Accounting In Context & Budgetary Control Assignment Sample

Understanding Financial Performance, Budgetary Control & Efficiency Metrics

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Accounting In Context & Budgetary Control Assignment

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TASK 1: Blog Writing and Memorandum

Blog Writing

Purpose and Scope of Accounting in Complex Operating Environments

Scope of accounting in complex operating environments is considered to be significant for establishing how financial aspects and attributes of an organisation perform with respect to available organisational resources. As viewed by Wokas and Gerungai (2019), the purpose and scope of accounting in complex operating environments can be mainly examined based on defining numerical credentials achieved from income statement and balance sheet to identify profitability as well as asset and liability positioning.

Critical Evaluation of Accounting Function in Informing Decision-Making

The accounting function involved in informing decision-making for an organisation is deemed to be important for stakeholder as well as societal needs and expectations to drive business competitiveness. As per critical opinions of Dindareanu (2022), accounting function could lead to jeopardised informing decision-making with respect to society and stakeholders when the process of accounting becomes complex and is rigid to implement a greater degree of flexibility.

Main Branches of Accounting and Job Skillsets and Competencies

The main branches of accounting and job skillsets as well as competencies mainly involve adherence to financial or management accounting. The role of financial accounting is deemed to be important for identification of financial performance to enhance external stakeholder involvement. According to Nazar et al. (2020), management accounting is necessary for empowering stability and internal control of organisational operations.

Accounting systems and role of technology in modern-day accounting

The integrated role of accounting systems as well as technology in the modern-day accounting procedure is deemed vital as it allows organisations to handle bulk data in an efficient and hassle-free manner (Lam and Beatty, 2020).

Issues of Ethics, regulation and compliance

The existence of ethical, regulation and compliance issues are an area of concern for an organisation which could potentially become long-term constraints or threats due to lack of implementing adequate control measures. As per illustrations of Voznyak et al. (2019), ethics, regulation and compliance are considered to be threats when an organisation witnesses financial decline and lack of investments owing to following of malpractices in internal boundaries.

Memorandum

To,

The Finance Director of XYZ Ltd.

Subject: Memorandum of Cash Budget

Respected Sir/ Madam,

The following cash budget is being prepared from January to December by considering the following assumptions and discussion of budgetary roles as well as budgetary control solutions shall follow suit.

Cash Budget

Assumptions

  • The sales revenues generated for the month of January is expected to be GBP 45,000, which includes sales volume of 150 units and per unit selling price of 300 GBP. The sales revenues, sales volume and per unit selling prices for the succeeding months are expected to increase at a uniform rate of 7% till December.
  • Operational Costs mainly include purchase of raw materials which are expected to contain numerical figures of GBP 14,000 for the month of January. Credit Purchases are further assumed to be 80% of the total purchase value and a uniform increase of 5% is considered till December.
  • Selling and Administrative expenses are assumed to remain uniform from January to December which includes numerical expression of GBP 11,500.
  • Marketing Expenses from January to December is also assumed to contain a numerical value of GBP 8,400 and is expected to remain constant throughout the year.
  • Rental Costs of GBP 6,000 are being assumed to remain uniform from January to December, while salaries and wages are expected to be valued as GBP 7,500 till September. An increase of 6% is being assumed for salaries and wages from October till December.
  • Interest of 4% on loan is assumed to be paid from the month of February.
Cash Budget
Particulars January February March April May June July August September October November December Total
Cash Receipts
Sales Volume 150.00 160.50 171.74 183.76 196.62 210.38 225.11 240.87 257.73 275.77 295.07 315.73 2683.27
Price Per Unit £ 300.00 £ 321.00 £ 343.47 £ 367.51 £ 393.24 £ 420.77 £ 450.22 £ 481.73 £ 515.46 £ 551.54 £ 590.15 £ 631.46 £ 5,366.54
Total Sales Value £ 45,000.00 £ 51,520.50 £ 58,985.82 £ 67,532.87 £ 77,318.38 £ 88,521.81 £ 1,01,348.62 £ 1,16,034.04 £ 1,32,847.37 £ 1,52,096.95 £ 1,74,135.80 £ 1,99,368.08 £ 12,64,710.23
Capital £ 1,00,000.00
Business Loan £ 50,000.00
Total Cash Receipts £ 1,95,000.00 £ 51,520.50 £ 58,985.82 £ 67,532.87 £ 77,318.38 £ 88,521.81 £ 1,01,348.62 £ 1,16,034.04 £ 1,32,847.37 £ 1,52,096.95 £ 1,74,135.80 £ 1,99,368.08 £ 12,64,710.23
Cash Payments
Purchase of Raw Materials £ 14,000.00 £ 14,700.00 £ 15,435.00 £ 16,206.75 £ 17,017.09 £ 17,867.94 £ 18,761.34 £ 19,699.41 £ 20,684.38 £ 21,718.60 £ 22,804.52 £ 23,944.75 £ 2,22,839.77
Credit Purchases £ 11,200.00 £ 11,760.00 £ 12,348.00 £ 12,965.40 £ 13,613.67 £ 14,294.35 £ 15,009.07 £ 15,759.52 £ 16,547.50 £ 17,374.88 £ 18,243.62 £ 19,155.80 £ 1,78,271.82
Cash Purchases £ 2,800.00 £ 2,940.00 £ 3,087.00 £ 3,241.35 £ 3,403.42 £ 3,573.59 £ 3,752.27 £ 3,939.88 £ 4,136.88 £ 4,343.72 £ 4,560.90 £ 4,788.95 £ 44,567.95
Selling and Administrative Expenses £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 11,500.00 £ 1,38,000.00
Marketing Expenses £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 8,400.00 £ 1,00,800.00
Rent £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 6,000.00 £ 72,000.00
Salaries and Wages £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,500.00 £ 7,950.00 £ 7,950.00 £ 7,950.00 £ 91,350.00
Interest on Loan £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 2,000.00 £ 24,000.00
Total Cash Payments £ 63,400.00 £ 64,800.00 £ 66,270.00 £ 67,813.50 £ 69,434.18 £ 71,135.88 £ 72,922.68 £ 74,798.81 £ 76,768.75 £ 79,287.19 £ 81,459.05 £ 83,739.50 £ 8,71,829.54
Net Cash Generated £ 1,31,600.00 -£ 13,279.50 -£ 7,284.18 -£ 280.63 £ 7,884.20 £ 17,385.93 £ 28,425.94 £ 41,235.22 £ 56,078.62 £ 72,809.76 £ 92,676.75 £ 1,15,628.58 £ 3,92,880.69
Situational Cash Budget- Situation 1
Particulars January February March April May June July August September October November December Total
Cash Receipts
Sales Voulme 165 176.55 188.9085 202.132095 216.281342 231.4210356 247.6205081 264.9539436 283.5007197 303.34577 324.579974 347.3005721 2951.59
Price Per Unit £ 240.00 £ 256.80 £ 274.78 £ 294.01 £ 314.59 £ 336.61 £ 360.18 £ 385.39 £ 412.36 £ 441.23 £ 472.12 £ 505.16 £ 4,293.23
Total Sales Value £ 39,600.00 £ 45,338.04 £ 51,907.52 £ 59,428.92 £ 68,040.17 £ 77,899.19 £ 89,186.79 £ 1,02,109.95 £ 1,16,905.68 £ 1,33,845.32 £ 1,53,239.50 £ 1,75,443.91 £ 11,12,945.01
Total Cash Receipts £ 1,89,600.00 £ 45,338.04 £ 51,907.52 £ 59,428.92 £ 68,040.17 £ 77,899.19 £ 89,186.79 £ 1,02,109.95 £ 1,16,905.68 £ 1,33,845.32 £ 1,53,239.50 £ 1,75,443.91 £ 12,62,945.01
Total Cash Payments £ 63,400.00 £ 64,800.00 £ 66,270.00 £ 67,813.50 £ 69,434.18 £ 71,135.88 £ 72,922.68 £ 74,798.81 £ 76,768.75 £ 79,287.19 £ 81,459.05 £ 83,739.50 £ 8,71,829.54
Net Cash Generated £ 1,26,200.00 -£ 19,461.96 -£ 14,362.48 -£ 8,384.58 -£ 1,394.00 £ 6,763.31 £ 16,264.11 £ 27,311.14 £ 40,136.93 £ 54,558.13 £ 71,780.46 £ 91,704.41 £ 3,91,115.46
Situational Cash Budget- Situation 2
Particulars January February March April May June July August September October November December Total
Cash Receipts
Total Sales Value £ 54,000.00 £ 61,824.60 £ 70,782.98 £ 81,039.44 £ 92,782.05 £ 1,06,226.17 £ 1,21,618.35 £ 1,39,240.84 £ 1,59,416.84 £ 1,82,516.34 £ 2,08,962.96 £ 2,39,241.69 £ 15,17,652.28
Total Cash Receipts £ 2,04,000.00 £ 61,824.60 £ 70,782.98 £ 81,039.44 £ 92,782.05 £ 1,06,226.17 £ 1,21,618.35 £ 1,39,240.84 £ 1,59,416.84 £ 1,82,516.34 £ 2,08,962.96 £ 2,39,241.69 £ 16,67,652.28
Revised Marketing Budget £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 9,240.00 £ 1,10,880.00
Total Cash payments £ 64,240.00 £ 65,640.00 £ 67,110.00 £ 68,653.50 £ 70,274.18 £ 71,975.88 £ 73,762.68 £ 75,638.81 £ 77,608.75 £ 80,127.19 £ 82,299.05 £ 84,579.50 £ 8,81,909.54
Net Cash Generated £ 1,39,760.00 -£ 3,815.40 £ 3,672.98 £ 12,385.94 £ 22,507.88 £ 34,250.29 £ 47,855.67 £ 63,602.03 £ 81,808.09 £ 1,02,389.15 £ 1,26,663.91 £ 1,54,662.19 £ 7,85,742.74
Situational Cash Budget- Situation 3
Particulars January February March April May June July August September October November December Total
Total Cash Receipts £ 1,95,000.00 £ 51,520.50 £ 58,985.82 £ 67,532.87 £ 77,318.38 £ 88,521.81 £ 1,01,348.62 £ 1,16,034.04 £ 1,32,847.37 £ 1,52,096.95 £ 1,74,135.80 £ 1,99,368.08 £ 12,64,710.23
Purchase of Raw Materials £ 14,000.00 £ 14,700.00 £ 15,435.00 £ 16,206.75 £ 17,017.09 £ 17,867.94 £ 18,761.34 £ 19,699.41 £ 20,684.38 £ 21,718.60 £ 22,804.52 £ 23,944.75 £ 2,22,839.77
Credit Purchases £ 11,200.00 £ 11,760.00 £ 12,348.00 £ 12,965.40 £ 13,613.67 £ 14,294.35 £ 15,009.07 £ 15,759.52 £ 16,547.50 £ 17,374.88 £ 18,243.62 £ 19,155.80 £ 1,78,271.82
Cash Purchases £ 2,800.00 £ 2,940.00 £ 3,087.00 £ 3,241.35 £ 3,403.42 £ 3,573.59 £ 3,752.27 £ 3,939.88 £ 4,136.88 £ 4,343.72 £ 4,560.90 £ 4,788.95 £ 44,567.95
Paying off Creditors after 1 month £ 11,200.00 £ 11,760.00 £ 12,348.00 £ 12,965.40 £ 13,613.67 £ 14,294.35 £ 15,009.07 £ 15,759.52 £ 16,547.50 £ 17,374.88 £ 18,243.62 £ 1,59,116.02
Total Cash Payments £ 52,200.00 £ 64,240.00 £ 65,682.00 £ 67,196.10 £ 68,785.91 £ 70,455.20 £ 72,207.96 £ 74,048.36 £ 75,980.78 £ 78,459.81 £ 80,590.31 £ 82,827.32 £ 8,52,673.74
Net Cash Generated £ 1,42,800.00 -£ 12,719.50 -£ 6,696.18 £ 336.77 £ 8,532.47 £ 18,066.61 £ 29,140.66 £ 41,985.68 £ 56,866.59 £ 73,637.14 £ 93,545.50 £ 1,16,540.76 £ 4,12,036.49
Situational Cash Budget- Situation 4
Particulars January February March April May June July August September October November December Total
Total Cash Receipts £ 1,95,000.00 £ 51,520.50 £ 58,985.82 £ 67,532.87 £ 77,318.38 £ 88,521.81 £ 1,01,348.62 £ 1,16,034.04 £ 1,32,847.37 £ 1,52,096.95 £ 1,74,135.80 £ 1,99,368.08 £ 12,64,710.23
Revised Rent £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 5,100.00 £ 61,200.00
Total Cash Payments £ 62,500.00 £ 63,900.00 £ 65,370.00 £ 66,913.50 £ 68,534.18 £ 70,235.88 £ 72,022.68 £ 73,898.81 £ 75,868.75 £ 78,387.19 £ 80,559.05 £ 82,839.50 £ 8,61,029.54
Net Cash Generated £ 1,32,500.00 -£ 12,379.50 -£ 6,384.18 £ 619.37 £ 8,784.20 £ 18,285.93 £ 29,325.94 £ 42,135.22 £ 56,978.62 £ 73,709.76 £ 93,576.75 £ 1,16,528.58 £ 4,03,680.69

Evaluation of Role that budgets play in effective planning and control of resources

Budgetary role is considered to be useful and beneficial for effective planning and control of resources as it allows an organisation to prevent cost spillage and overruns as well as stipulate a ceiling limit which could be borne for operational purposes. However, the flip side or demerit of budgetary role is considered to be associated with presence of arbitrary factors which could perhaps make the final budgetary preparation tardy and insufficient (Rosalina et al. 2022).

Outlining of a range of Budgetary control solutions

The key budgetary control solutions include comparison of actual performances with budgeted performances as well as computation of all budgetary variances (Mujennah et al. 2019). Justification offered for selecting both the above ranges of budgetary control solutions can be identified with regards to ensuring that financial harmony of an organisational is being maintained to enable higher accumulation of profits.

TASK 2

Income Statement

Profit and loss statement
Particulars 2020 2021 2022 Total
Sales £ 15,60,000.00 £ 17,94,000.00 £ 20,63,100.00 £ 54,17,100.00
Less cost of goods sold £ 9,50,000.00 £ 9,97,500.00 £ 9,69,000.00 £ 29,16,500.00
Gross profit/net sales £ 6,10,000.00 £ 7,96,500.00 £ 10,94,100.00 £ 25,00,600.00
Expenses
Accountant fees £ 140.00 £ 180.00 £ 250.00 £ 570.00
Advertising and marketing £ 1,450.00 £ 1,740.00 £ 2,088.00 £ 5,278.00
Bank fees and charges £ 145.00 £ 126.00 £ 155.00 £ 426.00
Bank interest £ 750.00 £ 852.00 £ 452.00 £ 2,054.00
Credit card fees £ 45.00 £ 25.00 £ 45.00 £ 115.00
Utilities (electricity, gas, water) £ 110.00 £ 115.00 £ 169.00 £ 394.00
Telephone £ 25.00 £ 36.00 £ 145.00 £ 206.00
Lease/loan payments £ 14,500.00 £ 24,100.00 £ 2,500.00 £ 41,100.00
Rent and rates £ 1,500.00 £ 26,000.00 £ 2,560.00 £ 30,060.00
Motor vehicle expenses £ 150.00 £ 125.00 £ 256.00 £ 531.00
Repairs and maintenance £ 523.00 £ 125.00 £ 412.00 £ 1,060.00
Bad debt £ 41.00 £ 365.00 £ 452.00 £ 858.00
Insurance £ 180.00 £ 190.00 £ 120.00 £ 490.00
Depreciation £ 415.00 £ 415.00 £ 415.00 £ 1,245.00
Income tax £ 625.00 £ 425.00 £ 525.00 £ 1,575.00
Wages £ 12,500.00 £ 16,500.00 £ 25,000.00 £ 54,000.00
Total expenses £ 33,099.00 £ 71,319.00 £ 35,544.00 £ 1,39,962.00
NET PROFIT (net income) £ 5,76,901.00 £ 7,25,181.00 £ 10,58,556.00 £ 23,60,638.00

P&L statement has provided information regarding last 3 years profitability that conduct profitability or financial losses regarding information. As per calculation of last 3 years provide information regarding net profit £ 5,76,901.00 in FY 2020. On the other hand, financial year 2021 and 2022 net profitability has been identified £ 7,25,181.00 and £ 10,58,556.00. Revenue and other expenses regarding information helps to identify different financial elements impact on net Profit ability (Chen et al. 2018). Growth of revenue volume provides financial advantage in net profit growth that makes effective that makes a positive growth factor in net profitability.

Balance Sheet

Balance sheet
2020 2021 2022
Particulars Amount (£) Amount (£) Amount (£)
Non-current Assets £ 2,15,505.00 £ 5,15,623.00 £ 12,19,027.00
Current assets
Finance Income £ 25,000.00 £ 5,230.00 £ 1,500.00
Bank £ 22,000.00 £ 4,526.00 £ 5,000.00
Inventory £ 1,50,000.00 £ 70,000.00 £ 5,200.00
Long Term investment £ 10,723.00 £ 1,60,408.00 £ 4,000.00
Purchase £ 4,50,000.00 £ 1,43,539.00 £ 3,34,185.00
Advance payment to debtors £ 1,35,217.00 £ 1,22,500.00 £ 3,65,708.00
Insurance £ 12,250.00 £ 20,177.00 £ 20,195.00
Revaluation Reserve £ 1,00,000.00 £ 1,00,000.00 £ 1,00,000.00
Trade Receivables (debtors) £ 4,00,000.00 £ 2,50,000.00 £ 3,50,000.00
Total current assets £ 13,05,190.00 £ 8,76,380.00 £ 11,85,788.00
Total assets £ 15,20,695.00 £ 13,92,003.00 £ 24,04,815.00
Non-current liabilities
Share capital £ 1,27,900.00 £ 2,18,595.00 £ 2,50,000.00
Long Term Loans £ 1,42,268 £ 1,18,557.00 £ 2,70,194.00
Resting earrings £ 5,76,901.00 £ 7,25,181.00 £ 10,58,556.00
Current liabilities
Share Premium £ 1,00,000.00 £ 50,000.00 £ 1,80,000.00
Outstanding Salaries and Wages £ 50,000.00 £ 50,000.00 £ 70,000.00
Bad debts £ 3,000.00 £ 2,000.00 £ 5,000.00
Taxation £ 12,900.00 £ 15,500.00 £ 15,000.00
Trade Payables (creditors) £ 4,50,000.00 £ 1,60,000.00 £ 1,45,000.00
Rent and Rates £ 24,780.00 £ 25,035.00 £ 3,04,296.00
Outstanding payment £ 4,000.00 £ 2,000.00 £ 18,200.00
Cash £ 28,946.00 £ 25,135.00 £ 88,569.00
Total current liabilities £ 15,20,695.40 £ 13,92,003.00 £ 24,04,815.00
Total liabilities £ 15,20,695.40 £ 13,92,003.00 £ 24,04,815.00

Balance sheet presentation stated the financial position of an organisation of the last 3 years. Presenting balance sheet assets and liabilities regarding information has been listed in this statement to identify organisational financial burden and strength for business expansion (Thuy et al. 2021). Long term investment provides information regarding business approach toward established financial strength whereas long term liabilities also determine the financial burden of an organisation. Presentation of last 3 years financial position determined organisation focus on gaining strength by long term investment along with reducing debt to gain financial advantage for development in retail earrings.

Ratio Analysis

Profitability ratio

Profitability ratio
Year Net Profit Ratio Formula Amount Ratio Growth
2020 Net Profit (Net Profit/Sales) *100 £ 5,76,901.00 36.98% 8.13%
Sales £ 15,60,000.00
2021 Net Profit £ 5,17,660.00 28.86% -15.79%
Sales £ 17,94,000.00
2022 Net Profit £ 9,21,127.00 44.65%
Sales £ 20,63,100.00
Year Gross Profit Ratio Formula Amount Ratio Growth
2020 Gross Profit (Gross Profit/Sales) *100 £ 6,10,000.00 39.10% -5.30%
Sales £ 15,60,000.00
2021 Gross Profit £ 7,96,500.00 44.40%
Sales £ 17,94,000.00
2022 Gross Profit £ 10,94,100.00 53.03% -8.63%
Sales £ 20,63,100.00

The “Gross profit ratio” and “Net profit ratio” has been computed for the company to evaluate the company's profit. Profitability ratios are considered as financial metrics that help to evaluate and measure the ability of the company to generate profits (Md Nasir et al. 2018). The growth of “Net profit ratio” is 8.13% for the FY of 2020 and 2021 while the ratios are 36.98% and 28.86% respectively. The Gross profit margin” almost 39.10% and 44.40% while the growth rate was -5.30% for the respective financial year.

Liquidity ratio

Liquidity ratio
Year Current Ratio Formula Amount Ratio Growth
2022 Current Assets (Current Assets /Current Liabilities) £ 13,05,190.00 0.86 0.23
Current Liabilities £ 15,20,695.40
2021 Current Assets £ 8,76,380.00 0.63 0.14
Current Liabilities £ 13,92,003.00
2020 Current Assets £ 11,85,788.00 0.49
Current Liabilities £ 24,04,815.00
Year Quick Ratio Formula Amount Ratio Growth
2022 Current Assets- Inventories (Current Assets- Inventories /Current Liabilities) £ 11,55,190.00 0.76 0.18
Current Liabilities £ 15,20,695.40
2021 Current Assets- Inventories £ 8,06,380.00 0.58 0.09
Current Liabilities £ 13,92,003.00
2020 Current Assets- Inventories £ 11,80,588.00 0.49
Current Liabilities £ 24,04,815.00

‘Current ratio’ as well as ‘quick ratio’ computed for the three financial years where the growth rate also measures 0.18 and 0.09 respectively while the ratios approximately 0.76 and 0.58. The liquidity ratio measures companies’ ability to pay debt obligations and its margin of safety (Safta et al. 2021). On the other hand, ‘current ratio’ has been computed for the company as 0.49 and 0.63 respectively while the growth rate is 0.14 for the FY of 2020 and 2021 respectively.

Efficiency ratio

“Asset turnover ratio” and “Inventory turnover ratio” considered to compare efficiency level of the company while ATR is computed as 1.03 and 1.29 respectively while the growth rate is -0.26 in FY 2021 and 2022. On the other hand, ITR is calculated as 8.64 and 26.53 while the growth rate is -17.89 respectively and that indicate company’s downward efficiency level.

Investment ratio

Investment ratio
Year Debt To Equity Ratio Formula Amount Ratio Growth
2022 Debt (Debt /Equity) £ 1,42,268.40 1.11 0.57
Equity £ 1,27,900.00
2021 Debt £ 1,18,557.00 0.54
Equity £ 2,18,595.00
2020 Debt £ 2,70,194.00 1.08 -0.54
Equity £ 2,50,000.00
Year Debt To Total Assets Ratio Formula Amount Ratio Growth
2022 Debt (Debt /Total Assets) £ 1,42,268.40 0.09 0.01
Total Assets £ 15,20,695.00
2021 Debt £ 1,18,557.00 0.09
Total Assets £ 13,92,003.00
2020 Debt £ 2,70,194.00 0.11
Total Assets £ 24,04,815.00

Investment ratio presented information regarding organisational debt volume compared to total assets. Debt to equity ratio evaluate organisational dependency over debt reduce the financial strength compared to total asset that means interest on debt impact negative on profitability growth. Debt to equity present information regarding continuous fall in last 3 years 0.11 to 0.09 that provide information regarding increment of debt volume rather than total assets. Dependency on debt reducing growth factor of the organisation because of excessive cost consumption for interest payout, which need to be managed by organisation using of better policies in equity financing.

Limitations of ratios

Ratio analysis is a technique to interpret the financial statement and make certain decisions to evaluate and compare the financial performance of a company. There are some limitations of industry-based ratios such as ratio is useless without comparison and that against some divisions of other benchmark companies. Apart from that the ratios only show the historical data using different types of accounting methods however the need for efficient knowledge of accounting. The different divisions of manufacturing units are using ratio analysis methods but that is much time consuming. The ratio analysis depends on historic data of the company and that is completely against the concept of financial ethics (Hosaka, 2019). As the immense monetary metrics utilised in the performance measurement have changed in this circumstance, the quarterly revenue made because the adjustments may be compared with the ones that were gained without the alteration. The analyst is responsible for staying current on modifications to financial accounts. The economic statements' comments paragraph usually contains adjustments.

Whilst a financial perspective is a typical analytical tool, market experts need to be aware of its many limitations. Return on assets is a typical approach to cost data. Earnings records are used as examples and sources of information. The financial accounts and procedures used by the corporation may have changed, which could have a major effect on the financial reports. The ratios can be used for both vertical and horizontal examination (Du et al. 2020). The analysis's information was gathered through real past results that the company released to the public. So, it is difficult to compare the data from different time periods without correcting for inflation. So, it's possible that accounting ratio measurements don't always forecast future financial success. While income reports are regularly released, there are intervals between publications. If deflation has occurred in the interim among these quarters, actual pricing is not reflected in the accounting records. It focuses on metrics that reveal an industry's profit, efficiency, leverage ratio, or other crucial details.

Benefits of contemporary accounting software packages

A technology that assists lawyers, auditors, and entrepreneurs in managing and automating accounting transactions and accounting for a firm is an online or cloud accounting system. Depending on the package, accounting software may greatly simplify and speed up operations like issuing invoices to clients, keeping track of money received and pursuing past-due collections. As per the narration and explanation of Averill and Waring (2018), the most apparent benefit of computerised accounting systems over any conventional financial system is that it allows obtaining information at any time from whatever platform you desire. Elevated applications provide several nights before going to bed elements that minimise the amount of time needed to enter the system's information. Individuals need an accounting system that can make it simpler to keep track of the funds coming in and leaving out of institutions because managing financial activities could be difficult.

Conclusion and recommendation

Accounting information may have been significantly impacted by changes to the corporation's financial records and procedures. Depending on the services, the payroll system may considerably speed up and simplify operations like sending customers’ bills, tracking money received and pursuing past-due collections. Consumers need a chart of accounts that may make it simpler to keep track of funds coming from and leaving institutions since overseeing financial activities can be difficult. Both horizontal and vertical analyses can use ratios. Genuine past results that the company made available were used to gather insight into the study.

References

Averill, C. and Waring, B., 2018. Nitrogen limitation of decomposition and decay: how can it occur?. Global change biology, 24(4), pp.1417-1427.

Chen, C.W., Collins, D.W., Kravet, T.D. and Mergenthaler, R.D., 2018. Financial statement comparability and the efficiency of acquisition decisions. Contemporary Accounting Research, 35(1), pp.164-202.

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