SATA TECHNOLOGY AND BUSINESS COLLEGE

SCHOOL OF POST GRADUATE PROGRAM

MANAGERIAL ACCOUNTING AND FINANCE GROUP WORK

Group Member (Group-4)

S/No Id No First Name Sceond Name

1. PGR/PM/NEW/15 Marwa Getahun
2. PGR/PM/NEW/15 Abebe Deboch
3. PGR/PM/NEW/15 Firehiwot Getu

Submited to: Taye T. (Ass. Prof)

1. Define accounting, identify users of financial accounting information and indicate how
accounting information helps those users for decision making.
Definition of Accounting: Accounting is the manner of recording economic transactions relating
a business. The accounting manner consists of summarizing, analyzing, and reporting those
transactions to oversight agencies, regulators, and tax series entities. The major goal of
accounting is to hold a scientific document of economic transactions which enables the
customers to recognize the each day transactions in a scientific way for you to advantage know-
how approximately general business
Identify users of financial accounting information: The purpose of financial information is to
provide inputs for decision making. Accounting is the information system that identifies , records
and communicated the economic events of an organization to interested users. The users of
accounting information fall into two groupsinternal users and external users.

Internal users: users within the organization. Internal users and question they may ask:
 Marketing- what price will maximize the company’s net income?
 Human resources- can we afford to give employees pay raises this year?
 Finance-Is cash sufficient to pay dividends to stockholders?
 Management-Which product line is more profitable?
External users: users who are outside organization. External users & questions they may ask:
 Investors (current and potential): Is the company earning satisfactory income?
 Creditors (suppliers & bankers): Will the company be able to pay its debts as they come
due?
 IRS, labor unions, customers,: Is the company complying with rules and regulations?
 Tax authorities, suppliers, regulators, and banks are external users of accounting
information.
How accounting information helps those users for decision making?
To recap, accounting information is essential at all levels of the business internally and
externally for decision making. Every decision in the company whether it is getting a loan, hiring
more staff, budgeting, pricing goods, investing, expanding, or downsizing needs sound financial
information.
Financial information and reporting should be accessible at all levels of the company. The mid
and lower levels of management also require good accounting information and reporting to
perform well. For example, if the reports show that the high cost of raw materials is impacting
the profit margin, the company will have to renegotiate prices with their suppliers, find cheaper
suppliers or adjust the sale price of their goods. These decisions cannot be made arbitrarily and
must be backed with the numbers to support the decision.
Maintaining accounts with manual pen and paper methods make it very difficult to access
quickly in real-time. By the time a report is manually prepared, the information may be outdated.
In the current business world, companies have to be very nimble and quick in their decision-
making. So, manual methods of accounting are a big stumbling block to quick and informed
decision-making. Even in a small business, going through numerous files and receipts and then
compiling them into a summarized report is a painstaking and slow process.
Some people use spreadsheets to capture and store their accounting information. This is a good
method to produce graphs and reports based on specific data. However, to produce an accounting
report you still have to extract and distill the data from your spreadsheets and compute the report
manually. Using software accounting tools for business decision-making makes reporting real-
time and instantaneous.
2. List accounting cycles, identify the importance of each and support with examples after
explaining each cycle.
The accounting cycle is the process of accepting, recording, sorting, and crediting payments
made and received within a business during a particular accounting period.
An accounting cycle refers to culminating the accounting records for further analysis, letting
internal stakeholders make well-informed and relevant financial decisions. It summarizes the
accounting events in a sequence for a specific accounting period, becoming a quick guide for
external stakeholders to decide whether to invest in the firm or associate with it for any
upcoming projects.
Accounting cycle steps properly to make the accounting process efficient and accurate.
#1 Analyze Transactions: The first step of the accounting process is the analysis of the
transactions. First, the accountants collect, identify, and classify receipts, invoices, and other
financial data. Next, the professionals read the collected data, check each transaction that
occurred, and note the reasons that led to those transactions. Finally, they put it under the right
label and determine their impact on different accounts based on their analysis.
Primary purposes of transaction analysis are to gauge the relevance and reliability of a
transaction. Relevance indicates a transaction has predictive value. In short, the transaction
should add value to the business and allow for predicting future earnings.

#2 Record in journal: The next step is to make journal entries for the transactions. Whether use
a single entry accounting system or a double entry accounting system, applying a debit or credit
to every transaction is necessary. Thus, the transactions move to a cash accounting system when
money is paid or received. In short, all transactions that occur within an accounting period must
find a record in a journal. The ultimate purpose of journal record is to makes sure that all entries
are recorded irrespective of the size of the entity. The accounting journal records all transactions
in a chronological order. As a result, accessing information about a certain transaction on a
specific date becomes easy.

#3 Transfer to ledger:The third step of the accounting process is to post those journal entries
into ledger accounts. Thus, the bookkeeper/accountant must put the recorded transaction to the
general ledger account. The transactions find a proper breakdown within it, and the accounting
events are easily identifiable as a separate account. Transfer to ledger is used to adjust, transfer,
or correct transactions that have posted to the general ledger.

#4 Create trial balance: With the transfer of all entries to the general ledger, the next step is to
create a trial balance to ensure total debits tally with the total credits for the accounting period.
This step, however, might indicate some discrepancies, showing an unadjusted trial balance. The
main purpose of a trial balance is to ensure that the list of credit and debit entries in a general
ledger is mathematically correct

#5 Make corrections: Unadjusted records lead to accounting errors, requiring rectification.

Thus, the companies prepare a worksheet to track the errors in the record. As accountants
identify the mistakes, they rectify the same in the worksheet to ensure debits are equal to credits.

#6 Adjust entries: It is a crucial step as the discrepancy, if not handled correctly, could mislead
internal and external stakeholders while making business decisions. In addition, by adjusting
entries, the accountant will ensure the information seekers receive crystal clear accounting
details from the trial balance.
#7 Prepare financial statements: After crosschecking the accounting details and rectifying the
errors, the firms prepare the respective financial statements. These statements are classified as
income statements, balance sheets, shareholder’s equity statements, and cash flow statements.

#8 Analyze statements: After creating the respective statements, the accountants analyze the
same to figure out some trends indicated through the recorded accounting activities. Then, based
on the analysis, they convey their observation to managers and other stakeholders who use the
information to assess the businesses’ performance and make well-informed and productive
decisions.

#9 Close the books: Making closing entries is the last step of the accounting cycle. It indicates
that firms have created all financial statements, and recorded, analyzed, and summarized all
business transactions thoroughly. With the closure of the books, however, the bookkeepers and
accountants repeat the accounting steps for the next accounting period.

3. Some people are justifying that Debit means increasing and Credit means decreasing always
in recording transactions. Do you agree with them? If your answer is either Yes or No, justify
properly and support with examples.
No, it is not true. Debit does not always mean increase and credit does not always mean
decrease. It depends upon the accounts involved in transaction.
For example, cash and receivable accounts have debit balances increased with debits,
decreased with credits and revenue accounts have credit balances increased with credits,
decreased with debits. We can see that revenue and cash account in this example has debit
balance, but cash account have increasing balance and revenue account have decreasing
balance, but both of them are debit balance.
Example: In December JT’s Consulting Services earned $9,000 from various charge accounts
clients. In this example the asset account, Accounts Receivable, is increased by $9,000. The
revenue account, Fees Income, is increased by $9,000. Both of them has increasing balanec,
but account recevable has debit balance and revenue account has decreasing balance.
4. Explain Financial Statements and Justify their importance.
Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statements are often audited by government agencies,
accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.

Importance of statement of financial position: it shows the company’s financial position and
provides detailed investments of the company’s asset investments. The balance sheet also
contains the company’s debt and equity levels. This capital mix helps investors and creditors
understand the position and the company’s performance. A company will be able to quickly
assess whether it has borrowed too much money, whether the assets it owns are not liquid
enough, or whether it has enough cash on hand to meet current demands.

Importance of income statement: The balance sheet is a snapshot of the company’s assets,
liabilities, equity, and debt. It does not show what happened in the period that caused the
company to get to the position where it is now. Therefore, profit figures on the income statement
are important to the investors. Income statement format contains sales, expenses, losses, and
profit. Using these statements can help investors evaluate the company’s past performance and
determine future cash flows. IFRS and US GAAP also differ in the classification of certain
expenses like restructuring charges, shipping costs, and handling costs. The necessary expense of
depreciation and discontinued operations are also treated very differently.

Importance of Cash Flow Statement: Cash flow statement shows the inflow and the outflow of
the cash flow in and out of business during the financial period. It gives the investors an idea that
the company has enough funds to pay for its expenses and purchases.

The cash flow statement has all three main headings, i.e., Operating, Investing, and Financing. It
gives the business an overview of the entire business. Under the US GAAP, interest received and
paid will be a part of operating activities, while under IFRS, interest received will be a part of
operating or investing activities. Interest paid will be a part of operating or financing activities.
Similarly, under US GAAP dividends received will be a part of operating activities while
dividends paid will be a part of financing activities, and under IFRS, dividends received will be a
part of operating activities while dividends paid will be a part of the financing.
Importance of the Statement of Equity: It is primarily important to the equity shareholders
because it shows the changes in the components like retained earnings during the period. The
difference between equity and debt shows the companies net worth. A company with a steady
increase in retained earnings is sustainable as opposed to increasing shareholder base.

5. What is Cost? How cost information used for decision Making? What does it indicate when
producers use the word Direct material, direct labor and Factory overhead costs?
What is Cost? Cost is a value of money that a company had to spend to produce its goods or
services. It is calculated as the amount that company spends in order to produce a certain unit
of a product. In simple words it is the money that a company spends on things such as labor,
services, raw materials, and more.
How cost information used for decision Making? Understanding costs information is vital
for informed business decisions. It helps to determine the profitability of operations and how
to set prices. Cost information provides better data to make business analytics more effective.
Essentially, providing the detailed cost information that management needs to better
understand and manage current operations and develop plans for the future
What does it indicate when producers use the word Direct material, direct labor and
Factory overhead costs? Direct materials are those materials and supplies that are consumed
during the manufacture of a product, and this indicates that which are directly identified with
that product and traceble material. Direct labor is production or services labor that is assigned
to a specific product, cost center, or work order. When a business manufactures products,
direct labor is considered to be the labor of the production crew that produces goods, such as
machine operators, assembly line operators, painters, and so forth. Factory ooverhead refers
to the ongoing business expenses not directly attributed to creating a product or service. It is
important for budgeting purposes but also for determining how much a company must charge
for its products or services to make a profit.
6. What is Financial Management and what is the objective financial management of
Finance manager? Support with examples.
 Financial Management: Financial management is one major area of study under
finance. It deals with decisions made by a business firm that affect its finances. Financial
management sometimes called corporate finance or business finance, this area of finance
is concerned primarily with financial decision-making within a business entity. Financial
 management decisions include maintaining cash balances, extending credit, acquiring
other firms, borrowing from banks, and issuing stocks and bonds.
 What is the objective financial management of Finance manager? The ultimate
objectives of finance managers is to keep financial health of a business. Their objective
is to reduce expenses and maximize profits. They research and gather data to help the
company make financial decisions, prepare budgets, and assist with audits
7. What is Financial Institution and Financial Market? Explain those Depository and
Non-depository Institutions, Mutual Funds, Instruments of Money Markets.
Financial Institution: Financial institutions are financial intermediaries, which are
specialized financial firms that facilitate the transfer of funds from savers to demanders’
of capital. They accept savings from customers and lend this money to other customers
or they invest it. In many instances, they pay savers interest on deposited funds. The key
participants in financial transactions of financial institutions are individuals, businesses,
and government. By accepting the savings from these parties, financial institutions
transfer again to individuals, business firms, and governments. Since financial
institutions are generally large, they gain economies of scale in the transfer of money
between savers and demanders. By pooling risks, they help individual savers to diversify
their risk. Examples: Banks, securities firms, insurance companies.
Financial Market: Financial markets are markets in which financial instruments are
bought and sold by suppliers and demanders of funds. They, unlike financial institutions,
are places in which suppliers and demanders of funds meet directly to transact business.
According to Brigham, Eurene F. “Financial Markets are the place where peoples and
organization wanting to borrow money are brought together with those having surplus
funds”. The markets relay information, shift risk, set prices, and help move resource to
their most valued use. Smooth financial markets are keys to an efficient economy.
Example: New York Stock Exchange, Tokeyo Stock Exchange
Depository institutions: These firms take in deposits and make loans.
Depository institutions include commercial banks, saving and loan institutions, saving
banks, and credit unions. These financial intermediaries accept deposits. Deposits
represent the liabilities (debt) of the deposit accepting institutions. With the fund rose
through deposits and other funding sources, depository institutions make direct loans to
various entities and also invest in securities. Saving and loan associations, saving banks,
and credit unions are commonly called “thrifts” which are specialized types of
depository institutions.
Non-depository institutions: the institutions that trade other financial instruments. The
non-depository financial institutions include insurance companies, property and casualty
companies, pension funds, and investment companies, and securities firms. Their
primary objective is acting as agent and risk bearing for their customers.
Mutual funds: A mutual fund is a pool of money managed by a professional fund
manager. It is a trust that collects money from a number of investors who share a
common investment objective and invests the same in equities, bonds, money market
instruments and/or other securities. Commen examples of mutul fund is;
Money market funds, fixed income funds, equity funds, balanced funds, index funds,
specialty funds, fund-of-funds, and diversify by investment style.
Instruments of money markets: Money markets include markets for such instruments
as bank accounts, including term certificates of deposit; interbank loans (loans between
banks); money market mutual funds; commercial paper; Treasury bills; and securities
lending and repurchase agreements (repos)
 Treasury Bills: Treasury bills (T-bills) are very safe short-term investments issued
by the federal government and some provinces. Like zero-coupon bonds, they do not
pay interest prior to maturity; instead they are sold at a discount of the par value to
create a positive yield to maturity.
 Bankers' acceptance: A draft issued by a bank that will be accepted for payment,
effectively the same as a cashier's check.
 Certificate of deposit: A time deposit at a bank with a specific maturity date; large-
denomination certificates of deposits can be sold before maturity.
 Repurchase agreements: Short-term loans normally for less than two weeks and
frequently for one day arranged by selling securities to an investor with an
agreement to repurchase them at a fixed price on a fixed date.
 Commercial paper: An unsecured promissory notes with a fixed maturity of one to
270 days; usually sold at a discount from face value.
 Eurodollar deposit: Deposits made in U.S. dollars at a bank or bank branch located
outside the United States.
 Federal Agency Short: it is short-term securities issued by government sponsored
enterprises such as the Farm Credit System, the Federal Home Loan Banks and the
Federal National Mortgage Association.
 Federal funds: it is interest-bearing deposits held by banks and other depository
institutions at the Federal Reserve; these are immediately available funds that
institutions borrow or lend, usually on an overnight basis. They are lent for the
federal funds rate. Treasury Bills
 Municipal notes: it is short-term notes issued by municipalities in anticipation of
tax receipts or other revenues.
 Money market mutual fund: it is pooled short maturity, high quality investments
which buy money market securities on behalf of retail or institutional investors.
 Foreign Exchange Swaps: Exchanging a set of currencies in spot date and the
reversal of the exchange of currencies at a predetermined time in the future.
 Source:
Managerial Accounting 4th edition by Stacey M Whitecotton, Robert Libby, Fred
Phillips Paperback – International Edition
Fundamentals of Corporate Finance, 12th Edition, By Stephen Ross, Randolph
Westerfield, Bradford Jordan
Financial Institutions Management: A Risk Management Approach 9th Edition by
Anthony Saunders (Author), Marcia Cornett (Author)
Fundamentals of Financial Management thirteenth edition by James C. Van Horne and
John M. Wachowicz, Jr.
Investment Analysis and Portfolio Management 10th Edition by Frank K. Reilly
(Author), Keith C. Brown (Author)