Hull City
Accounting as a discipline is indispensable for any business undertaking to succeed and this applies to the for-profit and not-for-profit entities. The discipline and practice of accounting get defined differently by different practitioners and academicians. However, a comprehensive definition must caption the entire process of accounting that involves the identification, recording, measurement, classification, verification, summarizing, interpretation, and communication of financial information for supporting decision-making in the organization (Atrill & McLaney 2009). Such definition of accounting as a discipline in a way points to the critical importance of business in general. However, the full potential and importance of accounting may not be realized unless the concept gets applied to a particular case study. This paper presents the analysis of Hull City Football Club to help in realizing the role and importance of accounting in the club.
The Role of Accounting within Hull City Football Club
Hull City AFC is a professional football club based in England. The club was founded in 1904. It participates in various football leagues and championships with one of the most notable successes being the play offs at the final level of the FA Cup in the 2007-2008 football season. On several occasions, the club reached the quarterfinals and on several other occasions, the club was relegated to the football league. From the accounting perspective, the success factors, as well as failures of the company, result in financial implications that is one of the important reasons as to why the company must consider its accounting policies keenly.
Financial accounting is a tool of decision-making for an organization such as Hull City AFC. The organizations managements uses the accounting information to determine the various course of action including when to acquire new players, to whom the organizations sells the rights to broadcast their games, and on the charges that it should charge the fans interested in being in the field to enjoy the game (Hansen & Mowen, 2000). Additionally, the football association requires accounting information to determine the amounts of financial resources that it requires in every season and on how to raise those funds. Without accounting reporting, the company may not be able to determine the amount of financial resources that it requires to remain operational (Epstein & Lee 2011).
That said, the Hull City AFC requires reporting its financials periodically. Normally, the reporting of financial performance and position takes place either quarterly, semiannually, or annually. At times, the annual reporting follows the normal calendar year but in some cases, the organization may follow a specific accounting or fiscal year that can begin, for instance, from June to June of the following year. For an organization like Hull City Football Club, the reporting can match the financial accounting period to the seasons of football. Overall, the importance of financial reporting is to enable other stakeholders of the organization to be able to make decisions regarding the organization. For instance, the organization may require additional funds from the lenders who would use the financial reports to determine whether they should extend credit to the firm. Secondly, investors in the company may also use the statements of financial position to determine whether they should continue holding their interest in the football club (Hansen & Mowen 2000).
Application of Management Accounting Techniques for Planning, Control, and Decision-Making within Hull City Football Club
Accounting as a discipline has two branches that include financial accounting and management accounting. Financial accounting produces reports for general-purpose use hence assists various interest groups in decision-making. However, there is also management accounting that entails producing accounting reports for use specifically by the management of the organization. This very difference means that the management accounting reports are more detailed than the financial accounting reports. Secondly, the production of financial accounting standards follows specified standards such as the IFRS and the GAAP but for the case of management accounting reports, the management determines standards and policies of production (Chartered Institute of Management Accountants 2014).
The management accounting reports help the organization in planning, control, and decision-making. One way of planning in accounting entails preparation of budgets such as cash budgets and production budgets among others. In control, management accounting entails the comparison of the budgeted items such as expenses and the standard expenses or the actual expenses. It also involves what the management accountants term as variance analysis. Variance analysis in management accounting helps the organization in determining the causes of the variances and in the process; the organization determines the means through which the organization can explain the differences (Guthrie & Parker, 2014). Corrective measures are taken to deal with any adverse variances, which pertains to decision making.
Cash Budget for Hull City Football Club
This section presents a cash budget for the Hull City Football Club. Analysis of the clubs indicates that most of the cash receipts come from the ticket charges at the gate on match days, TV, and broadcasting rights, retail of products including jerseys, commercials, property development, sponsorships and donations, and player trading (Morrow 1997). On the other hand, the major expenses include the wage bill, administration expenses, and the interest payments that are paid to offset a loan taken by the Hull City AFC to fund the inventory of the jerseys and other items sold to the clubs supporters. The following table shows the cash budget for the Hull City AFC for the period between January 1 and June 30th for the year 2016. The budget began with an opening balance of £100,000.
Advantages and Disadvantages Experienced By Newly Relegated Football Clubs Who Implement Budgeting Processes
The table presented above indicates the cash budget of the Hull City Football Club. The budget covers the period between Jan 1 and June 30, 2016. The budget indicates the clubs major sources of revenues as well as the major expenses. From the budget, it is evident that being relegated leads to hefty financial implication based on the fact that majority of the clubs sources of revenues depend on whether the team is playing (Morrow 2006). For instance, the team will not be able to get revenues from game tickets and other match day income if the teams are not playing. Relegation may also mean that the revenues from retails sales of jerseys, wristbands, scarfs, and other items that the organization sells to the supporters reduce drastically.
On the other hand, there are the major expenses that include the wages and salaries, the administrative expenses, and the interest payments. The wages and salaries together with the administrative expenses have a fixed component as well as the variable component hence the variation across the months. The variability is largely dependent on the number of matches that the club engages in the month. The interest and principal payments are constant over the period indicating that whether or not the organization is generating revenues, it has to pay the commuted funds to lend entity (McWatters & Zimmerman, 2015). From an accounting perspective, therefore, relegation has more negative implications than positive implication with the only positive implication being that the organization can find time to find players for player trading and trade accountably (Morrow 2013).
Applying the concept of variance analysis to the budget above, adverse variances are those that lead to lower incomes and cash receipts or lead to higher expenses and cash payments (Hansen & Mowen, 2000). On the other hand, averse variances lead to increases in the cash inflows and revenues and lead to a reduction in expenses (Pavlović et al. 2014). The bottom line in variance analysis is to ensure that the organization can explain and control all the adverse variances. Controlling becomes an important element in management accounting considering the fact that the organization must determine ways of explaining and controlling all the adverse variances. These variances are realized when the organization compares the budgeted and the actual cash budgets or the budgeted and the standard budgets with the standard budgets being developed with information drawn from intensive and extensive research.
In conclusion, this paper presents the analysis of the role of accounting for football clubs. The analysis uses the example of Hull City Football Club. In this analysis, the financial accounting concept was briefly discussed in addition to management accounting. A budget for the football club was also presented for the period between Jan 1 and June 30, 2016. The budget indicates the major sources of funds for the organization alongside the major expenses and the cash outflows. These include gate tickets, sales of jerseys, wristbands, and scarfs to the supporters, and the TV and broadcasting fees among others. These elements are common to most or all of the football clubs, and consequently, the implications that relegation has on these items are similar across the board. Consequently, relegation leads to generally lower revenues and cash receipts for the company and hence influencing the financial position and performance of the football club. The budget shows how relegation may lead to variances and hence justifying the need for planning and control processes in management accounting. Particularly, management accounting includes variance analysis that provides the basis for budgetary control in any given organization.
Reference List
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