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Finance & Accounts Theory

Finance & Accounts Theory. Core Aim of a Business. To survive! To make a profit (private sector) To improve or expand (public sector). Function of Finance & Accounts. Financial Accounting Management Accounting. Financial accounting. Financial Accounts

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Finance & Accounts Theory

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  1. Finance & Accounts Theory

  2. Core Aim of a Business • To survive! • To make a profit (private sector) • To improve or expand (public sector)

  3. Function of Finance & Accounts Financial Accounting Management Accounting

  4. Financial accounting • Financial Accounts • Accurate collection and recording of financial transactions eg receipts, invoices, payments, raising cheques & statements • Maintain the book-keeping and construct accounts • Give an important baseline of financial information for managers by analysing and interpreting the data • Relate to past performance • Communicate with external agencies such as HMRC (HM Revenue and Customs), Banks, suppliers, investors

  5. Financial Accounting tasks • Carries all tasks relating to money-in, and money-out • Communicate both internally (Sales, Marketing & Human resources), and externally • Payments received for goods & services • Banking of these payments (cash, cheques, BACS) • Payment of staff wages • Arranging payment to suppliers (raw materials, stock, services such as: • water, gas, electricity, phones, rent, mortgages, loan payments etc Continued . . .

  6. Communicating to the Inland Revenue the tax to be paid by both the organisation, and the employees • Communicating to HMRC (Customs & Excise) each quarter, all details about VAT(VAT received by customers - payment of VAT to suppliers = VAT owed to HMRC) • Communicating with Shareholders • Communicating with Banks

  7. Management accounting • Management Accounts • Monitor, measure and control progress of the business • Use financial accounts to review and analyse performance, and to forward plan • Communicate their findings with other managers, and join with them to plan changes • Fundamental in strategic planning

  8. In summary • The tools of management accounting help support the policy of a business. • Strategic, long- term decisions involve the future direction of the business. • If the forecasts and decisions are right, the business will grow and succeed. But if a business makes poor decisions, it may fail. • For example, a business may decide to invest in new technology to improve the efficiency of production. If it has analysed the benefits properly, the investment will lead to growth and more profit. However, if the business has not evaluated all factors and the technology is untested, it may not give a return on investment.

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