Finance and Accounting
Unit 1: Introduction to the Module and
to Organisations
Instructor: Johnson Hsu
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Introduction to the Module and to Organisations Unit 1 - 1.2
Module Aim
To provide an introduction to finance and
accounting in a trading or organisational
environment, giving students:
• an understanding of main concepts and
terminology, in order to
• facilitate calculations, analysis and group
discussion.
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Introduction to the Module and to Organisations Unit 1 - 1.3
Module Coverage
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Getting an organisation started – funding, premises and equipment
•
The nature of costs – fixed/variable, direct/indirect, break-even
analysis
•
Costing activities – full-cost, marginal cost
•
Controlling the organisation – management accounting, cash-flow,
stock, budgets, accruals and profit
•
Decision making – pricing, special contracts, unprofitable activities
•
Reporting the results – income & expenditure, profit & loss, assets &
liabilities
•
Companies – share issues, stock exchanges, accounting standards
•
Financial evaluation – ratio analysis
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Introduction to the Module and to Organisations Unit 1 - 1.4
Terminology
• The module has no essential textbook, all
terminology will be explained in lectures.
• Students should raise any questions as they arise
at lectures and seminars
• Students are encouraged to work together as a
team to provide mutual support and assistance.
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Introduction to the Module and to Organisations Unit 1 - 1.5
Underpinning Themes
This module is underpinned by 5 themes:
1.
2.
3.
4.
5.
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Achievement of objectives
Limited resources
Competing demands
Management
Accountability
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Introduction to the Module and to Organisations Unit 1 - 1.6
Achievement of Objectives
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Limited Resources
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Scarcity
Is the fundamental fact of economic life:
there is a limited amount of resources
that can be used to produce a limited
amount of goods and services to meet
unlimited human want.
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Introduction to the Module and to Organisations Unit 1 - 1.9
Wants
Are the need or desire for goods and/or
services.
Goods are visible and touchable, such
as bread, audio tapes, and clothes, while
services are invisible and untouchable,
such as airplane trips, rock concerts, or a
lesson in mathematics.
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Introduction to the Module and to Organisations Unit 1 - 1.10
Physical wants
Are those wants or needs that are
necessary to sustain human life. Such
wants include the need for air, water,
food, cloths, and shelter.
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Introduction to the Module and to Organisations Unit 1 - 1.11
Psychological wants
Are wants for those things that are not
essential to sustain life. They include
wants for exotic food, fashionable
clothing, and an air-conditioned home.
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Introduction to the Module and to Organisations Unit 1 - 1.12
Competing Demands
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Demand
Is the quantities of a good or service that
buyers are willing and able to buy at
various prices in a particular period of
time.
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Introduction to the Module and to Organisations Unit 1 - 1.14
Elasticity of demand
Means the responsiveness of the
quantity demanded to a change in price.
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Introduction to the Module and to Organisations Unit 1 - 1.15
Factors determining elascity of
demand
1. Lots of substitutes.
2. Small items in a budget.
3. Essential items.
4. Over time.
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Introduction to the Module and to Organisations Unit 1 - 1.16
Supply
Is the quantities of a good or service that
sellers are willing and able to sell at a
various prices in a particular period of
time.
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Introduction to the Module and to Organisations Unit 1 - 1.17
Management
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Introduction to the Module and to Organisations Unit 1 - 1.18
Partial Organization Chart.
Manufacturing Company
President
Line Function
Staff Function
Production
Vice -President
Financial
Vice -President
Controller
Production
Supervisor
Machining
Foreman
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Assembly
Foreman
Internal
Audit
Treasurer
Cost
Financial
Systems
Tax
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Introduction to the Module and to Organisations Unit 1 - 1.19
Accountability
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Introduction to the Module and to Organisations Unit 1 - 1.20
Unit 1 Coverage
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•
This unit has provided a broad
introduction to the module.
•
We shall now consider general issues of
finance, accounting and organisations to
set the context for later units.
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Introduction to the Module and to Organisations Unit 1 - 1.21
What is Finance?
In organisational terms:
‘finance is the money/funding necessary
to start-up and run the organisation’
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Introduction to the Module and to Organisations Unit 1 - 1.22
What is Accounting?
Accounting is simply ‘the keeping of
records’, and may be subdivided into:
• Financial Accounting – ‘records of
financial transactions and balances’
• Management Accounting – ‘records of
financial and other factors; for internal
management and control purposes’.
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Introduction to the Module and to Organisations Unit 1 - 1.23
Elements of a Traditional
Responsibility Accounting System
Individual in Charge
Center Budgets
Static Standards
Responsibility
Defined
Standards Are Set
for Performance
Measurement
Organizational Unit
Financial Responsibility
Standard Costing
Currently Attainable
Controllable Costs
Performance
Measurement
Comparing Actual Costs
with Budgeted or Standard
Costs
Promotions
Reward Individuals
Based on Budgetary
Performance
Bonuses
Salary Increases
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Introduction to the Module and to Organisations Unit 1 - 1.24
Financial and Management
Accounts - Examples
Financial Accounts
• Purchases
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Management
Accounts
• Sales
• Production records
• Value of stocks
• Staff work records
• etc
• Machine operating
hours and vehicle
mileages, etc
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Introduction to the Module and to Organisations Unit 1 - 1.25
MANAGEMENT ACCOUNTING
HANSEN/MOWEN
Economic
Events
Collecting
Measuring
Storing
Analyzing
Special Reports
Product Costs
Customer Costs
Budgets
Performance Reports
Personal Communication
Reporting
Managing
Inputs
Processes
Outputs
Users
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Introduction to the Module and to Organisations Unit 1 - 1.26
A Question for Students
In an organisation, who needs to
understand finance and accounting?
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Introduction to the Module and to Organisations Unit 1 - 1.27
The Answer?
To some degree, everyone!
Even staff at the lowest levels should
understand the effect of their actions and
individual performance on the
performance of the organisation.
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Introduction to the Module and to Organisations Unit 1 - 1.28
What is an Organisation?
There have been many attempts at definition.
Usefully, Anthony (1965, p.8) suggested:
“groups of people brought together for a
common purpose”.
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Introduction to the Module and to Organisations Unit 1 - 1.29
A Question for Students
Organisations may perform many
different activities (goods or services,
buying and selling, manufacturing
voluntary work etc) but how might they
be structured and organised?
What forms might the organisation
take?
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Introduction to the Module and to Organisations Unit 1 - 1.30
Forms of Organisation
• Sole proprietor or sole trader
• Partnership
• Private company (Corporation)
• Public company
• Charity or voluntary organisation
• Local government body
• National government body
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Introduction to the Module and to Organisations Unit 1 - 1.31
Sole Proprietorship
is a form of business organization in
which one person owns and operates the
business.
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Advantage of Sole proprietorships
 Easy to establish
 can makes all the decisions
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Disadvantage of Sole Proprietorship
 Liable for the losses of their
business
 difficult to sell their business
 Liability is unlimited
 The proprietorship is ended if the
proprietor dies, goes to prison, or
become insane.
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Introduction to the Module and to Organisations Unit 1 - 1.34
Partnerships
is a business organization in which two
or more individuals enter a business as
owners, and share the profit and losses.
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Introduction to the Module and to Organisations Unit 1 - 1.35
Advantage of Partnerships
 can raise more capital
 Responsibilities can be divided and
therefore handled more efficiently
 the business can continue to run
under the control of one or more of the
other partners if one member of the
partnership is absent
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Introduction to the Module and to Organisations Unit 1 - 1.36
Disadvantage of Partnerships
 Liability is unlimited
 A partner cannot simply withdraw
from the business.
 A new agreement must be drawn up
each time when a partner resigns, or
dies.
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Introduction to the Module and to Organisations Unit 1 - 1.37
Corporation
is a form of business organization that
has an existence of its own separate
form those who created it or own ot.
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Introduction to the Module and to Organisations Unit 1 - 1.38
Advantage of Corporation
 Limited liability
 Legal personality
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Introduction to the Module and to Organisations Unit 1 - 1.39
How Corporation to raise capital?
 to retain the earnings of the
corporation rather than distributing them
in the form of dividends to the owners.
 by issuing securities.
(1) Common shares
(2) Preferred shares
(3) Bonds
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Introduction to the Module and to Organisations Unit 1 - 1.40
Ownership
Ownership of organisations depends on their form, for
example:
• Sole traders – single owner
• Partnership – two or more owners
• Company – shareholders
• Government and local government bodies –
electors
• Voluntary organisations – arguably none, assets
and funds are held in trust.
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Introduction to the Module and to Organisations Unit 1 - 1.41
Stakeholders
‘Stakeholders are those people or other
bodies that have legitimate interest in the
position, status or welfare of an
organisation’.
Who or what might this include?
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Introduction to the Module and to Organisations Unit 1 - 1.42
Stakeholders
• Owners
• Suppliers
• Managers
• Customers
• Employees
• Lenders
• Dependents of above
• Investors
• Local community
• Government
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Introduction to the Module and to Organisations Unit 1 - 1.43
References
Anthony, Robert N. (1965). Planning and
Control Systems: A Framework for Analysis.
Boston: Harvard University.
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Introduction to the Module and to Organisations Unit 1 - 1.44
Unit 1
Any questions?
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