Other than owners of the business, there other stakeholders allied to the business activity.
Stakeholders play various subordinate roles within the business environment. These may include governmental bodies, shareholders, banks, agents, and insurance bodies above others. An elaboration on each together with their interest in the business life is highly important. Firstly, the government and its various regulations play an important role to the business itself and to the customers.
For smooth business operations, the government helps to create an enabling environment for adequate business activities. This is however provided by the government through its various regulations and legislations to the business units.
Firstly, the business helps to ensure that the parties to the commercial system are in agreement to one another. The government ensures that commercial laws and authorities are adequately provided to the business units within the economy. Either, the biggest attribute to the business through the government is through taxation. Taxation activity to the businesses determines their income and operation standards. Through various taxation regulations, the business would serve differently in the commercial environment. (Thiru, 2006, p.68)
Shareholders form an important component of the business stakeholders. Shareholders contribute capital for the expansion of the business. They get benefits through capital share and dividends above others. Due to the limit factor of capital resources, business units invite persons as shareholders to join such business through capital contribution. Such capital is further used for business expansion which helps to give business units various competitive advantages at the market place.
Insurance companies play a subordinate role in the business world. Business environment is allied to a couple of operational disadvantages through various sets of risks. At the market place, risk may be classified as been political and market risks. Political risks are operational disadvantages that occur as a result of political influences to the business. Market risks would be the various operational disadvantages which occur as a result of the influence of market competition. (Barass, 2002, p.90) Both of the risks occur to be operational disadvantages.
However, the covers provided by the insurance bodies capture the influence on business risks. They act to sell various risk premiums as covers on the various risks to the business units. Through such covers, businesses are able to get various compensations which they otherwise get in the process of business operations. Insurance covers helps to safeguard the operational advantages allied to business.
The banks play predominant roles in the world of business. To the business, banks will play two subordinate roles. At one level, they are taken as providers of banking services for the business money. Due to the commercial nature of businesses, they ought to have a source of funds which should be in form of current accounts. Banks provides a safe custody for the business units. Either, business uses the provision of bank loans as source of capital.
This is because; business entities require financial authorities as source of funds for their investment activities. (Roney, 2004, p. 81 Elsewhere, survival at the market place needs proper business activities. Business plans and activities are adequately provided for by various strategies employed as management’s tools by the business. Consequently, the bank acts as a good source of such advices where they will advice the business on various investments decisions.
Business activities involve contracts. Agents perform such contracts. Agents perform tasks on behalf of the businesses. They are close representatives of the business entities in the context of business contracts. (Belkaoui, 1992, p. 57)
As the world of commercial activities and businesses continue to grow there has been a continued distinction between management accounting information and financial accounting information. By its definition, management accounting is the process through the information obtained in the accounting process within the business is used by the managers to adequately provide authentic basis which could otherwise be used for making various management decisions regarding business activities and process. Summarily therefore, management accounting information in the tool that seeks to provide the businesses with sound grounds for making decisions. (Chrystal, Lipsey, 1997)
On the other hand, financial accounting is the art of preparing statements on the financial parameters about the organization which is to be used by the various stakeholders to the business. These may include government agencies, the shareholders, banks, business owners, suppliers, and stockholders above other parties. We can therefore state that financial accounting is a subset of management accounting. However, management accounting is solely used by mangers to make various decisions about the organization. This relates to internal management decisions above the business.
The basics of financial accounting are based of the financial grounds of the business activities. The aim of the information form this is served the interests of various stakeholders of the business.
At one point, financial accounting information can be said to serve the interests of different parties. However, the basics of this information to the stakeholders are not to formulate decision about the business. It serves the interest of the parties in use differently in regard to the variation in their use.
However, management accounting is important in formulating various decisions about the organization. Formulation of decision helps the organization to continue adequately in competition within the market through the establishment of various operational activities. Through the information got form various accounting activities of the business, the managers are able to formulate different issues related to management.
In the investment portfolio, the entity has various goals and objectives aimed for. To achieve such, a package or strategies should be employed. However, such strategies will only be the results of the decisions arrived at through which the management would like to compete within the market. The subject matter in any organization is the achievement of the various goals and objectives in correspondence to the nature of the market. (Culp,2001, p.95)
For financial accounting, information is used by various stakeholders for different results. This may involve, functions by government, bank, sovereignty by the shareholders above others uses. Through such correspondences, they are however able to use this information for different purposes. Though this information is available for use by the stakeholders at personal grounds, management accounting is on the contrally used by the internal management for relatively internal management issues. . (Bhimani, 2003, p.46)
Considerably therefore, management accounting and financial accounting information should be two distinct displines within the business. This is because of the diversity of the use where one is used for internal management (Management accounting) while the other is used for the external management purposes. Ideally, financial information will be used by different stakeholders to formulate various decisions which should solely serve their personal interests. However, management accounting is solely used to formulate decision about the internal management.
- The balance sheet is used to state/ elaborate on the financial worth of the business. It shows the amount of assets and liabilities to the business. It can be defined as the financial statement that shows the level of assets and liabilities to the business. However, the balance sheets have various limitations in attempting to portray the assets and liabilities of the organization. This is through material misstatements of various variables in the statement.
Firstly, it is highly misguiding in terms of assets which are intangible. Limitations of the balance sheet activities in providing a picture of the assets and liabilities may be argued under two perspectives. These are the understatement and over statement effects in relation to the actual value of the accounts. Under statement is the condition that is revealed in the balance sheet statement in which the figure is portrayed to be relatively of a lower value then it is actually depicted. (Bannock, 2002, p.49)
This effect occurs due to various activities that lead to the reduction in their value. These could be due to overstatement in the depreciation value, increasing value of business creditors above other activities that decrease the credit side of the balance sheet. Contrally to this, overstatement of the balance sheet is a limitation to its requirement. This occurs when material in this statement are over-valued to depict an increased value on the credit side.
Any limitation in the balance sheet is attached to various weaknesses. With understatements, the valve of the business worth is depicted to be low. Consequently, the shareholders capital is also depicted to be lower. For overstatement, the business worth is depicted to be higher than it could actually be. (Drejer, 2000)
However, misstatements in the balance sheet could be done to achieve some management goals such as to escape high competition within the market by giving the competitors a wrong impression, (understatement) or reducing tax levies form the government. Overstatement could be used to provide a positive impression about the business in order to attract a higher capital investment form new shareholders. Accounting information argues that, balance sheet misstatement could be either intentional on un-intentional.
- The cash budget will illustrate the various level of liquidity in the Sam’s investment plan. Cash statement to be included in the cash budget will include capital, cost of purchases, sales revenue and the cost factors in the business process.
Value of stand = (1000 per year = 1000/12 per month of £84.7 per month)
- From the above cash budget, various decisions can be drawn out. In all this activities, Sam has failed to have optional costing procedures for his business activities. Optimal costing is important for efficiency in costing system and economical methods of business performance. However various activities accompany his budget which lead to un-optional cost facility.
The relationship is drawn between the capital value and the consequent expenditure.
Firstly, capital input is important at the initial start-up of a business unless in the future during the needs for expansion. The loan supplement to San by Lee would be illogical at one point of view unless this is purposely for business expansion. (McWilliams, Wright, 2001, p.92)
In all his activities Sam depicts aspects of poor cost accounting and managerial aspects where he cannot budget properly the input factor and the value of the capital. His activities are showing extraordinary un-optimal costing results. Sam should therefore change his budgeting/managerial tools to include more adequate elements of budget.
Belkaoui, A. (1992) The New Foundations of Management Accounting. Westport, CT, Quorum Books.
Bhimani, A. (2003) Management Accounting in the Digital Economy. Oxford, Oxford University Press
Drejer, A. (2002) Strategic Management and Core Competencies: Theory and Application. Westport, CT, Quorum Books.
McWilliams, A. & Wright, P. (2001) Strategic Management of Human Resource for Global Competitive Advantage. Journal of Business Studies, Vol. 18
Roney, C. (2004) Strategic Management Methodology: Generally Accepted Principles for Practitioners. Westport, CT, Praeger
Thiru, Y, (2006) Readings in Management Accounting. Issues in Accounting Education, Vol. 21
Bannock, G (2005) The Economics and Management of Small Business: An International Perspective. London: Routledge.
Barass, R (2002). Writing at work: A Guide to Better Writing in Administration, Business and Management. London: Routledge
Culp, C. (2001) The Risk Management Process Business Strategy and Tactics. New York: Wiley.
Chrystal, K & Lipsey, R. (1997). Economics of Business and Management. Oxford: University Press.