risks. Besides, accounting provides
trustworthy data on a company's revenue trends and sources. In addition, in the form of various
disclosures, accounting provides trustworthy information to third parties, allowing them to assess
the business's financial health and credibility. It is used by internal and external stakeholders
through the information provided as its assets, liabilities, and equity. At the same time, it helps
stakeholders evaluate the enterprise's solvency and ability to generate profits. Accounting offers
dependable data regarding the alterations in a company's financial and investment operations
(Tamplin, 2023).
Technical skills are important for an accountant. There are some following skills
such as using accounting software. With many smart features and maximum user support,
accounting software brings many benefits to businesses because of its simplicity, speed
and automation. In addition, accountants must be equipped with knowledge of
spreadsheet software, typically Excel. You will be able to organize and manage data in
Excel before pursuing a career in accounting. In addition, soft skills are very important
skills in accounting, including communication. Accountants must be able to communicate
successfully verbally and in writing with a number of stakeholders, including clients,
managers, and other team members. It is important because of the ability to clearly and
accurately explain complex financial information. Accountants must possess the capacity
for critical thought and unbiased information analysis. This is crucial because it enables
accountants to recognize risks, evaluate them, and offer financially smart
advice. Effective problem-solving skills are essential for accountants. Business always
need a creative problem-solver who can assist in meeting their needs and find innovative
approaches to advance their organization. Besides, when the volume of work for
accountant increases, time management skills are very important in keeping track of your
time and remember that there are stringent deadlines for submitting taxes and reports.
https://www.wallstreetmojo.com/scope-of-accounting/
P2
- Integrity: Accountants must always be truthful and straightforward in all business and
professional relationships.
- Objectivity: Accountants must steer clear of conflicts of interest and exercise objectivity
when making professional decisions.
- Professional competence and due care: Accountants are required to keep up their
professional knowledge and abilities as well as use due diligence in their work.
- Confidentiality: Unless there is a legal or professional obligation to divulge it,
accountants are required to keep secret information private.
- Professional behavior: Accountants are required to conduct themselves professionally at
all times.
Many nations have their own codes of ethics for accountants in addition to the IESBA Code of
Ethics. For instance, the American Institute of Certified Public Accountants (AICPA) in the
United States maintains a code of conduct for its members.
Accounting professionals who transgress ethical standards may face disciplinary action from
their professional organization or possibly legal action.
Here are some concrete instances of what is expected of accountants in terms of ethics (AICPA,
2023):
M1 (Weetman, 2003)
The people who use accounting information the most are business executives such as
managers. Managers have a need to use large and widespread sources of accounting
information to evaluate the financial performance of the business and learn from it.
Accounting helps them plan budgets and forecasts for the future of their business as well
as develop and implement strategies to achieve company goals.
Information that enables lenders to predict timely repayment of their loans and associated
interest is of interest to them. To assess the creditworthiness of a borrower, lenders look
at a borrower's accounting information to assess its financial health and its ability to
repay a loan. They may impose terms (known as loan covenants) requiring the company
to keep its total borrowing within allowable limits. The financial statements might show
that the loan covenant requirements are being fulfilled. Borrowers may be asked to
provide recurring financial statements by lenders. In this way, the lender can keep tabs on
the borrower's financial health and spot any early warning indications of financial
trouble.
Employees interested in data that enables them to evaluate the organization's capacity to
offer compensation, retirement benefits, and job prospects. Because the employer
frequently offers a pension fund, employees frequently remain engaged in the company
even after they have retired from employment. The ability of the employer to meet wage
agreements, working conditions and terms of employment of various groups of
employees, job security, and the contribution made by employees in other divisions of the
organization are some of the topics that are likely to be of interest to employees. Much of
this is special and detailed information. Employees may look to financial statements to
confirm information provided previously.
Customers are interested in learning about an entity's future, especially if they have a
long-term relationship with it or depend on its success. Customers need information on a
variety of topics, including the availability of the goods and services being supplied now
and in the future, their prices, other product specifications, and the terms of the sale. The
financial statements offer helpful assurance of the business's dependability as a going
source of supplies.
Suppliers of products and services, also known as trade creditors, are interested in
information that will help them decide whether to sell to the entity and whether they will
be paid their debts on time. Suppliers and trade creditors want to be certain that their
clients will have the financial wherewithal to repay them in full and on schedule. They
evaluate their clients' financial health using accounting data, including profitability,
liquidity, and leverage ratios. Companies have started to cooperate more closely with
their suppliers in recent years, creating "partnership" agreements that allow both parties'
operational and financial strategies to be coordinated by laying out the quantity and
delivery schedule for the goods and services needed. These agreements heavily rely on
confidence, which can be gained in part through the reliability of financial statements.
P6:
Firstly, I will predict the receipt cash each month based on the estimated sales revenue. Sales
revenue will include cash sales and credit sales. It is predicted that the credit sales will be paid
after 2 months. Depend on scenario 1, sales revenue will decrease in February while increasing
sales volume per month. In scenario 2, increase marketing budget each month, from there
generate more sales revenue. Turning to cash paid for purchases, based on the gross profit of
35%, I will calculate the costs to pay for purchases. Next, cash paid for commisions: 80% of
sales revenue will be generated by sales people. The commission paid to the seller will be 6%
commission on sales revenue. Commission is paid one month after the sale is agreed upon. I will
calculate the total costs that need to be paid including cash paid for purchases, commissions,
salaries, equipment, leasehold property, motor vehicle, overheads, marketing and operating
expenses. After calculating the total fees collected and total fees spent, I will calculate net cash
flow. The ending balance will be calculated from available equity capital and first month's net
cash flow. In the following months, the opening balance will be calculated based on the ending
balance of the previous month and the net cash flow of that month. In short, I will calculate the
ending balance for all months.
P7
Budgeting has several benefits. You may identify and maintain focus on your long-term
goals with the use of a budget. You can monitor your progress, set up objectives, and save
money by using a budget to see how much you make and spend (Bell, 2023). Making a budget
compels you to pay attention to how you spend money closely. Realizing that you are wasting
money on pointless purchases is beneficial. Through an analysis of your budget, you can
effectively adjust the operations of your organization (Bell, 2023). Creating a budget ensures that
the company has the resources necessary to meet its objectives. By budgeting in advance, you
may identify the projects and teams that require additional funding and identify areas where you
can make savings (Cote, 2022). Better control over your cash flow is another benefit of
budgeting. You can foresee any gaps or excesses in your finances and make the required
adjustments before it causes issues by predicting your income and expenses (Team, 2023).
On the other hand, the budget also has its limitations. Estimating expenses and income in
a budget requires making a lot different assumptions. Actual costs could differ dramatically from
anticipated costs with any change in the macroeconomic environment (Borad, 2022). Budgeting
can be an expensive, labor-intensive, and time-consuming process because it needs a bigger
group to provide the most precise estimations (Borad, 2022). Budgeting is supposed to be based
on numbers. Its primary focus is on increasing the company's earnings or the quantitative side of
the business. Subjective or qualitative factors like the company's clientele and service caliber are
not taken into account. Despite not really being included in the budget, these are taken for
granted as part of it. Thus, client needs are not always taken into account while budgeting
(Borad, 2022).
Accounting standards are authoritative declarations of how specific types of transactions and
other events need to be represented in financial statements; as a result, adherence to accounting
standards is typically required for financial statements to present a true and fair view.
Accounting standards increase the financial reporting's openness across the board. They outline
how, when, and when and how to measure and present economic events. Accounting standards
make sure that pertinent and correct information about the entity is delivered to external entities
including banks, investors, and regulatory bodies. These technical declarations have established
the parameters for financial reporting measures and secured reporting transparency (Kenton,
2023). The Generally Accepted Accounting Principles (GAAP), which serve as the standard for
accounting in the United States, were created to ensure that all accounting procedures of all
businesses could be readily compared. Its goal is to make financial information more
understandable, consistent, and comparable. Essentially, it is a collection of uniform accounting
guidelines published by the Financial Accounting Standards Board (FASB). US public
corporations are required to have their accountants prepare their financial statements in
accordance with GAAP. Establishing accounting rules to follow will save the company time and
money in the long run. Additionally, compliance with accounting regulations helps detect risk
before it becomes a threat. Complying with financial standards helps protect your company from
legal trouble. Customers can sue your business if they learn that you are not following the rules
designed to protect and maintain the security of their financial information. Complying with
financial regulations and maintaining accounting standards is a must. To comply with standards,
you must be aware of what they are. Review any applicable guidelines, such as GAAP or SOX,
and stay up to date on any industry-specific rules. Generally accepted accounting principles
(GAAP) are a set of accounting regulations and standards that businesses routinely follow when
preparing financial reports. The SOX Act was passed to improve investor confidence by
reforming one of the key areas: Accounting. In addition, SOX increases penalties for businesses
that engage in financial misconduct. SOX is the law, while GAAP is a set of generally
recognized accounting rules (Multiview, 2023).
Technical skills are important for an accountant. There are some following skills such as using
accounting software. With many smart features and maximum user support, accounting software
brings many benefits to businesses because of its simplicity, speed and automation. In addition,
accountants must be equipped with knowledge of spreadsheet software, typically Excel. You will
be able to organize and manage data in Excel before pursuing a career in accounting. In addition,
soft skills are very important skills in accounting, including communication. Accountants must
be able to communicate successfully verbally and in writing with a number of stakeholders,
including clients, managers, and other team members. It is important because of the ability to
clearly and accurately explain complex financial information. Accountants must possess the
capacity for critical thought and unbiased information analysis. This is crucial because it enables
accountants to recognize risks, evaluate them, and offer financially smart advice. Effective
problem-solving skills are essential for accountants. Business always need a creative problem-
solver who can assist in meeting their needs and find innovative approaches to advance their
organization. Besides, when the volume of work for accountant increases, time management
skills are very important in keeping track of your time and remember that there are stringent
deadlines for submitting taxes and reports.
M4
As we see in scenario 1, it is understandable that the negative cash flow in the first month is
because the business needs to invest money in many items to start a business. In the next five
months, we only witnessed negative cash flow in February and April. The remaining months all
have positive cash flow. But in the 7th month, we can see a very large negative cash flow. This
can be explained by the high fixed costs such as leasehold property and further equipment
purchases. Low sales revenue is also the cause of negative cash flow in some months because the
strategy of reducing prices by 20% to increase sales by 10% is ineffective. Besides, allowing
customers to repay debt after 2 months also prevents the company from having enough capital to
reinvest on time.
In scenario 2, we can see that the ending balances of the 12 months are all positive. Although in
the first 2 months and July, the net cash flow was negative, it did not affect the closing cash
balance. That's because they increased their marketing budget. That's because they increased
their marketing budget. This strategy proved effective as it helped increase sales by 20%. Income
from sales is very high, helping businesses afford other expenses.
In general, to solve the problem of negative cash flow causes difficulties for businesses. There
are a few ways to solve the problem. Boosting sales revenue by identifying areas for
improvement and implementing marketing strategies that will bring more clients and raise
company's sales revenue. In addition, setting invoice payment terms to improve cash flow is
necessary. In order to get money for business operations more quickly, businesses should try to
shorten the number of customer payment days to the lowest possible (Cameron, 2023). Besides,
businesses may turn to funding or investments to help offset losses. They can go to a bank and
apply for a small business loan. In addition, the Small Business Administration supports loans to
small enterprises that satisfy SBA lending requirements, which makes it simpler to obtain a bank
loan (Cameron, 2023). Moreover, you're not overspending for the goods and services your
company needs to operate by evaluating the operational expenses of your present business. To
obtain incentives or extend the period for which the company must pay its debts, try to come to a
better deal with suppliers (Cameron, 2023).