This discussion and presentation is based on the analysis of the different conditions by which a business is able to smoothly operate based on the accounting and financial management operations it embraces to adapt to. Presented in a form of memo, this documentation is supposed to be presented to the board of members of the XYZ Construction Inc in the absence of the Chief Financial Officer to give them an idea on how the financial assets of the organization is being managed through accounting principles.
To: Key Members of the Board
From: Financial Department of XYZ Construction Inc.
What: Presentation and Analysis of Financial and Accounting Processes Relating to the Business
Due to the absence of the Chief Financial Officer who has been promoted to Vice President of Overseas Operations, This documentation aims to create a distinct indication on what specific concepts of accounting and financial management is essential for the operation of the business that XYZ Construction Inc handles.
Relatively, this presentation then aims to show how the different concepts of accounting actually impacts the overall operation of the business in the industry. It is deemed that understanding the value of these concepts shall provide the organization [especially those who are members of the board] with the necessary understanding on how the business operates especially with regards the management of the financial assets of the organization in relation to how it functions as an entity enjoined in the construction operations.
To present the different concepts of financial management that the organization handles in relation to the different operations it engages with, five primary concepts shall be given attention to and shall be described accordingly as to how they impact the overall operation and function of the business.
- Balance Sheet
The balance sheet is basically a documented presentation on the incoming and outgoing financial elements that the business gets involved with. Relatively, this documentation shows the financial condition of the business based on the balance of cash flows that occur due to the activities that the business engages with. Balancing the parallel position of the assets, liabilities and equities, this documentation provides a clear distinction on how the different elements of the business are able to contain the expenses through the sufficient process of acquiring sufficient profit at the same time.
- Income Statement
The income statement is basically a record on the expenses and the revenues of the organization within a specific time. Following the formula Revenues − Expenses = Net Income, this documentation intends to simply show how much is going out from the business due to operational expenses and how much comes in. The remaining revenue is recorded in this type of document to make sure that the business is able to keep up with th operational challenges while still being able to earn as much as expected.
- Operating Cash Flows
This particular document intends to show a particular condition by which the business tends to embrace different activities to make sure it is able to keep on track in relation to the overall mission, vision and goals of the business. The cash flows are then divided into three particular sections namely the operating activities, the investment activities and the financing activities. All these activities are recorded to be able to track how the financial assets of the company are being managed accordingly. From the record of these activities, the accounts receivable and accounts payable are all measured accordingly.
- Statement of Retained Earnings
This document indicates the rate of profit or earnings that the company has kept over a specific period of time for safe keeping. The amount of earnings kept is supposed to be a source of emergency funding for the business in case particular financial emergencies occur along the way. In a way, the situation could be simply noted as the balance between net income and the rate of retained earnings kept by the business. Once the net income increases, the rate of retained earnings increase as well, on the other end, if the dividends of net income decrease, then the rate of retained earnings decrease as well.
- Net Working Capital
The record of the net working capital simply indicates the difference between the current assets and the current liabilities that the business is operating with. For instance, if the current liabilities of the business has a higher rate against its current assets then the net working capital would appear to be negative. In the instance that the situation changes, then the net working capital would have a more positive value for the organization to operate with. Relatively, the net working capital could be measured within specific span of time as decided by the board of administrators and as directed by the financial officers of the organization.
Overall Implications of the Concept of Accounting in Business Operations
Overall, from the brief discussion presented herein, it could be understood that all five elements of accounting such as the creation of documents such as the balance sheet and the income statement are all needed to make sure that the operation of the business is presented clearly. Through these documentations a distinct condition of making sure that every activity of the organization is directed towards its financial and overall progress is imposed. Meanwhile, the concepts of operating cash flows, statement of retained earnings and net working capital provide a clear-cut distinction on how financial assets of the organization are used and managed by the organization hence funding and supporting the definite condition of progress that the business aims to incur.
Considering the position of the business today, XYZ Construction Inc is able to find a way to manipulate its assets to make sure that the organization is able to gain or earn the revenues it is expected to incur within a specific time of business operation in the market. Through the years, the business has been able to withstand different financial challenges that has endangered its position in the market due to the effective use of the different accounting principles and concepts discussed herein. It could then be said that it is because of the proper control on the application of these concepts that the organization is able to survive different pressures from the market. It is then understood that the finance department of the organization plays a great role in setting the path straight towards the growth and development that the whole business hopes to incur in the future. The collaborative use of the different concepts of accounting and the completion of different documents related to it sets the blueprint of development that the organization could devout to in relation to its current operations in the market.
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