Contemporary issues in Accounting (Research Paper Sample)

Contemporary issues in Accounting
Introduction
In the last ten years, management accounting has undergone changes within its already defined fields of study and outside of them. Globalisation pressures on marketing affairs, changes in beliefs about effective information management, democratic accountability and morals, and technological advancements, such as the emergence of internet access, have all had an impact on managerial accounting activities. These broader structural transformations also include changes in diplomatic regimes, new ideas about organisational control, and changes in beliefs about marketing affairs. The pace of change in the field is at an all-time high (Bhimani, 2006). Additionally, financial accounting has changed over time, so it is included.The development of big data and data protection technologies has also had an impact on financial accounting (Conway and Byrne, 2018).
1.1 Basic theory of financial accounting and management accounting
Financial accounting is an accounting discipline that deals with documenting, compiling, and reporting of transactions occurring in corporate operations at a particular time. The generation of financial statements that are majorly used to document the economic actions of a company throughout a given time has helped summarise these transactions (Kenton, 2022). Financial accountants are able to access employment opportunities in both government and private companies. However, the roles of a general accountant, whose operations are meant for oneself instead of officially for a firm, differ from those of a financial accountant. Charitable groups and organisations employ financial accountants and small firms to compile their accounting books and produce financial statements. Unlike management accounting, often used for interior marketing strategies, financial reporting focuses on answering external audiences (Kenton, 2022).
Management accounting is the identification, assessment, interpretation, and reporting of financial data to the company's decision-makers to achieve an organisation's objectives. Management accounting is different from financial accounting in that its fundamental use is to support the executive in an organisation in making accurate business choices. How management accounting information is portrayed can be modified to suit the consumer's specifications. Product pricing, planning, projection, and other financial records are incorporated in management accounting (Tuovila, 2022).
1.2 Practice of financial accounting and management accounting
Financial Accounting
Several established accounting standards are used in financial accounting. The accounting standards that are used for financial accounting depend on the reporting and the regulatory obligations the firm must meet. Five primary categories of financial data are presented in the accounting information and used in financial accounting. They include income, expenditures, property, debts, and ownership. The net profit is determined through financial accounting and shown after the revenue statement. Financial accounting is often used on the balance sheet to show who owns the rights of profits made by the business in the future.
Financial accounting involves financial statements that include; the balance sheet, which presents the financial stand of a corporation as of a given date. Directors, creditors, and shareholders use it to evaluate a firm's solvency and viability. The income statement shows an organisation 's business activities over a given time. Although a corporation may be able to create more effective manufacturing and pricing plans with cost accounting approaches than using financial accounting, an income statement is still essential to administration. The cash flow statement details how a business spends money over a period. It helps management comprehend how money is received and spent more clearly. The statement of shareholder equity gives details of company share variations over time. It demonstrates the growth or decline in a firm's sales price and the causes of the shift.
Moreover, there are two main financial accounting methods which include the cash method and the accrual method. The cash method is a simpler, less detailed way to create financial statements. Transactions are only recorded when money is involved when using the cash method. Only when the business deal has been concluded with cash exchange are revenues and costs recorded. The accrual method is a technique for creating financial statements which keep a record of transactions irrespective of payments. Entries are made before an item is paid for, and some financial accounting concepts consider a transaction's effects over time (Kenton, 2022).
Management Accounting
Management accounting aims to improve the quality of the data and information provided to executives about overall operational activities. Management accountants use the data on the price and sales revenue of the firm's products. Focusing on recording a firm’s production costs by calculating both expenditures of each level of production and overhead expenses, cost accounting is an important part of management accounting. Organisations can make use of it to increase revenues by identifying and decreasing excessive expenditure.
There are different types of management accounting. They include product cost and valuation, which deals with identifying the overall costs associated with producing a good or service. Cash flow analysis where a task carried out by managerial accountants to ascertain how decisions may affect working capital. An inventory turnover shows the number of times a corporation has traded and replaced inventory during a specific period. Constraint analysis is also a type of management accounting that entails looking at the limitations in manufacturing or retail industries. Accounts receivable management is a type of management accounting that, when carried out properly, can improve a firm's performance.
Lastly, budgeting, trend analysis, and forecasting are other types of management accounting where management accountants are involved in examining the trendline for specific expenses and looking at odd deviations. Since expenses that differ noticeably from what is generally anticipated are frequently challenged in financial reporting audits, it is crucial to evaluate this data regularly. In order to create accurate and comprehensive financial reports for organisational use and to develop an organisation's ultimate strategy, management accounting is crucial. An executive board may find it difficult to make wise decisions or may need to be aware of the actual financial situation of the company with efficient management accounting (Tuovila, 2022).
1.3 Basic terms and concepts of financial and management accounting
Basic terms
Accounting equation - this is the equation that implies that the value of all assets in a firm is equal to the combined value of stakeholders' equity and liabilities.
Account payable - this refers to cash owed to distributors or creditors.
Account receivable - cash owed by customers after offering goods and services.
Fixed and current assets- current assets have value to the business for a maximum of one year, while fixed assets have value to a business for more than a year.
Credit and debit- a credit is an entry that increases a firm's liability, while a debit is an entry that decreases its liability.
A financial statement is a form that lists all of a person or company's financial transactions.
A journal entry - is an entry that lists monetary operations in the order they occurred.
Accounting concepts
The business entity concept - An organisation is considered an independent body from its owner regarding monetary operations.
Realisation concept holds that an income is only registered after earned. A deposit or payment is only considered a profit once the buyer has received the products or services.
Money measurement concept - Only commercial transactions with a monetary value are recorded.
Matching concept - To accurately calculate loss or profit at a particular time, this concept states that for every record of income documented in a specific accounting period, an equivalent entry of expenses must also be documented.
Dual aspect concept - An equal debit is made for each credit. Only through this perspective can a transaction be entirely recorded.
2.1 Practice of Accounting in a business organisation
The first stage of accounting is identifying the financial transaction. Both monetary and financial transactions must be identified by the company entity. The only transactions that are recorded are those that involve money. Additionally, only business-related transactions should be included in the company's books of accounts, not the manager's transactions. The second stage of the accounting process is to construct the Journal entry where each accounting transaction is recorded after the transactions have been identified (Hood, 2021). After that, the transactions are analysed where journal entry adjustments are made, and a balance sheet is created before financial statements are created to ensure that all the credits and debits balance out. The final step of the process of accounting is information reporting where the information in the journals is presented to the organisation’s decision-makers to determine the company's true financial state, profitability condition, and cash flow position (Srivastav, 2012).
2.2 The value of financial and management accounting process to a business
Despite the differences in importance, management and financial ac...