Why Is Accounting Essential for an Organization?

2021-05-13 14:28:23
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The main concepts in these chapter is the financial accounting and management accounting. While financial accounting sole aim is to incorporate those factors that are outside the organization but still have an impact in the smooth running of the business. Examples of such externalities who have strong influence on the daily business are the investors, lenders, customers and the suppliers. On the other end management accounting is all about the internal operations of a business. Managerial accounting is all about the daily running of the business and the information that help the management of a firm to ensure that they achieve the business objectives. Financial management came into play in development of our business plan mainly because there is no business that can operate in a vacuum without being affected by external factors. In order to perform well in the market then we had to have a clear understanding of our customer base.

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Development of the target customers assisted us in estimating the sales that the company was in a position to make. The estimated balance sheet, income statement and cash flows was instrumental in convincing potential creditors that they were assured of getting back their money. I and my partner being the top management had to utilize the information that we obtained to ensure the smooth running of the business. We had to ensure that the decisions we made was in concurrent with the objectives of the business. The challenges that were faced in this chapter is that it is difficult to predict how externalities such as the customer can affect the business. An example is that yearly there are new business in the market hence reducing the potential customer base that we could have as a business.

Chapter 2. Why dont you become an entrepreneur?

These chapter describes the characteristics of an investor and the main reason why people would love to be self-employed. People can have money but not happiness therefore the only way that one can achieve happiness is to follow their desires, need and assets. These concepts cam in hand with development of our business plan. Developing of our plan first of all depend came out of the desires we had on the tourism sector and to offer services to satisfied customers. What makes me feel happy is to see myself having served a satisfied customer. We found out that most students would love to tour china and learn Chinese culture but there was no one to help them in guiding through travel requirements and that it entails touring china. The entrepreneurial mind set in us allowed us top spot the problem in society. Starting u of the Chinese travel consultancy will have help solve a problem and eventually earn from this idea. The challenges that is faced by most people who would want to be entrepreneur is that they lack a clear objective and the ability to identify a problem in the society. The ability to identify talent, skills, experience and resources is a problem to most people.

A person could be having a desire to come up with a certain project but lack the necessary knowledge in that field. Knowledge is the biggest asset that an entrepreneur should have, it would not make sense is an individual ventured in opening a pediatric hospital and yet he is an engineer. The lessons learnt is that it is possible to start a business with small capital and proper to being a big force in the industry. Everything is achievable in the business world with the right mindset. An observation to be noted is that the chapter talks about understanding the target market, this is something that we first identified before we could even make a draft of our business.

Chapter 3 why do you estimate revenues of your business?

The main concepts in this chapter are revenue estimation, relationship between demand and market and the marketing management. In our business plan we made a decision of first focusing on one product at the initial start of the business simply because it would enable us to give highest output out of it. It was not best idea to start with more than one service simply because we were still new in the business and it would be best to have a good understanding on how the industry operates before bringing in new operations. Estimating revenues would enable us to make a prediction on whether our business was viable or it could not survive the challenges in the industry. Our business plan relied mainly on the demand that was needed for our services. The more our services were demanded the more possible profits our company would make. The challenges that we faced in this chapter is how to determine the number of units that could sold throughout the year. Our marketing strategies were not a sure thing on whether the increased demand for our product depended on the marketing we made or was is just due to industry forces coming into play.

Chapter 4 Managing costs

It is a known fact that a business that thrives well is the one that manage its expenditures well. The main accounting concepts in this chapter is the managerial costing. The concept of management costing came into play in our business plan simply because our business products and services could not come into play without considering the costs associated with these services. We had to seek ways in which we could manage our costs within the firm. The solution that we came to is cut the monies that individual owners carried home. The main reason for this was to ensure that we develop our business asset wise and hence serve our customers to their expectations. The concepts allowed us to categorize costs that we were going to incur during the operation of our business. We were able to categorize costs as startup costs and operational costs. Operations management helped us to maximize the customer value, in every business the biggest asset is the customer. Through operations management we were in a position to make analysis and improve the organizational processes that could result in best output to our customers. The challenges that we faced with management costing is that it is difficult to predict costs especially for a business that is still at its initial stages. In some cases you would find costs being overstated while in others being understated. Something to be noted is that there is need to develop a management costing department whose sole purpose would be to do analysis on the costs that affect our business and make predictions.

CHAPTER 5 how do you position your organization strategically?

Strategic positioning of our business is the overall objective and approach towards the business purpose. Since were acting both as owners and managers then were to come up with strategies that would incorporate the goals of our business. The concepts learned from this chapter are the strategic management organizational positioning in a business environment. These strategies gave us the opportunity to come up with ideas that we could use to win customers hence achieving our goals of providing best and unique travel consultancy services. Our strategy is to win the market by population of more than 30,000 by the end of our third year in operation. In order to achieve these strategies then we had to ensure that we understood the travel industry fully. These concepts allowed us to choose between increasing revenues and decreasing costs. We came to a conclusion to first dominate the market before we could think of increasing revenue through reviews of our prices.

The challenges faced with these strategies is to make decision on the best time to add a new product. The management might think it is a good time to introduce a new product not knowing that they are increasing the costs associated with running the company. Coming up with best strategies can prove to be difficult especially when you entering a new market as in the case with our company. Something interesting with this chapter is the concept of expanding the product line. There is need to have a clear understanding of this concept once we break even.

Chapter 6: How do you deal with demand uncertainty?

The main accounting concepts in this chapter are evaluation of net cash flows and the break even analysis. The net cash flow concept came in hand with writing of our business plan since it helped to have a clear understanding on whether our company had the potentiality of making profits or not. Since our business was on a basis of uncertainty, the concept of breakeven analysis gave us the opportunity to determine the point of demand at which the costs were equal to the revenues. The unit contribution was useful in identification of the additional operational cash flow per unit. It was therefore necessary to take a keen look on the prices we charged for our services since it could play a factor in the unit contribution margin. The unit variable costs made it possible for us to take into account the issue of operating leverage. The riskiness of the business was made possible with the determination of the operating leverage.

The challenges that were faced in this chapter is that of performing a market research. The costs that are associated with performing a market research is for instance costly. Performing break even analysis is can reduce uncertainty but in the real sense the problems will still remain the same. The assumptions of constant sales when evaluating the net cash flows is misleading. The reason for this is because the sales at a particular periods always changes and can never remain the same. In case of multiple products then the concept of breakeven analysis will not be in position to help since there would be infinite ways to break even.

Chapter 7: How do you identify all the information relevant for a decision?

The concepts identified in this chapter are business decision, information identification and production costs management. There were a lot of information about our business and that is why there was need to identify the most useful information that could help in getting the best out of our investment. The concept enabled us as managers to identify information through focus on value and incremental thinking. These decisions made it possible for us to come up with decision such as focus on one product. We did an evaluation on the benefits that could be found between dealing with one product or more than one product at the same time. The decision techniques of production costs management made it possible to decide on the service to deal with. The challenges with the techniques of getting information in this chapter is that most of the information are redundant and therefore it requires deep analysis to reach to final decision on the information that could be useful in achieving benefits for the business. An interesting observations in this chapter is the issue of sunk costs. These costs can be confusing to most decision makers and therefore there is need to ensure that the decisions we make take into account the issue of sunk costs. The opportunity costs is the costs that is used in an option foregone that is when an alternative option is forgone in order to go for a different option. As managers it would be prudent to therefore take into consideration these costs.

Chapter 8: How do you handle opportunity cost of capital and the operational risk?

The main concepts identified in this chapter is the cost of capital and the operational risk. These techniques were helpful in developing our business plan since it made it possible determine the return on the invested capital as well as the period it took to have full return on the invested capital. Writing of the business plan required us to consider the time value of the cash flows that are estimated to be generated. The opportunity costs made it possible for us to make an estimate of the present valu...

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