Presentation on theme: " Financial information is information required to support financial decisions or to meet financial requirements. Accounting is the activity within."— Presentation transcript:
Financial information is information required to support financial decisions or to meet financial requirements. Accounting is the activity within an organization that provides much of the raw financial information. Accounting can be defined as:"The recording of financial transactions over a period of time and the communication of the resulting information to interested parties."
Credible – provides true information Transparent – fully disclosed and accurate Timely (prepared daily, monthly, quarterly, annually) Also, timely information gives feedback showing what has happened and/or helps predict what will happen
Understandable - logical, makes sense to readers Comparable – information can be measured and reported in a similar manner like other businesses. Reliable – gives the same result each time, presents what really happened.
Bookkeeper Company accountant Finance director Finance department Company secretary
Provides management with data needed to determine whether a business is at a loss or a profit, how much debtors owe, how much a business owes others, and other financial information. Helps managers create: Planning strategies Executing strategies Feedback from execution of the strategy
Trend – The direction in which something is moving. Types of trends that financial statements can show – growth and decline of sales, profit or loss, as well as changes in costs and expenses, assets and liabilities. Helps a business see its current financial state and make predictions about its future
An important specific role of financial statements is that they are used in various contracts and agreements. For example: ▪ A limit to the amount that a company may borrow may be based on ratios taken from the financial statements, such as gearing, interest cover or other measures. If such limits are breached, various consequences may arise including the debt being immediately repayable. ▪ In an agreement for the sale or purchase of a subsidiary, the price to be paid may include an initial amount plus a further amount of contingent consideration that may be payable depending on the level of profits in the period (typically one to three years) after the sale. ▪ Part of the remuneration of a director, manager or group of employees may be based on an accounting measure such as growth in (or absolute amount of) a measure of profit such as operating profit, pre-tax profit, post-tax profit or earnings per share.
Business wants to know the profit earned or loss suffered during the year and its financial position at the end of the year. This is disclosed by income statements and the balance sheets. Book-keeping records provide necessary data for preparing these statements.
Financial information and data are needed for cost ascertainment, planning, budgeting and forecasting. Records maintained by book- keeping are the source of such information. Book-keeping records are regarded by the tax authorities as authentic and reliable for determining tax liability.
It provides the data needed to compare figures. It provides the data needed to determine the variance. The variance is the difference in the planned financial outcomes (from the budget) and the actual financial outcomes.
The finance department of a company generates a variety of financial information that is helpful in decision making, including: Profit and Loss accounts providing details of whether the business is making efficient use of financial resources. Balance Sheet information providing details of a businesses assets and liabilities, as well as the liquidity of the business.
Sales and purchases information about particular types of trading and accounts with particular customers and suppliers. Information about the purchase of assets and liabilities. Information about the wages paid out by a business. Information about costs.
By providing a steady and up-to-date flow of information, a business is able to make appropriate decisions about: how to reduce costs how to increase sales how to raise profitability when to purchase new capital assets the best sources of finance, and duration, etc.