Description: This Principles Of Accounting And Reporting In Commerce course introduces the fundamentals of financial and management accounting from the perspective of the business manager. It focuses on critical evaluation of accounting information contained in financial statements and application of key cost and management accounting techniques in daily business decisions.

Background: The American Accounting Association has come up with this definition of accounting: “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.” Accounting, therefore, is a process of identifying, measuring, classifying and communicating economic information to the users so that they can make informed decisions. Quite simply, accounting is a language: a language that provides information about the financial position and financial performance of an organization.

It is a service function, the language of business. When you study accounting, you are essentially learning this specialized language. By learning this language, you can communicate and understand the financial operations of any and all types of organizations. This is because the information required by most organizations is very similar and can be broken down into three main categories:

Operating Information

This is the information that is needed on a day-to-day basis in order for the organization to conduct its business. Operating information is what constitutes the greatest amount of accounting information and it provides the basis for the other two types of accounting information.

Financial Accounting Information

This is the information that is used by managers, shareholders, banks, creditors, the government, the public, etc., to make decisions involving the organization and its operations. Financial accounting information is subject to a set of ground rules that dictate how the information is reported and this ensures uniformity.

Managerial Accounting Information

In order for the managers of a company to make the best decisions, they need to have specific information prepared. They use this information for three main management functions: planning, implementation and control. Financial information is used to set budgets, analyze different options on a cost basis, modify plans as the need arises, and control and monitor the work that is being done.

Description: This course adopts a managerial and analytical approach to the financial aspects of business management and exposes students to the methods used in financial reporting and interpretation and applying these principles to business practice.

Background: Financial accounting is concerned with the preparation of accounting information for the needs of users who are external to the business. Financial accounting is therefore part of financial reporting. Other aspects of financial reporting include the timing and manner in which the information is communicated. Companies publish their financial accounting information in the form of financial statements. Financial accounting is governed by regulations and accounting standards (which have the force of law).

Description: This course enables a better understanding and interpretation ability of a company’s cash-flows and profit, different classes of assets, liquidity positions, operating efficiency.

Background: Working Capital and Liquidity – Debtors, Creditors and Inventory Day
In accounting and financial statement analysis, working capital is defined as the firm’s short-term or current assets and current liabilities. Net working capital represents the excess of current assets over current liabilities and is an indicator of the firm’s ability to meet its short-term financial obligations.

A pure accounting measurement of working capital is the difference between Current Assets and Current Liabilities (Working Capital = Current Assets – Current Liabilities).

Working capital and Business Cycle

A business cycle is a time taken for a product to be made (or brought in) then on-sold, money received and cleared at the bank. Generally, the longer the business cycle the more working capital you require.
Business Uses of Working Capital

Just as working capital has several meanings, firms use it in many ways.
the first, and most critical, use of working capital is providing the ongoing investment in short-term assets that a company needs to operate. A business requires a minimum cash balance to meet basic day-to-day expenses and to provide a reserve for unexpected costs.

A secondary purpose of working capital is addressing seasonal or cyclical financing needs. Working capital is also needed to sustain a firm’s growth. As a business grows, it needs larger investments in inventory, accounts receivable, personnel, and other items to realize increased sales.

Description: This course will equip students with an understanding of key costs and managerial accounting techniques used in costs control, costs management and planning.

Background: An examination of the various users of accounting information indicates that they can be divided into two categories:

1-internal parties within the organization;
2-external parties such as shareholders, creditors and regulatory agencies, outside the organization.

It is possible to distinguish between two branches of accounting that reflect the internal and external users of accounting information. Management accounting is concerned with the provision of information to people within the organization to help them make better decisions and improve the efficiency and effectiveness of existing operations, whereas financial accounting is concerned with the provision of information to external parties outside the organization. Thus, management accounting could be called internal accounting and financial accounting could be called external accounting.

Differences between management accounting and financial accounting

Financial accounting reports are prepared for the use of external parties such as shareholders and creditors, whereas management accounting reports are prepared for managers inside the organization.
The major differences between these two branches of accounting are:

• Legal requirements. There is a statutory requirement for public limited companies to produce annual financial accounts. Management accounting, by contrast, is entirely optional and information is produced for internal management use.

• Focus on individual parts or segments of the business. Financial accounting reports describe the whole of the business, whereas management accounting focuses on small parts of the organization - for example, the cost and profitability of products, services, customers and activities.

• Generally accepted accounting principles. Financial accounting statements must be prepared to conform to the legal requirements and the generally accepted accounting principles established by the regulatory bodies such as the Australian Accounting Standards Board in Australia. In contrast, management accountants are not required to adhere to generally accepted accounting principles when providing managerial information for internal purposes.

• Time dimension. Financial accounting reports what has happened in the past in an organization, whereas management accounting is concerned with future information as well as past information.

• Report frequency. A detailed set of financial accounts is published annually and less detailed accounts are published semi-annually. Management accounting reports on various activities may be prepared at daily, weekly or monthly intervals.

Description: This course will equip students with an understanding of key costs and managerial accounting techniques used in costs control, costs management and planning; and limits to accounting and planning for crises.

Background: Cost-volume-profit analysis is a powerful tool for managerial decision making. Managers need to estimate future revenues, costs, and profits to help them plan and monitor operations. They use cost-volume-profit (CVP) analysis to identify the levels of operating activity needed to avoid losses, achieve targeted profits, plan future operations, and monitor organizational performance. Managers also analyse operational risk as they choose an appropriate cost structure.

Cost-volume-profit (CVP) analysis is a technique that examines changes in profits in response to changes in sales volumes, costs, and prices. Accountants often perform CVP analysis to plan future levels of operating activity and provide information about:

• Which products or services to emphasize
• The volume of sales needed to achieve a targeted level of profit
• The amount of revenue required to avoid losses
• Whether to increase fixed costs
• How much to budget for discretionary expenditures
• Whether fixed costs expose the organization to an unacceptable level of risk

Profit Equation and Contribution Margin

CVP analysis begins with the basic profit equation.

Profit = Total revenue - Total costs

Separating costs into variable and fixed categories, we express profit as:

Profit = Total revenue - Total variable costs - Total fixed costs
The contribution margin is total revenue minus total variable costs. Similarly, the contribution margin per unit is the selling price per unit minus the variable cost per unit. Both contribution margin and contribution margin per unit are valuable tools when considering the effects of volume on profit. Contribution margin per unit tells us how much revenue from each unit sold can be applied toward fixed costs. Once enough units have been sold to cover all fixed costs, then the contribution margin per unit from all remaining sales becomes profit. If we assume that the selling price and variable cost per unit are constant, then total revenue is equal to price times quantity, and total variable cost is variable cost per unit times quantity. We then rewrite the profit equation in terms of the contribution margin per unit.

Profit = this equation:

P×Q-V×Q-F=(P-V)×Q-F
Where:
P = Selling price per unit
V = Variable cost per unit
(P _ V) = Contribution margin per unit
Q = Quantity of product sold (units of goods or services)
F =Total fixed costs