The Essay Highlights The Significance Of Balance Sheet, Cash Flow Management, Business Plan Review, Record Keeping System, Budget Variance Analysis, And Financial Report Format.

Understanding the Importance of Balance Sheet in Business Management

1. What does a balance sheet enable you to do?

2. Poor cash flow may arise from what?

3. Briefly describe the Business plan review process and ensure that ensure that you have enough resources to prepare budget for the next financial cycle and meet the deadline.

4. Why do you need a good financial record keeping system?

5. Give a description of the 3 most common programs used for financial input.

6. Give a detailed description of the below types of expenditure and income: Gross profit, Net profit, Stock turnover

7. Describe what the following 3 phrases mean in detail: Converting financial data to ratios or percentages, A ratio by itself means little unless it is benchmarked, The benefits of financial analysis

8. What does “Tax Liability” mean?

9. Effectively auditing a budget requires an estimation process that is acceptable and/or reasonable. What are some issues to consider?

10. Explain the terms used to describe variations and what can the unfavourable variances be further classifies into?

11. What are 3 pieces of financial documentation necessary to verify expenditure? Give an explanation for each.

12. How do you ensure that structure and format of reports are clear and maintained organisation and statutory requirements?

The balance sheet is regarded as the most vital financial statement as it helps in providing the snapshots of an organizations financial standing. It is important for the business owners and accountants to understand and interpret the balance sheet. Balance provides a quick view of the business financial standing (Deegan 2013). Without the balance sheet, business owners and accountants may take the business decisions which may have the negative consequences on the financial standing of the business. The balance sheet one of the several key financial statements that enables a person to keep track on the income and expenses. It helps in displaying the information in terms of assets, liabilities and equities.

Majority of the business have poor cash flow problems because they fail to take into the considerations their financial report until problems become difficult to handle. Poor cash flow usually arises from lower profits or heavy losses, making an over investment in certain capacity, having very higher stock or allowing the customers with high credit (Henderson et al. 2015). Majority of loss incurring business runs out of cash because businesses spends unnecessarily on fixed assets. Problems of poor cash flow becomes high when business uses short term financing.

Business plan review process is regarded as an important tool that helps in reviewing the business plan and updating the same on regular basis to monitor the progress and taking any corrective actions if necessary (Macve 2015). The business plan review process regularly evaluates the performance against the business plan.    

To assure that an individual has enough resources to prepare the budget for the next financial year and meeting the deadline at the same time it is necessary to keep the budgeting and forecasting flexible. Creating a flexibility in the budget procedure and forecasting would enable more accurate forecasting and better results for the business. Early and regular communication helps in meeting the deadlines as an open communication line helps in reducing the issues among the department and aligns with the organizations functional strategies.

Good business record keeping system helps in offering business with the real advantage over the competition. A good business record system helps in planning new marketing and sales strategies. A better record keeping system helps in managing the account, interests, taxes and working costs efficiently (Khan 2015). It helps in providing information about cash in hand and acts as the resources for new strategies. A good record keeping system helps in improving customer service and assists in monitoring the growth of company profit and growth.

The three most common programs that is used for financial input is given below;

1. AccountEdge:This programs helps the small business in managing the bank accounts, balances and keeping track of the numbers of yearly budget. The data auditor of the company helps in assuring that the business data is correct.  
2. XERO:Xero is another program that is designed for financial input which helps in providing the real time access to the financial data for quicker and easy collaboration.
3. SAGE:Sage is regarded as the easy business accounting program that helps in recording invoice of customers, paying bills and keeping track of all the banking information.

The detailed descriptions of expenses and income is stated below;

1. Gross Profit:Gross profit can be defined as the profit of the company following the deduction of costs related in making and selling products or costs related with providing services.
2. Net Profit:Net profit can be defined as the bottom line of net income or the net earnings that helps in measuring the profitability of the venture following all the accounting costs and taxes.
3. Stock turnover:Stock turnover represents the number of times the company has sold and replaced its inventory during an accounting period (Hoskin, Fizzell and Cherry 2014). The stock turnover effectively represents the ratio that helps in showing how effectively a company manages its inventory by comparing the cost of sales with the average inventory for a year.

1. Converting the financial data into the ratios or percentage signifies the way of analysing the annual report by using the mathematical ratios. The financial ratios can be defined as the comparative magnitude of measuring the statistical data from the financial statements of the business enterprise (Maheshwari 2015). The data can be expressed as the decimal or in percentage values.
2. A ratio by itself represents little unless it is benchmarked. This is because benchmarking represents the standard or the references that enables comparisons. Industry benchmark has been developed to assess the business performance by comparing business ratios with the other industry.
3. The benefits of analysing the financial statement is helpful in thriving the business. Through analysis of financial statement an individual can assess and recognize the financial strengths, weakness and relationships that is prevalent in the organization.

Tax liability can be defined as the amount that is legally owed to the taxing authority arising from the taxable circumstances.

Issues to consider in budget is stated below;

1. Pending bills that are bought forward of several financial years back.
2. Pending bills that were occurred without the authority of accounting officer.
3. Reallocating the budget without the law making approval.
4. Expenses that are over and beyond the approved budget.

The terms used to describe the budget variance are the favourable and unfavourable variances (Umbach 2018). The unfavourable variance can be classified further into unfavourable revenue variance and unfavourable expenses variance.

1. Cash book:A cash book refers to the financial journal which comprises of all the cash receipts and payments comprises of both withdrawals and bank deposits. The cash books help in keeping track of all the payments, namely the accounts payable and operating expenditure.  
2. Purchase day book:Purchase day books is the accounting ledger where purchase transactions are recorded. This book is usually found in manual accounting systems, where the purchase is recorded through hand in ledger.  
3. General Ledger:A general ledger is the formal ledger of a company’s financial statements with the debit and credit accounts records that is validated by the trial balance.

To make sure that the structure and format of the reports is clear it is necessary to identify and prioritize the significant issues present in the statement and together with the comparative financial performance (Weygandt, Kimmel and Kieso 2015). It is necessary to maintain the audit trials to assure that the accurate tracking is maintained which helps in identifying the discrepancies between the agreed and actual allocations. Reviewing the statutory requirements for compliance and tax liabilities helps in ensuring compliance with the due diligence.      

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References: 

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective. Wiley Global Education.

Khan, M., 2015. Accounting: Financial. In Encyclopedia of Public Administration and Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Maheshwari, S., 2015. Fundamentals of Accounting.

Umbach, W.S., 2018. The Fundamentals of Accounting: A Series of Case Reports (Doctoral dissertation, The University of Mississippi).

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.