Accounting and Managerial Finance (Essay Sample)

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Accounting and Managerial Finance
Introduction
Businesses around the globe are managed on a number of transactions which require tracking on managerial and financial grounds. Accounting and managerial finance is one arm of business which is largely concern with accountability and performance measurement. Accounting and managerial finance is charged with the role of planning, directing and controlling a company’s financial operations and performance. As much as accounting is known to work on various reports aimed at performance measurement, managerial finance is a tool for solving various financial problems facing financial decision makers within an organization. Financial decision makers in organization are always faced by challenges of cutting across many options which require effective instruments to steer sound decision making. This is the point where management accountant come in to play the all important role of day to day running of these organizations (Khan & Jain 2007, pp. 17-21). Managerial finance seems to be working wide beyond the common perception of providing financial reports to the users.
In order to ensure successful running of these organizations, accounting and managerial finance must apply key principles and tools to achieve the much required effective operation. Key a accounting principles applied by management accounts are expected to cut across all accounting segments from finance to cost and finally management (Wild, Shaw & Chiappetta 2009, pp. 32-37). These principles include;
Revenue Principle
Expense Principle
Matching Principle
Cost Principle
Objective Principle
The above list principles considered key in accounting and managerial finance operations. These principles form the base for decision making and generation of various reports (Duchac, Warren & Reeve 2011, pp. 112-114). Financial or accounting report generation in any organization is derived or drawn from well managed data hence the need to apply these principles to steer effective transaction presentations and management.
Apart from the principles, it is worth noting the application of various accounting and financial tools. Accounting tools in this case serve a key role in interpreting various conditions. Apart from interpretation, it is the same tools that steer the generation of various reports. Widely applicable accounting and managerial finance tools include;
Income statement
Statement of financial position
Cash flow
Accounting ratios
Accounting and managerial finance tools listed above are instrumental towards planning and directing various decisions within organizations. Management accountants and other top organizational officers use accounting tools to steer sound decision making. Unlike other departments within an organization, the finance section decisions are purely based on well presented and analyzed figures which can only be done through effective accounting tools. Since not every stakeholder of an organization has clear understanding these tools and principles, it is the role of accounting and managerial finance personnel to apply the principles and tools and interpret or present adequate report to the users of such information or stakeholders. However, in the application thee tools and principles, management accountants recognizes the fact that information derived from the use of the principles and tools are widely used hence the need to ensure they are accurate to avoid misplaced decisions. In most case stakeholders and other investors in organizations have misled by wrongly presented information and lack of understanding of various principles and tools. Accounting and managerial finance personnel must therefore take charge and assure investors of sound financial information and accurate decision making. Organizations grade their performance on the basis of financial information derived from the accounting tools. It is therefore important that these tools are applied intensively.
Key Accounting and Managerial Finance Principles
Accounting and managerial finance principles form important part of every organizations day to day operation. However, it is important for the concern organizational officers to take note of the required principles. Management accountants and other concern personnel must they apply or use generally accepted principles in directing and planning the day to day operation of an organization. Accounting principles are many and applicable in various situations and areas of management; however, it is important to note there those that form the base of organizational financial operation.
Revenue Principle – the revenue principle commonly referred to as realization principle clearly states that revenue is made or raised when sales is made. Making sales goes hand in hand with availing goods and services for sales. This brings in the need to provide or avail goods and service of right quality and quantity to ensure good revenue is earned (Beil, F. J 2013, pp. 10-16). It is necessary to understand the fact that this principle has key component which must be considered to ensure its full achievement or application. A key component of the revenue principle is based on the fact that revenue is only earned when legal ownership of goods passes from a seller to the buyer. In order to apply the revenue principle accurately, one must take note of the fact that collecting cash for something does not amounting to revenue earning. From this point, it is clear that the legal passage of goods or service from the seller to the buyer is core component which must steer or necessitated through effective accounting processes.
Accounting and managerial finance is required to apply this principle in the day to day operation. However, management accountants and other key officers within the organization must put key requirements in place. Some of the key requirements are ensuring availability of goods and services. It is the work of accountants to conduct necessary study and calculation to make purchases geared towards availing goods and services. In case of services, it is the role of management accounts to do necessary cost accounting to ensure enough services are availed to potential customers. When a service organization fails in availing services to the customers, it is clear that the no revenue will realized. It is on this principle that management accounts work tirelessly to ensure service products are availed to the customers at accurate or affordable rates. Apart from costing of services, management accountants must ensure good purchasing is done in the case of goods. If such goods are manufactured within the organization, then appropriating costing techniques must be applied to avail the same to customers.
Availing products for sale is not the end of application or achievement of the revenue principle. The management must work on necessary quality aspects such as advertisement and customer interest. Such elements are needed to boost revenue earning. The first part of the principle involves the creation of goods or service for sale and the other part is pushing the goods and services to the customers through quality aspects. It is important to take note of the fact that an organization’s profitability or positive performance is based on the earned revenue.
The revenue principle also recognizes the fact that revenue should be done accrual basis. This implies that revenue should be recorder within the period it is earned. This goes against a common perception by many who normally record revenue on the receipt of cash. In order to full to embrace this component of the principle, management accountants are working hard and effectively to keep track of both cash and credit sales. Credit sales are termed revenue although the cash is yet to be received.
Expense Principle - day to day operation of a business is expected to attract expenses of various kind based on its nature of operation. In order manage the expenditures in the right manner, it is important to note when the expenses occur. The expense principle indicates that an expense during an organization’s operation occurs when a business or organization uses goods and services. The expense principle is always viewed as the flip side of the revenue principle as indicated in the revenue principle, receiving goods is simply an indication of incurring expenses on the goods. The same is applicable to the receipt of any services, according this principle, the receipt of goods and services of any kind must entail occurrence of an expense (Kieso, Weygandt & Warfield 2011, pp. 47-54). As perceived by many that expenses are only incurred when bills or payment is requested, that’s not the case as this principles indicate that expenses are incurred on the receipt of goods and services.
This principle is therefore an important eye opener on how expenses should be identified and managed. Accounting and managerial finance has been using this principle to set controls and strategies on expense management. Bearing in mind that big organizations have failed or collapsed due to poor expense management, management accountants feel that advising stakeholders mostly employees on when expenses are incurred is key to organizational success. Having known that expenses are incurred upon the receipt of required goods and services, management accounts have designed ways of ascertaining the value of such expenses even before bills or invoices are delivered (Kieso, Weygandt & Warfield 2011, pp. 47-54). This is necessary for the sake of budgeting. Effective managerial finance system must not wait for bills or payment request to know the company’s expense requirement. Managerial finance systems have well set reporting intervals and forecasting where accountants are expected to forecast. Forecasting inv...