ACCOUNTING AND BUSINESS STRUCTURES

Accounting and Business Structures

Accounting and Business Structures

Question 1

Management Considerations for Determining Accounting System Design

Considerations that management should take into account in determining the design of an accounting system involves managing control operations, financial information flow of the company throughout the organization, classification and quantification of administrative, and financial practices (Ehrhardt, 2010). For an efficient functioning, management should focus on requires that its structural configuration meets the objectives outlined in developing a concentrated accounting system.

Effective accounting system is a structure which is organized by the information gathered from a company as a result of its operations, using resources such as forms, reports, books and so on. Management can set of principles and rules that facilitate the understanding and appropriate representation of the business and economic events that affect the organization. Accounting system serve both the internal and stakeholders. Design of accounting system submitted to the management (internal stakeholder) will allow it to make financial decisions (Bragg, 2002). This will enable the management to serve the needs of external stakeholders in a better way.

Internal stakeholder can also use it as a mode to meet the urgent need for information in order to get higher productivity and resource utilization (Helfert, 2002). Management, as an internal stakeholder, uses the accounting system for analyzing and evaluating the economic results obtained by combining and comparing company performance. It includes planning and compiling the procedures based on control and compliance with business goals. It helps the internal stakeholder to classify records and operations of the company, order to inform economic events as they deem appropriate, enabling execution of tasks according to established procedures. Accounting system help the internal user to assure that process flow is under control and supervision of the counter defines the importance of an accounting system (Brigham, 2008). 

Organization may adapt Historical or Asset System, Budget System, or Complementary systems as an accounting system within an organization (Donald, 2010). It is established as an orderly and coherent structure through which organization may collect all necessary information from an entity as a result of its operational activities, using all the resources that provides accounting activity and that be presented to the directors and shareholders allow you to make operational and financial decisions that help you manage the business. 

Management should also focus on managing the information need of external users. The external users of a firm include employees, investors, supplier, banks, consumers, government agencies and lobby group. External users focus on assessing the performance of a company through external reports. Management should focus on how standard reporting procedure can be improved through accounting system adoption that present an attractive financial position of the company on balance sheet, income statement, and cash flows. For example, employees use the financial reports to seek job security and promotion prospects. Investors need information for deciding to hold or sell the share and predict the future dividend payments. Suppliers use the information to measure the pay capacity of the company. Banks need the income and growth information of the company to assess financial capability of a ...