1. Finance and Accounts

2. What is the difference between financial accounting and management accounting?
Financial accounts describes the process of gathering and publishing information of financial record.
All limited companies must publish a set of accounts for each financial year.
Management accounting is the term used to describe accounting statements produced and used for management purposes.
The main uses of management accounts are planning, decision making, review and control.

3. Financial Accounting Reports what happened in the past.
Is for external users
Needs to be reliable, accurate and consistent
Is ruled by accounting conventions and legal requirements
Covers the whole firm

4. Management Accounting
Focuses on the present.
Is for internal users
Needs to be easy to use, relevant and up to date
Is ruled by managers’ requirements
Covers departments and divisions

7. Different groups who use accounts:
Business managers
Banks
Creditors (suppliers)
Customers
Government & tax authorities
Investors
Workforce
Local community
FOR EACH GIVE REASONS WHY THEY ARE INTERESTED IN ACCOUNTS

8. Business Managers Measure performance of a business
Help them take decisions, such as new investments, closing branches and launching new products
Control the operation of each division
To set targets or budgets for the future and compare them with actual performance

9. Banks To decide whether to lend money to the business
To decide whether to allow an increase in overdraft
To decide whether to continue an overdraft or allow a loan

10. Creditors
To see if the business is secure and liquid enough to pay off its debts.
To decide whether the business is a good credit risk.
To decide whether to press for payment

11. Customers To decide whether the business is secure
To determine whether they will be assured of future supplies of the goods they are purchasing.
To decide whether there will be security of spare parts and service facilities

12. Govt. and tax authorities
To calculate how much tax is due
To determine whether the business is likely to expand and create more jobs
To decide whether the business is in danger of closing down, creating economic problems.
To confirm that the business is staying within the law in terms of accounting regulations

13. Investors e.g. shareholders
To asses the value of the business and their investment in it.
To decide whether the business is becoming more or less profitable
To determine what share of the profits investors are receiving
To decide whether the business has potential for growth
To compare with other businesses to see if determine who to invest in
To determine whether to sell some or all of their holding.

14. Workforce
To decide whether the business is secure enough to pay wages and salaries
To determine whether the business is likely to expand or be reduced in size.
To determine whether jobs are secure
To find out if profits are increasing and if an increase in wages is affordable
To find the average wage in the business and possibly compare it with directors

15. Local community
To see if the business is profitable and likely to expand
To determine whether the business is making losses and whether this could lead to closure
To decide if there is a need to get involved, e.g. related businesses

16. Evaluation of accounts
Management accounts
Figures used in some management accounts are forecasts which means they should be used as a guideline.
The creator of these accounts may want to influence a decision one way or another.
Financial accounts
Creative techniques exist which are within the law which can be used to give a false impression of the business situation
Accounts are good at dealing with quantitative information but poor with qualitative information.

17. Essay
Examine the usefulness of published company accounts to external users.
17marks (25mins)
Knowledge - 3 marks
Application (relevant examples) – 2
Analysis – 6 marks
Evaluation – 6 marks

18. Knowledge – Definitions of key terms.
basic 1 mark
in depth 3 marks
Application – Correct identification of groups using accounts. (1-3)
Analysis – Relevance of accounts to identified groups. Max of 3 marks per identified group. (1 mark basic – 3 marks in depth)
Evaluation – Limitations of usefulness of accounts.(1-3)
Relevant suggestions as to what may be used in conjunction with accounts to help make decisions. (1-3)