Happy Hospital Scenario - Essay Example

Budgets and performance reports can be used by managers to improve the decision making at a company. Budgets enable a manager to project the futurerevenues and costs associated with a time period. It is imperative for budgets to have accurate sales and expense forecast. Three techniques that can be used to forecast sales are regression analysis, Delphi method, and time series (Mann, 1995). The most comprehensive and important budget that is prepared by the accounting department is the master budget.

The master budget is a summary of a company’s plans that sets specific targets for sales, distribution, production, and the financing activities (Garrison & Noreen, 2002). The budget can be considered a comprehensive short term plan of the future of a company and the actions that are needed to implement the plan. The use of budgeting has many advantages. Budgeting can be used as a means of communicating management’s plans throughout an organization (Garrison & Noreen, 2002). A set of financial reports that are very useful for the stakeholders of an organization are its financial statements.

The four basic financial statements are the income statement, balance sheet, statement of cash flow, and statement of retained earnings. The income statement provides information regarding the profitability of a company during an accounting period. The typical accounting cycle is completed in one year. The net income is the final outcome of the income statement and it provides the net profits that are earned during a period of time. This statement can be used to improve the decision making of the firm to achieve better financial results.

For instance if a company has a net margin of 2% and the industry net margin is 10%, the company had profitability problems. A manager may decide to implement a cost reduction plan across the entire organization in order to increase the profitability of the firm by lowering the total expenses. The balance sheet is created using the foundation given by the basic accounting of equation. The basic accounting equation stipulates that assets are equal to liabilities plus stockholders equity. The balance sheet is often referred to as a statement of position because it provides an overview of the assets, debts, and equity of a firm at a specific point in time.

The statement of cash flows shows the outlays of cash divided by three types of activities: operating, financing, and investing. When companies are having cash flow problems the statement of cash flow can be very useful to identify how cash is being used by the company. Ethics is a very important element of a successful business enterprise. Ethics can be defined as the standard of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair (Weygandt, Kieso, Kimmel, 2002).

In the accounting field ethics is of utter importance since the credibility and validity of accounting work is based on the trust the general public have on the high ethical standards followed by the profession. Back in the early part of the 21st century the financial and accounting community was suffering from trust and credibility issues after the Enron and WorldCom financial debacles. Congress and the SEC intervened in the situation and created the Sarbanes-Oxley Act (SOX) of 2002. SOX raised the ethical standards of the profession by raising the accountability of executives and accountants.

The CEO of the company and its executive staff are now liable in case of fraud and may face large fines and prison time if convicted in a court of law. In the business environment of today customers expect a high ethical standard from corporations as well as a commitment to social corporate responsibility. A piece of information that is relevant for Happy Hospital when making decisions is ensuring the accounting department is in full compliance with the generally accepted accounting principles.

It is important to evaluate the financial performance of the company to ensure it is complying with the expectation of the shareholders. The use of ratio analysis can be very useful to determine if a firm is performing well in specific categories. For instance the current ratio of Happy Hospital revealed that the firm’s liquidity position was weak in comparison with the performance of the previous year. References Garrison, R., Noreen, E. (2003). Managerial Accounting (10th ed.). Boston: McGraw Hill Irwin. Mann, P. (1995).

Statistics For Business and Economics. New York: John Wiley & Sons. Weygandt, J., Kieso, D., Kimmel, P. (2002). Accounting Principles (6th ed.). New York: John Wiley & Sons.