TASK ONE A

The two main types of businesses are managerial and financial accounting. Managerial
accounting centres on the interpretation of financial information for the use within the
company to help managers in coming up or making decisions. There is no specific format for
the reports and they do not conform to any particular accounting principles. Financial
accounting is the sort of accounting that is used in many businesses in preparation of reports
of finances of a company for both stockholders and shareholders of the company and guided
by a particular accounting standards to insure standardization in reporting, Peter (2006).

Management accounting is mainly concerned with financial information and gets the
information provided by the financial accountants and use it to analyse business and come up
with decisions using the information provided. The information is used internally only for
future business plans, such as budgets and forecasting. Management accountants do not
handle daily transactions of the business, but instead work towards improving profitability
and growth for the company.

Financial accounting is hugely has a function of providing reliable reports on a business

financial status at a given time. A financial accounting report does not guidance on the health
of the company or give interpretation it rather gives reports objective financial information in
a specific format for the viewer to interpret. An important distinction between this two type
of account is that managerial accounting reports are future oriented and reports on the
financial needs of the company whilst financial accounting reporting is firmly based on past,
historical and financial performance.

The following show some of the differences between the two are highlighted below.

The following categories also show the differences between financial and managerial
accounting. On the other hand, managerial accounting looks at the point of operation which I
not performing and examines various ways of improving the profits eradicating the blockages
holding up operations. Financial accounting gets to look at creating financial statements that
gets to be shared among shareholders and stakeholders of the company, whilst managerial
accounting gets to put its attention on operations reports which are shared within the
company.

As highlighted in the introduction, managerial accounting puts it’s on the detailed reports of
the business whilst financial accounting gets to look at the whole business. In terms of
efficiency and profitability, its financial accounting department which gets to be involved in
giving out the reports and managerial accounting gets to look at the problems in those reports
and how to fix them. Another difference is that financial statements are usually given at the
end of each accounting period but to offer relevant information to the managers which they
can use to make quick decisions, managerial accounting reports get to be allotted more often.

Financial accounting can forecast the future but its main focus gets to be how the company
has performed in the previous year or quarter. Managerial accounting on the other hand gets
to focus on what to come, for instance, assuming the company trying to come up with the
budget for the coming year of the business. The business management accountant can go over
the previous year’s reports, then present the company with predictions of the coming year's
revenue or expected of expenses. The business can use the information to come up with the
budget or make informed decisions about the future.

Significant accuracy is needed to verify that financial records are correct. Financial
accounting depends on this accurate data for reporting, whereas managerial accounting
normally engages with estimates opposed to proven facts. Financial accounting is concerned
with knowing the right value of a company’s assets and liabilities. Managerial accounting is
only concerned with the value these items have on a company’s productivity.

There are many similarities between financial and managerial accounting, the following are
some of them.

Managerial and financial accounting both happen to offer valuable financial information to
stakeholders and shareholders of the business. The purpose of financial accounting and
reporting is to provide information to existing and potential investors, lenders and creditors so
they can make informed decisions about lending or buying and selling equity and debt
instruments. Managerial accounting, on the other hand, seeks to provide relevant information
to internal company managers so they can make decisions about how to better run the
company.

In coming up with reports, both financial and managerial accounting gets to use accounting
format information for easy review for executives and managers of the business.

The format for reports for managerial accounting is less regulated and organisations are
obligated to perform managerial accounting, so there are no standards for what type of
information reports must contain or how the information is presented. A typical managerial
accounting report may compare budgeted costs to actual cost, analyse sources of revenue or
explore the relationship among cost, volume and profit.

Management accounting and financial accounting have different goals. A management

accountant collects data and conducts research to provide managers of a company with
financial information so they can make budget decisions. A financial accountant collects data
to create reports for groups outside the company, such as federal regulators and investors.
Both types of accounting include some common topics. Different as they seem in the
activities which are under them, they both require accounting education expertise.

Internal controls are essential in both types of accounting. The management accountant helps
managers design and implement internal controls, ensuring that the company does not have
money or assets stolen. A financial accountant checks internal controls during an audit,
making sure that the internal controls are effective and that the company is following its
established cash management guidelines

TASK ONE B

The practise of storing, retrieving and recording of financial transaction in an organisation is

wat is known as bookkeeping. Following complete steps, bookkeeping can be made simpler.
The following are some of the steps/ process one can take to do bookkeeping, David (2007).

The starting point of the process of bookkeeping is the preparation of all the source
documents for transactions, operations and other business activities. The invoices that
business gets from suppliers after ordering products, when borrowing money from the bank
for a business, the promissory note payable it signs, the credit card slip of transaction a
business keeps after a customer uses credit card to perform a transaction are some of the
documents (source of information) into the bookkeeping system.

The second stage is determine and enter in source documents the financial effects of the
transactions and other business events. The result of a transaction gets to determine whether
the business is better off worse off, hence transaction have a financial effect that ought to
be recorded. For instance some distinctive business transaction comprises of borrowing
money from the bank, purchasing products from the suppliers and selling them to
consumers and paying employees. The process starts by deciding the relevant information
about the transactions.
The third process looks at the making original entries of financial effects into journals and
accounts. By using the source documents for all the transaction, the bookkeeper makes the
first, or original, entry into a journal and then into the business’s accounts. A journal is a
chronological record of transactions in the order in which they occur. On the other hand, an
account is a separate record, or page as it were, for each asset, each liability, and so on. One
transaction affects two or more accounts. The journal entry records the whole transaction in
one place; then each piece is recorded in the two or more accounts that are affected by the
transaction. It is very important that transactional data is entered correctly in a timely
manner.

The follow up process involves performing of end period procedures. Many businesses gets
to do their reports and financial statements at the end of each quarterly and many need
choose to do it monthly. A period is a stretch of time from one day to one month to one
quarter to one year that is determined by the business needs. A year is the longest period of
time that a business would wait to prepare its financial statements.

The compilation of the adjusted trial balance which is the foundation for the preparation of
reports, tax returns, and financial statements is the second last process. After the end of
period process has been completed, the bookkeeper gets to come up with a complete listing
of all accounts called the adjusted trial balance. Similar accounts get to be grouped from the
adjusted trial balance into a summary account that is then reported in a financial report.

The last process is he closing of the books, which is ending the current bookkeeping fiscal
year and getting things ready to start the bookkeeping process for the follow up year. Books
is merely a term that is used I accounting to refer to a business complete set of accounts.
Business transaction a are an o going activities which do not end on the closing day of
books of the fiscal year, making the preparation of statements quite challenging. Therefore
the business to draw a clear line between the activities for the year ending and the year to
come by closing the books for the current year and starting the books for the follow up
year.

TASK ONE C

The purpose of an accounting department in an organisation is to provide accounting services

and financial upkeep. The accounting department is responsible for recording of accounts
receivables and payables, payroll, fixed assets and all other financial components. The
department assess the records of each department in order to conclude the organisations
financial position and any changes that needs to run the organization cost effectively, Vincent
(1998).

The accounting department offers accounting services and manages the finances of a
company. Its tasks include recording accounts, paying bills, billing clients and customers,
tracking assets and expenditures, managing payroll and keeping track of critical tax
documents.

The purpose of accountancy in organisations is given below,

FOR RECORDING OF TRANSACTIONS

The major character of accounting is the maintaining of an organized, precise and complete
record of all the financial transactions of a business. These records are mostly seen to be the
backbone of the accounting system, therefore business owners have to be able to retrieve the
transactions when obligated.

FOR BUDGETING AND PLANNING

Planning is very important in the conducting of a business, proper planning of the allocation
of limited resources such as labour, equipment, machinery and cash is vital in the attainment
of the business objectives. Planning and budgeting helps the business to plan ahead by
forecasting the needs and resources of the business.

DECISION MAKING

Accounting contribute hugely in the area of decision making of an organisation and further
helps the business in coming up with the policies in order to boost efficiency of the business.
For instance, some decisions based on accounting information may include the pricing of the
products and services, the resources needed to make the products and service of an
organisation, financing and opportunities decisions of the business

HELPS IN BUSINESS PERFORMANCE

Accounting helps the organization to determine the growth of the business (performance)
through the reports it gives out. The reports are a dependable source of information that a
company can get to use to measure its performance, it also helps the business to compare its
performance against that of its competitor.

FINANCIAL POSITION
The periodical financial reports of a company gets to show the financial condition of a
business at that particular period. It shows how much capital has been invested, how much
funds the business has used, the profit and loss and the number of assets and liabilities of a
business.

CONTROL

By placing various checks across the organization, accounting helps in avoiding losses
caused by theft, fraud, errors, damage, obsolescence and mismanagement. The internal
controls safeguard the business assets and avoid long-term losses.

LEGAL REQUIREMENTS

Law requires businesses to maintain an accurate financial record of their transactions and
share the reports with the shareholders, tax authorities and regulators. The financial
statements and information are also required for indirect and direct tax filing purposes.

INVENTORY COST MANAGEMENT

An inventory is a good that is kept for the purpose of selling it. In an organisation, the
accounting department gets to be responsible to watch over the inventory for a specific
duration of time against the revenues in order to ensure that the cost of raw materials,
overheard and labour do not negatively affect the cash flow of the business. The department
is responsible for keeping the balance between high inventory levels that please the
customers but costly to the organization and low inventory levels that satisfy the organization
expenses but may dissatisfy customers.

RECORDING FIXED ASSETS

To function effectively. An organisation needs machinery, equipment’s, and other fixed

assets for it to use for a number of years. Fixed assets can either be tangible or intangible and
the account department is responsible for the recording of these asses in the balance sheet.
The key objective of accounting is to record financial transactions in the books of accounts to
identify, measure and communicate economic information. Furthermore, tax reporting
agencies necessitate the company to keep books at a minimum level that tracks income and
expenditure

TASK TWO A
Financial data gets to provide the building blocks of a complete business analysis. It consists
of sets of information that is related to the financial well-being of an organization. Financial
data is used by accountants/ internal management to analyse the performance of an
organization and determine whether tactics and strategies must be altered. Financial data can
also be used stakeholders ( organizations and people) outside the business reported by the
business examine the credit worth of an organization and get to decide on either to invest in
the business or not and to determine if the organization is complying with the set regulations
by the government. On the other hand financial statements are written records that are used
by investors, market analyst and creditors to assess the organizations financial wellbeing and
potential earnings or the statement that conveys the business activities and other financial
performance of an organization. Financial statements is the major source of financial
information for decisions makers but its financial data that makes up the financial statement. .
Financial statements include the three major statements which is balance sheet, statement of
cash flow and income statement, American Management Association, (1992).

Some types of financial data include assets, liabilities and equity. Assets comprise of
everything that the business has and may include real, personal properties and intangible and
tangible ones. Assets get to show the value of an organization and this financial data is
indicated in the balance sheet of a company. Liabilities are defined as financial duties of an
organization and include debt, account payables, wages and others. Just as assets, liabilities
are also recorded on the company’s financial statements (balance sheet). Equity is referred as
what remains after the company has paid all its liabilities out of its assets. It’s not always that
a company gets to have equity, at times the value of liabilities surpasses the value of assets.
Some important financial data under equity includes shares, common stock and preferred
stock.

Balance sheets is a summary of the company position on one day at a definite point in time. It
lists the assets liabilities and equity of the company at that particular time. Stakeholders as
mentioned above can use the balance sheet to analyse how the business is funding capital
assets and operations and current investor information.

The statement of income or the income statement is that statement that shows revenues and
expenses of an organization over a period of time, they are usually released annually,
monthly and quarterly. Stakeholders and shareholders get to use the income statement to
determine if an organization is functioning efficiently and effectively.
The third type of financial statement is the cash flow statement which measures well the
company generates its cash to pay its liability obligations, fund its projects and operating
expenses. It completes the balance sheet and income statement. The cash flow statement
allows the people who want to invest in a company or who invested already to understand
how the company operate and where its money is coming from and how it is spent. It is an
indicator of where the company is financially

The balance sheet gives information about the company’s financial position, it gives snapshot
of financial of financial position of a company by showing assets, owners equity and
liabilities for a specific period. The income statement gives an account of how profitable an
organization was during a specific period of time, reporting the expense, revenue and net
income of the company for a given period of time. Whilst the statement of cash flow shows
the companies information about cash flow for a particular period of time and they are
categorized into three groups of business activities which are operating, investing and
financing.it is financial data that gets to make it possible for these reports to be completed.

TASK TWO B

Accounting is the process of measuring, communicating and identifying the economic

information to permit informed judgments and decisions by users of the information.
Accounting does not only archives financial transactions and conveys the financial position
of a business enterprise but also examines and reports the accounting information of a
business in a document called financial statement.

Accounting principles are based on concepts that have been developed by accounting
authorities and regulators around the world. The use of these principles by accountants ensure
that the financial statements explanatory and trustworthy. The principles are discussed below

The self-entity concept: this concept states that the owners of the business and thee business
have to be treated different (as individuals) as far as the financial transactions are concerned.

Money measurement concept: it states that only the transactions of business can be stated in
monetary form and recorded.

Duality concept: this concept states that for every credit transaction, there is a corresponding
debit transaction made (every transaction has got two effects).
Going concern: under this concept, it is assumed that a business will continue operating for a
foreseeable future, unless there is evidence to the contrary.

Cost concept: a transaction is recorded at a cost it occurred.

Accounting year concept: each business chooses a period in which it does its accounting
process.

Matching concept: This principle commands that for every entry of revenue recorded in a
given accounting period, an equal expense entry has to be recorded for correctly calculating
profit or loss in a given period.

Realisation concept: According to this concept, profit is recognised only when it is earned.
An advance or fee paid is not considered a profit until the goods or services have been
delivered to the buyer.

TASK TWO C  

Financial ratios are used to analyse how the business is faring (to know the companies health
and its potential to grow). Financial ratios is simply the comparison between specific pieces
of information derived from the company’s balance sheet and income statement. These ratios
can be used to observe the current performance of the company comparing to the previous
period this can further help the company identify the problems it’s facing and how to fix
them. The ratios can also be used to compare the performance of the company to that of
competitors or the industry. Type of ratios include common size, liquidity, efficiency and
solvency ratios, David (2007)

COMMON SIZE RATIOS 

Common ratios is one of the ways a business can get to look its financial statements, they can
be derived from the balance sheet and income statements. Common size ratio is calculated
by computing all the asset category from the balance sheet as a percentage of the total assets
and all the liabilities as a percentage of total liabilities plus the owner’s equity from the
balance sheet

LIQUIDITY RATIOS 

These ratios measure the company’s ability to shield its expenses, examples of the most
common ratios are current and quick ratios.
Current Ratio: it measures the financial strength of the company. Current ratio is the
number of times an organisation current assets surpasses the current liabilities which
indicates the solvency of the company. The current ratio can be expressed using the formula
below.

Current Ratio = Total current assets/Total current liabilities

The rule of thumb for current ratio is that the ratio of 2 to 1 is good (acceptable), otherwise
the ratio will depend on the nature of the business and the character of the current assets and
current liabilities. A current ratio can be improved by increasing current assets or by
decreasing current liabilities. A high current ratio may mean that cash is not being utilized in
an optimal way. For instance, the excess cash might be better invested in equipment.

Quick Ratio

The quick ratio at times called the acid test ratio is the ratio that looks at the companies most
liquid assets and relates them to the liabilities if the company. It determines whether the
business is meeting its obligations even if adverse conditions occur. Examples f assets that
are considered to be quick assets are cash, bonds, account receivables and stocks. The
following is the formula of the quick ratio

Quick Ratio = (Current Assets − Inventory)/Current Liabilities

Quick ratios between 0.5 and 1 is considered to be adequate (satisfactory) as long as the
collection of receivables is not expected to slow.

OPERATING RATIOS 

The efficiency of the business operations is measured using the operating ratios. There are
four types of operating ratios namely, return on assets, inventory, day’s receivables and sales
to receivables

Inventory Turnover: it is used to measure the number of time an inventory is changed into
sales in a particular time frame. The inventory turnover is calculated using the formula below

Inventory Ratio = Cost of Goods Sold/Inventory

The higher the ratio the faster the inventory is converted into sales.

Sales-to-Receivables Ratio: it measures the number of times account receivables get

converted in a particular period of time.
Sales-to-Receivables Ratio = Net Sales/Net Receivables

The higher the sales receivables the shorter the period for making sales and collecting cash.

Days' Receivables Ratio: this measures how long the account receivables are unpaid.

It is computed using the formula:

Days' Receivables Ratio = 365/Sales Receivables Ratio

Return on Assets: the ROA measures the relationship between the profits the company
made and the assets that were used to make the profits

It is calculated as follows:

Return on Assets = Net Income before Taxes/Total Assets X 100

TASK THREE A

Cash flow management is the method in which an organization keeps the control over the
outflow and inflow of funds. The ultimate goal of the cash flow management is to guarantee
that the inflow of cash is always greater than the outflow. A business must not be overdue in
payments to creditors. Similarly, it must not have long-standing debtors on its books. The
emergence of such cases is a signal for the cash flow manager to take charge. The importance
of having an effective cash flow in an organisation cannot be over emphasized. The following
are some of the importance of having an effective cash flow in organisations, Tracy (1994).

SOLVENCY AND CREDIT WORTHINESS: a good cash flow for a company means a
steady and foreseeable cash flow. If a company has a positive cash flow it would be easy for
it to attain a loan from banking institution as good cash flows pleases financial institutions
and banks. A healthy cash flow also contributes to the credit score affixed on a company.
Companies with an impressive credit rating will be in a better position to raise funds from the
open market or seek foreign investment.

BOOSTS VENDOR AND EMPLOYEE RELATIONS: efficient management of cash flow

gets to ensure that business managers have funds always at their disposal, sufficient funds
gets to set good timing for the receivables and payables. A business paying its dues on time
sets a good reputation and builds a good relationship with its suppliers and debtors. Effective
cash flow management guarantees timely disbursement of regular expenditure such as
salaries. Regular salaries make the employees loyal to the company and raise their morale
and get to reduce the chances of them leaving the company to look for opportunities
elsewhere. Good control of the cash movement gets to keep the cases of petty theft and
embezzlement under check.

ENABLING INVESTMENT: the rule of cash flow management says that the inflow should
exceed the outflow for a company to sit on a surplus, this surplus funds can get to be invested
by companies to reap returns.

TASK THREE B

Cash flow is the inflow and outflow of money in a business. It is the measure of the
companys financial health. I as much as the cash flow can be seem to be a straight forward
thing, executing a cash flow strategy can prove to be a difficult thing.in odder to secure the
financial ability of an organisation, working capital plays the following role.

Establish sources of credit

Most businesses run into cash flow problems at some point and having sources of credit is
essential. For smaller purchases, business credit cards do the trick, although just like with
personal cards, it's important to pay them off every month to avoid interest charges building
up.

For large amounts and other types of expenses such as salaries, establishing a line of credit
can help your company survive short-term periods when cash is scarce. It's important to
remember that borrowing when there is a cash flow problem can be more difficult than
borrowing when your finances are strong. It's therefore best to plan ahead even if it means
paying a little in fees to keep an unutilized line of credit available.

Cash is King

The importance of strong cash flow is appropriately stated in the expression "cash is king."
The basis of this is that having cash puts the business in a more stable position with better
buying power. Whereas the business can borrow money at times, cash gives it bigger
protection against loan defaults or foreclosures. Cash flow is different from cash position.
Having cash on hand is precarious, but cash flow indicates an ongoing ability to generate and
use cash.

Growth
Solid cash flow offers the comfort and capabilities a business needs to invest in growth.
Building new locations, investing in research and development, renovating infrastructure,
improving technology, providing more training and purchasing more assets and inventory are
among the ways a business can grow and improve with strong positive cash flow. Additional
cash flow helps the company function in a strategic, proactive way, rather than a reactive,
defensive way.

Flexibility

Cash flow also gives the business superior flexibility in responding to developing problems
or making critical decisions. Assurance in cash flow makes it easier to make critical
purchases in the near term rather than waiting. It also permits the organization to disperse
cash in the form of dividends to shareholders or owners. This strengthens the bond between
the company and its owners. Strong cash flow also makes the business more appealing to a
lender if you desire to take on new debt at some point.

TASK FOUR A

Main ownership categories of organisations are created and operated in one of the following
forms: James (2001).

Sole proprietorship: this is the simplest and most common category of business. Under this
type of business, a single individual operates a business activity minus the need of formal
organization. This type of a business is not owned by more than one individual hence it is not
considered to be an entity separate from the owner and does not provide protection against
the liability of the owner.

General partnership: this type of a business is created when one or two individuals come
together and form a business with a view of making profits. A partnership usually functions
in agreement with a partnership deed, but there is no requirement that the agreement be in
writing and no state-filing requirement. Partnership are usually terminable at will or at the
death of any of the partners, and partnership interests cannot be sold or transferred without
the consent of the other partners.

Partnership offers no liability protection to its owners. Instead, each partner is jointly and
severally liable for all debts of the partnership.
Corporation: a corporation has the following characteristics: features of limited liability,
legal person separate from its owners, centralization of management, ease of transferability of
ownership interests and perpetual duration. Shareholders is the name used to describe the
owners of the business and directors get to manage the business. Shareholders do not get to
be liable for the debts of the business.

Limited Liability Company: The limited liability company (LLC) a different type of entity
that has the powers of both a corporation and a partnership. Depending on how the LLC is
structured, it may be compared to a general partnership with limited liability, or to a limited
partnership where all the owners are free to participate in management and all have limited
liability. The owners of an LLC are called “members.” A member can be an individual,
partnership, corporation, trust, and any other legal or commercial entity. A limited liability
company can be managed by managers or by its members. The management structure must
be stated in the certificate of formation. Management structure is a determination that is made
by the LLC and its members.

TASK FOUR B

A financial report is one that encompasses the disclosure of information of finances of an

organization to various stakeholders about the financial position of the company and its
performance financially over a stated period of time.

This work will use the amazon consolidated balance sheet (financial statement) for the years
2016 and 2017 obtained from amazon websites ( www.amazon.com) to highlight on some of
the points indicated in the question (Capital structure)
The following table shows the presentation of the income statement showing the Profit/loss
distribution.

Category Amount

Sales Revenue K57,050.68

Cost of Goods Sold (COGS) K24,984.79
Gross Profit K32,101.89
General Expenses K11,049.55
*Rent K9,000.00
*Bank & ATM Fee Expenses K9.43
Category Amount

*Equipment Expenses K742.40

*Marketing Expenses K503.53
*Merchant Fees Expenses K794.19
Operating Earnings K21,052.34
Interest Expense K5,000.00
Earnings Before Income Tax K16,052.34
Income Tax Expense K10,000.00
Net Profit K6,052.34

REFERENCES
American Management Association, (1992). How to Read and Interpret Financial
Statements.

David Spiceland (2007). Intermediate Accounting

James C. Van Horne and John Martin Wachowicz, (2001). Fundamentals of Financial
Management, 11th ed. Prentice Hall.

Paul M Fischer (2009). Advanced accounting

Peter Engel (2006). Budgeting and Finance.McGraw-Hill.

Tracy L. Penwell, (1994). Credit Process: A Guide for Small Business Owners. Federal
Reserve Bank of New York

Vincent Muro, (1998). Handbook of Financial Analysis for Corporate Managers.