Jan 12, 2018 in Business

Finance for Managers

There are various purposes of keeping financial records in the business. Firstly, they are used for tax preparation purposes. They are useful in preparation of tax and filing in the case of auditing purposes. The records constitute of firms and personal records necessary for filing taxes on sales and income respectively (Blake, 2013). Moreover, financial records are required by lenders in order to assess the firm's financial stability before making or extending new loans. Financial record keeping especially those about the previous performance, assist the managers in managing, supervising and evaluating the business performance. Finally, financial records provide documentation in case of any disputes or lawsuits (Media, 2011).

There are various requirements in financial record keeping. According to the law, every firm should keep financial records. Financial business records are kept for five years, minimum and the responsibility to keep the records continue even after individual's retirement from the business. The language used in the financial records should be plain English (Wheelan, 2010).

Financial information is recorded using several techniques, they include: Manual recording - this is recording financial information on an exercise book. It is an old fashioned method. Secondly, there is electronic recording; this is a modern method of recording financial information through the use of computer or cash register. There is also the use of Day Books; this is books of accounts that have formats of recording the transactions. An example is a cash book. Finally, there are the accounts, they include financial statements or Trading, profit and loss accounts (Kimmel & Weygandt, 2011).

The IFRS are issued by the IAASB and accepted by the Financial Reporting Council. The requirements are for large and medium sized businesses. In financial reporting, financial statements should be very accurate to avoid giving misleading information. Therefore, financial statements should be prepared according to the International Financial Reporting standards, National Accounting Standards or any other accepted financial reporting framework (Elliot, 2008).Stakeholders use financial statements to check whether their interests in the business have been taken good care of and if the business has utilized the available resources appropriately (Shim, 2008). Moreover, they use the information obtained from the financial statements to determine the competitiveness of their business and its profitability. The profitability of the business clarifies whether the operation of the business was appropriate (Shim, 2008).

The differences between financial and management accounts are; Management accounting scrutinizes and gives information about cost to the internal executives for controlling, planning and decision making purposes while financial accounting provides information to creditors, shareholders and other external users of financial information. Finally, management accounting focus is on the present and the future while the focus of financial accounting is on the history (Hansen & Mowen 2000).

Budgetary control compares actual outcomes with the budgets. The procedures followed in budgetary control include; policy formulation - this gives the foundation of the construction of the budget. In this step, functional policies are prepared in advance. The next step involves forecast preparation. Forecasts are made considering the policies formulated and with respect to each function. The step that follows is budget preparation where forecasts transforms into a written document used for management rationale (Cave, 2005). Function budgets give guidelines for the realization of the objectives. Finally, there are the forecast combinations. Development of the budgets happens through the main budget and various combinations and permutations procedures are put into account and developed. In regard to this, the budget that is most preferred is the one that yields maximum benefits (Cave, 2005).

There are two examples of costing methods used for pricing purposes. Firstly, there is the Price Multiplier Technique that is used widely by most businesses. It doubles or even exceeds the double wholesale cost. It enables a business to maximize its profits (Hansen & Mowen, 2000). The other method is the competitive Market Rates where businesses price their products depending on the cost of goods of their competitors. The method helps firms in competing in the market.

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