1. Importance of Business Accounts Show awareness of the different users of accounts. Show knowledge of what users might look for in the accounts of a business. Show how users such as lenders [e.g. a bank] might use accounts as the basis upon which to make decisions

2. Who produces Business Accounts Most businesses produce profit and loss accounts and balance sheets. Most businesses produce profit and loss accounts and balance sheets. Even small businesses need to produce a profit and loss account for Inland revenue Even small businesses need to produce a profit and loss account for Inland revenue PLC’s Must produce these accounts for their annual reports. PLC’s Must produce these accounts for their annual reports. Businesses need to let people who have an interest in the business see their accounts. Eg. If a business wants to borrow money from a bank. Businesses need to let people who have an interest in the business see their accounts. Eg. If a business wants to borrow money from a bank.

3. 3 Stakeholders and businesses Who, or what, are stakeholders?

4. 4 Stakeholders They have expectations about the performance of the business. They have expectations about the performance of the business. Their lives are affected by the business. Their lives are affected by the business. They can influence the plans and operations of the business. They can influence the plans and operations of the business. Stakeholders are individuals or groups who have an interest in business because: Employees and customers are both stakeholders for a retailer.

5. 5 Types of stakeholders with a financial interest Shareholders – who have invested their own money in the business. Shareholders – who have invested their own money in the business. Managers – who make decisions which affect the financial performance. Managers – who make decisions which affect the financial performance. Employees – concerned about their jobs. Some may also be shareholders. Employees – concerned about their jobs. Some may also be shareholders. Banks – which have lent, or plan to lend, money to the business. Banks – which have lent, or plan to lend, money to the business. Customers – who want to know that service agreements will be honoured. Customers – who want to know that service agreements will be honoured.

6. Why examine Business accounts Each stakeholder will have specific things which they want to learn about the business. Sometimes people do not just look at the latest financial statements of a business, they compare the accounts from the previous year, or pervious several years. Sometimes people do not just look at the latest financial statements of a business, they compare the accounts from the previous year, or pervious several years. These will show how the business has changed. (have assets increased, is the business more profitable) These will show how the business has changed. (have assets increased, is the business more profitable) Similar business will want to compare themselves with their competitors. Similar business will want to compare themselves with their competitors.

7. Understand the importance of business accounts Key items in business accounts Key items in business accounts Profit and loss account -Sales -Net profit Balance Sheet -Assets-Debtors -Cash at bank -Creditors -Share capital, reserves,profit -Shareholders funds

8. Items in the profit and loss account Sales ‘This is the total amount of money received from customers over the year’. It is also a measure of how well the business is doing. It is also a measure of how well the business is doing. It could be compared to: the previous year’s figure to find out if sales have increased or decreased. the previous year’s figure to find out if sales have increased or decreased. with other similar businesses. with other similar businesses.

9. Items in the profit and loss account Net profit ‘This is a measure of how successfully or not the business has performed over the year’. Comparisons can be made with previous years and with other businesses Comparisons can be made with previous years and with other businesses Can be used to see of the business is making enough money to pay dividends to the shareholder,s and Can be used to see of the business is making enough money to pay dividends to the shareholder,s and Has enough left over to re-invest in the business. Has enough left over to re-invest in the business.

10. Items in the Balance Sheet Assets ‘Assets include: buildings, vehicles, stock and other items owned by the business’. If the business was in trouble, should perhaps be sold to raise money to over come the temporary problem. If the business was in trouble, should perhaps be sold to raise money to over come the temporary problem.

11. Items in the Balance Sheet Debtors Debtors If the money owed by debtors is quite high in relation to the sales figure, it means that many customers are not paying their bills on time. If the money owed by debtors is quite high in relation to the sales figure, it means that many customers are not paying their bills on time. Even worse some may not pay at all! (bad debtors!) Even worse some may not pay at all! (bad debtors!) This could mean trouble in the long term as it is not receiving money it is owed. This could mean trouble in the long term as it is not receiving money it is owed.

12. Items in the Balance Sheet Cash at bank Cash at bank ‘The cash at bank figure shows how much the business has available to meet routine debts (eg suppliers and wages)’ Anyone looking at this figure would be concerned if the business is not making enough money to cover it’s expenses. Anyone looking at this figure would be concerned if the business is not making enough money to cover it’s expenses.

13. Items in the Balance Sheet Creditors A high figure of current liabilities could mean the business is not paying its bills reasonably quickly A high figure of current liabilities could mean the business is not paying its bills reasonably quickly This could mean the business is in trouble This could mean the business is in trouble Also it would be upsetting it’s suppliers Also it would be upsetting it’s suppliers The business may have borrowed too much money and may be struggling to pay it back The business may have borrowed too much money and may be struggling to pay it back

14. Items in the Balance Sheet Share capital, reserves, profit and loss account This money all belongs to the shareholders This money all belongs to the shareholders Shareholders finds This is the total amount that ‘belongs’ to the shareholders This is the total amount that ‘belongs’ to the shareholders If a business goes into liquidation, shareholders receive only the money that is left over after all debts are paid. If a business goes into liquidation, shareholders receive only the money that is left over after all debts are paid.

15. Combining Figures As well as looking at individual items, stakeholders may also look at combination figures, eg: As well as looking at individual items, stakeholders may also look at combination figures, eg: Sales and Profit Sales and Profit An increase in sales may look good, however, if the profit has gone down then the efficiency of the business has fallen. Cash at bank and creditors Cash at bank and creditors If the cash figure is higher than the amount listed against creditors, the business could pay all of its bills immediately.

16. Combining Figures Cash at bank and debtors Cash at bank and debtors At first sight the business may have low amounts of money in the bank, which could spell trouble. However, if the debtors’ figure is high that could mean the business is simply not good at collecting money.

17. Stakeholders interest in business accounts

18. Shareholders Shareholders can be private individuals or other businesses. Shareholders can be private individuals or other businesses. They buy share hoping to make money out of them They buy share hoping to make money out of them Share holders only have one decision to make, whether to keep their shares or sell them. Share holders only have one decision to make, whether to keep their shares or sell them. If sales and profit are both increasing they will probably hold on to them. If sales and profit are both increasing they will probably hold on to them.

19. Managers Some business offer senior managers annual bonuses based on performance of the business as a whole (eg. Sales figures). Some business offer senior managers annual bonuses based on performance of the business as a whole (eg. Sales figures). All the managers would be interested in the overall performance of the company because serious problems could mean their jobs are threatened. All the managers would be interested in the overall performance of the company because serious problems could mean their jobs are threatened.

20. Employees Employees normally do not have much influence in how the whole business is run. Employees normally do not have much influence in how the whole business is run. However, all employees have an interest in how well the business is doing However, all employees have an interest in how well the business is doing - could get pay rises - could get pay rises - job security - job security

21. Banks All businesses have a bank account so the bank can see each day the ‘cash at bank’ figure (balance sheet). All businesses have a bank account so the bank can see each day the ‘cash at bank’ figure (balance sheet). If the account is overdrawn, the bank will know immediately and will ask some serious questions unless it has be warned! If the account is overdrawn, the bank will know immediately and will ask some serious questions unless it has be warned! Banks also lend money which they will expected to be paid back with interest Banks also lend money which they will expected to be paid back with interest

22. Customers Customers – may need equipment to be serviced or spare parts to be supplied for expensive items. May be critical for business customers. Will check sales and profit to check business is viable. Customers – may need equipment to be serviced or spare parts to be supplied for expensive items. May be critical for business customers. Will check sales and profit to check business is viable.

23. Activity

24. 24 Key items for stakeholders in a profit and loss account… what would they want to know? Sales – Sales – Expenses – Expenses – Net profit –. Net profit –.

25. 25 Key items for stakeholders in a profit and loss account Sales – amount received from customers. Is compared with previous years and with other firms in the same market. Sales – amount received from customers. Is compared with previous years and with other firms in the same market. Expenses – any major changes from previous years? Expenses – any major changes from previous years? Net profit – an important measure of ‘health’. A good profit is required to pay good dividends and invest money for future developments. Net profit – an important measure of ‘health’. A good profit is required to pay good dividends and invest money for future developments.

26. 26 Key items for stakeholders in a balance sheet Assets – Assets – Debtors – Debtors – Cash at bank – Cash at bank – Creditors- Creditors- Shareholders’ funds- Shareholders’ funds-

27. 27 Key items for stakeholders in a balance sheet Assets – are there plenty of assets? Could some be sold to raise money? But too much money tied up in stock may mean that sales are low. Assets – are there plenty of assets? Could some be sold to raise money? But too much money tied up in stock may mean that sales are low. Debtors – if figure is too high in relation to sales, customers are not paying their debts quickly enough Debtors – if figure is too high in relation to sales, customers are not paying their debts quickly enough Cash at bank – how much is available? Enough to pay debts or cope in an emergency? Is the account overdrawn? This would indicate serious problems. Cash at bank – how much is available? Enough to pay debts or cope in an emergency? Is the account overdrawn? This would indicate serious problems.

28. 28 Key items for stakeholders in a balance sheet Creditors – how much money is owed to suppliers? If this figure is high, it may indicate the company is not paying its own debts quickly. Creditors – how much money is owed to suppliers? If this figure is high, it may indicate the company is not paying its own debts quickly. Shareholders’ funds – the money that ‘belongs’ to the shareholders. This amount should increase each year and it influences the share price. Shareholders’ funds – the money that ‘belongs’ to the shareholders. This amount should increase each year and it influences the share price.

29. Stakeholders The types of people who look at business accounts are: Shareholders Shareholders Managers Managers Employees Employees Banks Banks Customers Customers Not everyone is interested in the same thing.

30. Activity

31. 31 Stakeholder interests (what do they want to know regarding the business accounts?) Shareholders – Shareholders – Managers – Managers – Employees – Employees – Banks – Banks – Customers – Customers –

32. 32 Stakeholder interests Shareholders – want good dividends. Want the share price to rise. These aspects are affected mainly by profit and shareholder funds figures. Shareholders – want good dividends. Want the share price to rise. These aspects are affected mainly by profit and shareholder funds figures. Managers – make decisions which affect financial performance. Financial accounts reflect their success/failure. All managers interested in sales and profit figures. Some may also be shareholders or be paid bonus linked to profit. Managers – make decisions which affect financial performance. Financial accounts reflect their success/failure. All managers interested in sales and profit figures. Some may also be shareholders or be paid bonus linked to profit.

33. 33 Stakeholder interests Employees – want job security. Good profits can mean good pay rise. Employees may be shareholders and/or involved in bonus scheme. Employees – want job security. Good profits can mean good pay rise. Employees may be shareholders and/or involved in bonus scheme. Banks – mainly interested if have loaned money or asked to do so. Want to check money is safe and will be repaid. Will check creditors’ figure and cash in bank. Banks – mainly interested if have loaned money or asked to do so. Want to check money is safe and will be repaid. Will check creditors’ figure and cash in bank. Customers – may need equipment to be serviced or spare parts to be supplied for expensive items. May be critical for business customers. Will check sales and profit to check business is viable. Customers – may need equipment to be serviced or spare parts to be supplied for expensive items. May be critical for business customers. Will check sales and profit to check business is viable.