Accounting for Small Businesses - Accounting Systems, Participation in Budgeting, and Performance Evaluation - Assignment Example

Accounting for Small Businesses s Task The accounting software systems assist the business create reports and calculate financial ratios at any given time, thus offering immediate access to all information required to make informed financial decisions (Nicholas, 2006). FrontAccounting: It is an open source internet-based accounting software for small as well as medium enterprises in PHP, making use of MySQL. The software permits double-entry accounting and it is often incorporated in modules which support the most common business operations. FrontAccounting is multilingual, multiuser, and multicurrency. FrontAccounting is offered with standard modules including manufacturing, sales, purchases, banking and general ledger, and items and inventory. FrontAccounting’s functionality is suitable for managing purchases, issuing offers, controlling stock, registering and sending orders in small to medium enterprises. It also allows for easy management of cash flow and configuring different points of sale (Caruthers & Espeland, 2011, p.557). GnuCash: It is a free software accounting program that usually implements the double-entry bookkeeping system. Initially, it was aimed at developing the capabilities that are same to Intuit, although with features for small business accounting. GnuCash has the pure fixed-point arithmetic to evade rounding errors that could be realised with floating-point arithmetic. It also has a straightforward register that makes it easy and fast to enter transactions, track customers and suppliers, scheduled transaction support, invoicing and bill payment, and various reporting tools. Following this further, it also has advanced features, such as, budget management and stock portfolios, despite the fact that each of your accounts can be in several currencies. The double entry accounting together with the reconciliation tool assist you detect any errors. There are several versions available for Android app, Linux, Windows, and Mac. The other benefits of using GnuCash include: mortgage and loan repayment assistant, QFX import, SQL support, transaction-import matching support, multi-currency transaction handling, stock/mutual fund portfolios, web-based stock and mutual fund quotes, built-in and custom reports and charts, budget, bank and credit card reconciliation, check printing, invoicing, accounts receivable (A/R), accounts payable (A/P) including bills due reminders, employee expense voucher, depreciation, and setting up tax tables and applying sales tax on invoices. TurboCash: It is also an open source small business accounting package with more than 80,000 users on a global scale. Its major function is as a general ledger which is to post transactions into the accounts and produce reports. The developers can extend the system due to plugin technology. The program is also easy to use. It has all the usual standard functions including invoicing, stock control, creditors, debtors, VAT accounting, general ledger, income statements, balance sheet, income statements, and numerous reports. It also supports several users, and even multiple companies. The other benefit is that the program does not need to be upgraded. The program is also easy to download and install (Tracy, 2013). Task 2 In the United Kingdom, the small business enterprises account for 99% of all the private sector enterprises. In that same year they were an estimated 5 million businesses in the United Kingdom that provided employment to 24.3 million individuals, with a total turnover of about £3,300 billion (Federation of the Small Business, 2013). According to Curran and Blackburn (2010, p.56), accounts represent part of the conceptual toolkit that people in business use in effecting their past decisions by taking into consideration present alternatives by offering technical information on outcomes of preceding business actions. The major role played by accounting in rational decision-making. Walther and Skousen, (2013, p.56) further assert that accounts can render an accurate assessment of the relative success of a certain investment and in that way make easy the pursuit of higher profits. Furthermore, they also offer a record of current assets. Therefore, it is often utilised by the business people as an indicator of economic means at their disposal. As a consequence, accounts are a vital a critical factor in making informed financial decisions and thereby make a contribution to profit maximization of profits. Pletner (2009, p.67) posits that accounting is one of the crucial element of information for decision makers both in and out of the organization. The accounting cycle is a series of procedures in collecting, processing, and communicating financial information. Walther and Skousen (2013, p.112) sets forth the view that financial is presented in reports known as financial statements. The steps for preparation of the accounting system for the next cycle include: Collecting and evaluating data from events as well as transactions: only those transactions and events that relate to the business entity are entered into the accounting system. Placing the transactions into the general ledger: The transactions are recorded using the double-entry bookkeeping system. Entries being posted to the general ledger Setting up an adjusted trial balance: It entails correcting the discovered errors. Correcting entries suitably Preparing an adjusted trial balance Sorting out the accounts into financial statements: A balance sheet as well as an income statement is prepared using the corrected balances. Closing the books Preparing a post-closing trial balance: It tests the equality of the credits and debits. The small or medium sized enterprises need to conform to the international accounting standards. The International Accounting Standards 1 (IAS) posits that the financial statements need to have a certain structure along with a minimum requirement for its content. The standard argues that a set of financial statements should consist of cash flow statements, financial position statement, profit and loss statement, and a statement of changes in equity position (Rodgers, 2012). Furthermore, the Finance Acts of 2004 and 2005 contain legislation aimed at ensuring that companies choosing to adopt International Accounting Standards in order to draw up their accounts receive broadly equivalent tax treatment to companies that continue to use UK Generally Accepted Accounting Practice (GAAP). Task 3 Cost benefit analysis entails the systematic approach of evaluating the weaknesses and strengths of alternatives which satisfy events, transactions, or the functional needs of the business. Cost benefit analysis also calculates and compares costs and benefits of a project. For the small and medium sized enterprises, inventory management is an ongoing process. If the inventory is not well balanced, then the supply may not meet the demands of the customer. The cost benefits analysis ensures that the inventory is more efficient and accurate. Cost benefit analysis is often used in the management of materials. To that end, inventory management assists companies increase cash flows and also save handling and holding costs (Amartya, 2010, p.931-933). The four major types of stock include: raw materials and components which are ready to utilise in production; work in progress which are stocks of unfinished goods in production; finished goods for sale; finally, consumables, for instance, stationery and fuel. Most of the small businesses cannot afford the expensive inventory systems, therefore, the development of apps are making it possible for the SMEs to manage stock in a more cost effective manner. For example, the inventory tracker serves as a comprehensive inventory tracking system for iPad. Furthermore, SOS Inventory incorporates Quickbooks as well as offering expanded features, like sales orders. Accurate inventory levels increase efficiencies. The concept of cost benefit analysis supports the stock inventory systems often operated by the SMEs resulting in: maximum purchasing level discounts; anticipation of price increases; assist meet overall customer needs and expectations; controlling the investment of working capital; enhance the bargaining position with the vendors; reducing costs of shortages and out of stocks; reducing the ordering costs; and finally, controlling of shrinkage. Task 4 When setting up a suitable computerised accounting system in order to meet the management’s information needs, the following information is required: The computerized accounting systems simplify the process of record keeping (Warren, Reeve, & Duchac, 2012, p. 220) The complexity and size of the firm: If the enterprise is larger faster and systems that can accommodate huge amounts of data are supposed to be used. Backup: the managements needs to know that all transactions and events can be backed up and saved, in case of any safety breach or hazard. It also needs to know that this can actually not be accomplished by using paper records, unless one makes copies of the pages which is a long and tedious process. Businesses need to keep records on their debits and credits. The business also needs to reveal particular financial as well as management information to the public users and government in a very short time. To that end, due to the long process of the accounting cycle the use of computerised accounting systems shorten the process and saves time. This is because a lot of transactions need to processed in the accounting cycle and a little mistake can affect the whole and the process needs to be started all over again. Therefore, when using computerised accounting systems it is often very easy to determine the error and correct the mistake (Warren, Reeve, & Duchac, 2012, p. 223). The accounting software usually process data and create reports much quicker as compared to the manual systems. Besides that, calculations are carried out automatically in the software programs thus reducing errors while increasing efficiency. The management are supposed to know that by using accounting software the organization needs to invest in training of employees along with program maintenance. As cited by Marshall and Paul (2009, p.56), accounting is an intrinsic part of business, since the firm ought to know if it making profits or losses. The benefits of the accounting programs needs to outweigh the costs. The computerized accounting systems offer better internal control report system for any particular period of time. The system also should be sufficient flexible to meet the resultant changes in the demands made upon it. The functions of the software programs comprise of cash receipts and disbursements, purchases, payables, receivables, and sales. The computerised accounting systems generate financial statements. A software package needs to be chosen to be used in by the accounting systems. References Amartya, Sen. 2010. "The Discipline of Cost-Benefit Analysis," Journal of Legal Studies, 29(2): 931–952. Caruthers, B., & Espeland, D. 2011. Accounting for Rationality: Double-Entry Bookkeeping and the Rhetoric of Economic Rationality, The American Journal of Sociology, 97(1): 557-572. Curran, J., & Blackburn, R. (2010). Researching for small enterprise. London: Sage. Federation of the Small Businesses (2013). Small Business Retrieved December 1, 2014, from Statistics: http://www.fsb.org.uk/stats. Marshall, R., & Paul, John. (2009). Steinbart. Accounting Information Systems. Upper Saddle River, NJ: Pearson Prentice Hall. Print. Nicholas, D. (2006). Assessing information needs: Tools and techniques. London: Aslib. Penno, M. 2009. Accounting Systems, Participation in Budgeting, and Performance Evaluation. American Accounting Association. The Accounting Review. Pletner, H. (2009). Small firms and information problem. European Management Journal , 7 (4), 443-450. Read More