Management's Guide: 3 Main Accounts for Accurate Financial Forecasting - Essay Sample

Introduction

Just as meteorologists use data and models to forecast the weather, business managers use data and models to forecast the future. Businesses require accurate, complete, and up-to-date financial information. Financial information shows the health status of a business at any point in time and provides managers with information in strategic planning. Each component of the accounting process is a building block upon which financial decision-making is formalized.

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Three Main Accounts Maintained by A Business and The Information Included in Them

The practice of accounting primarily focuses on the daily business transactions conducted by a business entity. In most cases, sales and cheque receipts are retained as proof of the business organization's transactions. In the process, three major accounts are critical for retaining the data. For instance, a journal account is used to record every business activity that occurs outside and within the organization daily (Berk et al., 2013). The journal account is divided into the disbursement of cash journal and cash receipt journal, allowing for every special entry to be recorded before a fiscal year is adjourned. Furthermore, the ledger account is applied by managerial personnel while sorting the types of transactions. Through focusing the grouping on only the affected accounts, a ledger plays a crucial role in the collection of the company’s balance sheets. Also, the firm’s expenses and income are recorded in the ledger account. While approaching the end of a fiscal year, all entries in the journal are transferred to the ledger account through a posting procedure (Berk et al., 2013). Lastly, a trial balance sheet account is maintained by a business to facilitate the summing up of every deficit that might have occurred in an organization’s general ledger account. Nonetheless, the debit balances should be equal to the credit balances, failure of the two balances to equate indicate the presence of errors that should be corrected. The accounting records are essential during financial statements formulation used in both planning and decision making processes within the business organization.

Double Entry and Why It Is Important to Provision of Accurate Financial Information to Managers

Double-entry refers to a bookkeeping system that uses two accounts to record a single transaction within the business firm. However, it is a rule that any entity recorded as credit or debit must be equal, rendering the balancing of accounting equations in all the entries simple and comprehendible (Miller-Nobles, 2018). The double entry system has been universally acknowledged and embraced as a perfect system of accounting. Several reasons support the global acceptance of the double-entry system. For instance, the system makes it possible for managers to maintain a complete transaction account. Moreover, the trial balance procedure simplifies the varication of the accuracy of calculations in the books of account. Also, the double-entry system eases the preparation of the loss and profits accounts, which is tedious and demanding. The business transaction accounts results are confirmed by grouping all the accounts related to revenue and expenditure, and any other nosiness proceeds (Miller-Nobles, 2018). Furthermore, by integrating the reports associated with liabilities and capital of the business organization, a manager can predict the company's financial position.

Accounting Process Used to Forecast Firm’s Financial Performance and Needs for The Next Five Years

The accounting process is often triggered by a transaction and later terminated through the closure of the books of accounts. The cycle is redundant throughout every accounting period hence has multiple critical steps. The accounting process starts with transaction type identification, which facilitates the preparation of a source document. A thorough analysis and classification of the transaction are then done before recording it as an entry in the journal (Gitman & Zutter, 2015). The entries are then transferred to the general ledger book, crucial in facilitating the formulation of the trial balance. Throughout the process, the person undertaking the accounting process is needed to be keen and correct any form of discrepancy that might lead to the formulation of error. Before documentation of the grand statement from the accounting process, preparation of adjusting entries is carried out to simplify the process. The stage is followed by posting of closing journal entries on the closing ledger accounts. Ultimately, the preparation of a trial balance statement is carried out to ensure that the credit entries equal the debit entries. As such, it is vital to comprehend that the permanent accounts can only be available at the end of a financial period due to the temporary accounts (Gitman & Zutter, 2015).

Conclusion

In conclusion, the success of any business organization around the globe can not be realized without proper and comprehensive financial models and tools to mirror the organization’s financial status. Hence, any progress within the business entity is significantly anchored on competent financial managers and effective accounting processes. Nonetheless, the firm's vision, mission, and goals can only be realized through an efficient accounting technique that is optimumly utilized and well understood while formulating and implementing the organization's strategic plan for the next five financial years.

References

Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V., & Finch, N. (2013). Fundamentals of corporate finance. Pearson Higher Education AU.

Gitman, L., & Zutter, C. (2015). Principles of managerial finance. Harlow: Pearson Education Limited. http://www.pearsonmiddleeastawe.com

Miller-Nobles, T., Mattison, B., & Matsumura, E. (2018). Horngren's financial & managerial accounting. Harlow: Pearson Education Limited. https://www.pearson.com