The Accounting function Understand the accounting function within an organisation

What is the accounting function The department that records all financial dealings within the business organisation this include payroll Summarises the transactions and presents the information in the form of reports The reports draw a picture of the financial status of the business This information is used by internal and external customers

Where does the financial information come from? There are many departments (functions) within a business that supplies &/or requires information to/from the accounting function – Production – IT used within the organisation – Marketing & Selling – Warehouse, Transport, Distribution & Purchasing – Management within the organisation including HR and finance – Admin & clerical

What information is required and where is it used Records financial transactions between the business and: – Customers & Suppliers – Employees and owners From the information financial statements are prepared – Statement of financial position (SFP) – Statement of Profit or loss (SPL) – Other primary financial statements or notes This is known as Financial Accounting

Financial statements and the law Statements must be: – presented in compliance with detailed regulations (Accounting standards ) – Be audited where necessary (ensure they are a true figure/ representation of the business) – Be lodged with a governmental office (Registrar of Companies) making them available to current and potential suppliers, customers, investors and other parties – Taxation records are included in this area

Management accounting Aids management on the running of the business such as: – Measuring performance – Making decisions – The running of the business Management accounts are not regulated by law Used for internal purposes – Cost analysis – Budget preparation and controls – performance

Payroll in the accounting function Is a function within the accounting function Deals solely with payroll procedures: – Timesheets, hourly rates, overtime, – Calculating gross pay – Calculating taxation & other deductions – Preparing payslips, payments (BACS, cheques & cash) – Producing returns for external clients (HMRC, Pension, charities)

Other financial functions – Cash handling – cashiers, petty cash & banking – Credit control – cash flow – Costing – management accounting – Financing – managing loans and sources of finance – Taxation All these functions prepare the financial information to provide information/data relating to the financial implications of the business

How the information aids the business Operational Costs – – what the activity cost – sales, purchases & inventory – How much did they spend What return, benefit/ revenue were earned from the activity – What did they earn – Was it profitable/ how could they improve Cash flow – – Identifies working capital – Solvency Payroll – Staffing and cost of staffing current or in the future

Supports managers in decision making Planning – Helps understand the financial implications where planning activities – What resources are available/ need to be purchased – The potential costs and benefits before, during and after the activity – Was it cost effective and worthwhile

Control – Helps to measure the result of the activity – Was the activity within budget – Did they earn the expected revenue and profit – Were the resources used efficiently

Important The service provided by the accounting function must be: Complete – all data, relevant to the purpose of the information must be included Accurate – must be factually and numerically correct – All details shown to the appropriate level Timely – information is delivered at the right time, – Is meaningful and used to support the action required

Why is the accounting function important? Accounting function makes important contribution in 3 areas: Smooth running and efficiency of the business The working capital and solvency of the business Legal compliance of the business

Efficiency Is achieving objectives using minimum resources By producing budgets and long term plans these help act as guidelines and benchmarks for measuring the performance of individual units and the business overall By producing periodic reports helps to identify and make comparisons against actual and planned performance/ production Helps to measure the efficiency and effectiveness of the operation of the business. Identifying areas of improvement

Working capital and solvency Very important role in managing the day to day finance (working capital) Provides information to departments about the cash flow implications – Know what capital is available at any given time – Managing there is adequate cash balance – inventory only hold what is required – Collection of receipts from credit customers – Payment of debts to payables (credit terms) – Plans to earn extra revenue/ raise finance

 By monitoring the cash balances helps to ensure the solvency of the business The ability to meet short-term and long-term debts as due Inventory LESS Payables ReceivablesOverdraft Cash