Concept of Management And Financial Accounting

University: Mont Rose College

  • Unit No: 6
  • Level: Undergraduate/College
  • Pages: 14 / Words 3565
  • Paper Type: Assignment
  • Course Code: JNB517
  • Downloads: 31691
Question :

Financial resources are an important aspect of the business as it helps in spending over the expenses in order to conduct business activities. Victoria and her Partners qwants to change their business structure and has two options limited liability partnership and private limited liability company so they require information relating to financial statements and other aspects.

  • Concept of different business structures.
  • Understanding the concept of management and financial accounting and their key differences.
  • The key financial statements.
  • Stakeholder analysis and management and what financial information are required to be shared to them.
Answer :


Financial resources are the money available to a business for spending towards all expenses. In this project report, various investment ventures are discussed in order to determine the most profitable one along with which several stakeholders of the organization are identified in order to ascertain in what information they are interested in. Financial statements are the most important aspect of an organization as it helps in calculating profit and other elements of a company.

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Evaluation of various business structures

Victoria and her parents are weighing investing in a venture capital company, for which they have considered limited liability partnership and private limited liability company. These structures along with general partnership are discussed below:

General Partnership – This structure is known as an ordinary partnership as two or more individuals can set up this structure and can form a limited company and limited liability partnership as well. This form of partnership is not a separate legal entity and the partners involved in this form do not have any legal protection against debts. Profit earned by this firm are shared among partners according to the partnership deed. A major drawback of this firm is that partners may be personally liable for all the debts (Bridoux,  2014).

Limited liability Partnership – This form of partnership is a legal firm that is incorporated with members. This entity can be formed by two or more partners which can be self employed. In this type of partnership liability of the partners are limited to the amount of money that is guaranteed to be invested by them. LLP has a separate legal entity which has its own unique registration number. According to this form, there is no requirement of minimum capital contribution. This business firm is relatively easier to form as it has less governmental interference and restrictions (Limited liability partnership, 2017).

Private liability Company – It is a company which privately owned for operating a small business. The liability of its members are limited to the amount of shares owned or held by them. Securities of these companies are not listed on stock exchange and can not publicly traded. This form of business entity has a separate legal entity and perceptual succession.

General partnership

Limited liability partnership

Private liability company

Legal requirements: Every partner needed to complete their own tax returns on their share of profit . If there is absence of partnership deed, then all partners will have equal profit sharing with equal role in decision making process.

LLP is required to be registered and their annual financial reports are needed to be complied with the regulatory authority.

This form of company is required to be registered with minimum 2 members under relevant act. The name of this company should contain three elements and that is name, activity and the prefix private limited company in it.

This form may or may not have limited liability of its partners.

By investing in this type of partnership, Victoria will be partner of this firm and will has limited liability.

Under this company, Victoria will be member of this company and will has limited liability (Broadbent, 2012).

Victoria babies should invest in private limited liability company as transferability of shares are comparatively easier and companies have relatively higher margins than partnership. Also Victoria can be a member of a company by investing in this form. 


Evaluation of management and financial accounting

As a finance trainee officer, financial and managerial accounts both has a major contribution in the functioning of organisation as these reports reflect true and fair financial as well as managerial position of the company.

Management accounting – This accounting system is a process where managerial reports are prepared such as inventory management report, cost accounting report etc. these reports helps in providing relevant information which are used to make plans and policies for organisation's future.

Financial accounting – This is an accounting system where financial book and accounts are prepared in order to serve true financial performance of the organisation. These accounts include income statement, balance sheet and other primary accounts. Information which gained by this system is further used by management and interested parties. This system is compulsory to be followed by every organisation. These accounts are usually prepared at the end of a financial year (Cusworth, 2013).

Management Accounting

Financial accounting

Users: These reports and prepared by managers and other upper level staff. This data and information is used for management to prepare budgets and forecasting reports. Also these reports are used by external parties such as suppliers, creditors etc.

Users: Financial accounts and reports are prepared by financial managers of the company. This data is further used by external parties such as creditors to analyse credit worth of the company. Other interested parties of this financial information are investors, debtors etc.

Management books and accounts may or may not be prepared by the organisation as these records are majorly used by the internal management only.

Preparation of financial books and accounts are compulsory as they are used reflect true market position of the company.

Reports included in these accounts are monetary as well as non monetary also.

These accounts and reports shows only monetary information.

Format of these reports are not specified and these reports can be prepared at any point of time of the year.

These accounts are prepared at the end of an accounting year and there is a fixed format of these accounts (Massingham, 2014).


Analyses of all financial statement with numerical example

Financial statements are set of statements which includes cash flow, income statement and balance sheet. These reports or statements are used to reflect overall performance of an organisation. These reports determine whether the business is profitable or not. These statements are prepared by financial managers at the end of a financial year. These books follow a specific format which is prescribed by international authority in order to bring similarity in all financial statements. These books are prepared for management of the organisation as it helps in future planning and forecasting and these statements are also developed for external interested parties such as suppliers, creditors, debtors, investors, regulatory authorities etc. These statements with numerical example is depicted below:

Cash flow statement

Cash flow statements are the summarised documents which includes all cash inflows and cash outflows. This statement is prepared with an intention of measuring company's cash position with ability of paying debt obligations. This statement is prepared by the income statement and balance sheet of an organisation. Cash flow statement allows a investor to understand how a company is operating their business activities. In the below developed cash flow statement, opening and closing stock is 170000 and 120000 respectively.

  • Content – Cash flow statement includes three activity heads and that is operating activities, investing activities and financing activities. These activities are classified with the intention of determining net opening and closing cash available in an organisation (Oh, 2012).
  • Relevance – This statement is important as it presents the cash inflows and cash outflows of a business during a specific period of time. It helps in preventing and monitoring company debts along with expenses such as interest, taxes and many more. The main aim of preparation of these statements is to manage cash availability in an organisation and ensuring timely payment of all expenses and debts.



Cash inflows:






Total cash inflow


Cash outflow:


Purchase of raw material






Petty expenses


Interest on loan




Total cash outflow


Opening balance


Net cash flow


Closing balance


Income statement

Income statement of an organisation assess a company's financial performance and position by evaluating all incomes and expenditures involved in business operations within a specific time frame. This statement is the summary of revenues and losses generated by the company. This statement is prepared by the financial manager of the organisation at the end of every financial year (Renz,  2016). The main aim of developing this statement is to calculate net income of the organisation. The net incomes can be calculated from the difference of revenues and expenses. In the below developed income statement, after deducting loan interest expenses and taxes of 20000 and 20000 respectively, net income is 84300.

  • Content – Income statement includes two heads and they are income and expenses. Incomes includes sales revenue, investment, interest earned etc. and expenses includes all cost of the company such as salaries, rent, electricity, insurance etc. These two heads are compared to determine net income or loss.
  • Relevance – Ascertainment of profit is the main objective of this statement. This statement reflects true and fair market position of an organisation to the interested parties such as investors, creditors, suppliers.





Sales revenue










Property rates




Loan interest








Net profit


Balance sheet

Balance sheet is a statement which is prepared at the end of an accounting year which includes all the assets and liabilities of an organisation in order to ascertain net shareholder's equity. This statement is prepared by financial manager. Below developed balance sheet has retained earnings of 40000 by which total shareholder's equity is resultant to be 250000.

  • Content – Balance sheet can be prepared in two formats and that is vertical and horizontal which has two main heads that is assets and liabilities.
  • Relevance – The main aim of this statement is to ascertain net total assets available in the company (Singer, 2011).







Account receivables










Other current assets


Total assets






Accounts payables


Total liabilities


Shareholders' equity:


Capital stock


Retained earnings


Total shareholders' equity



Explanation of various stakeholders

Stakeholder analyses is a process of assessing all the relevant interested parties which are influenced by the business activities and operations. Some of these parties along with their interested financial information is mentioned below:

  • Shareholders – They are the members of a company who are interested in profitability and dividend report of the organisation. These reports are significant to them as they can ascertain growth and profit making ability of the entity.
  • Directors – These stakeholders are interesting in Share option information and managerial reports as they are the superiors who look after management of the company.
  • Creditors – These stakeholders lend their money to the organisation, they are interested in solvency ratio information of a company as it can reflect their credit worthiness.
  • Investors – These parties invest in organisation and they are interested in ROI ratio information of the company as they this ratio helps in ascertaining rate of returns (Turk, 2011).
  • Suppliers – They supply raw material to the organisation and they are interesting in productivity report of the company as it reflects level of production for which they have to supply their raw material.


From the above project report, it has been analysed that managing financial resources is a complex task to perform. Various investment ventures are discussed in order to analyse which investment project is better. Financial statements are evaluated along with numerical example. By the above report it has been found that financial statements are compulsory to be prepared by all the organisations and private limited liability company is a better organisation structure to invest in.

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By developing various interpretations and performing various analyses it can be recommended that Victoria babies should invest in private limited liability company in order to gain more income. Another recommendation is that every organisation should perform managerial accounts along with financial accounts.


From the above project report, it has been concluded that managerial reports are as important as financial reports. All financial statements such as cash flow, income statement and balance sheet are significant to the organisation as it helps in gaining trust of the external parties. Stakeholders such as directors, members, shareholders etc. are the key individual to a company and they are interested in respective information.


  • Bridoux, F. and Stoelhorst, J. W., 2014. Microfoundations for stakeholder theory: Managing stakeholders with heterogeneous motives. Strategic Management Journal, 35(1). pp.107-125.
  • Broadbent, M. and Cullen, J., 2012. Managing financial resources. Routledge.
  • Cusworth, J. W. and Franks, T. R., 2013. Managing projects in developing countries. Routledge.
  • Massingham, P., 2014. An evaluation of knowledge management tools: Part 1–managing knowledge resources. Journal of Knowledge Management, 18(6). pp.1075-1100.
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