Financial & Management
Accounting
Financial & Management
Accounting
Financial
Management
Purpose
Users
Finance and Accounts
Why do we bother keeping accounting
records?
There are several groups of people who may have an
interest in the finances of the business.
The law says that they have a legal right to certain
information.
The whole process of providing this information (and
of maintaining a book-keeping system capable of
providing this) is known as financial accounting.
Financial Accounting
• Concerned with ‘Stewardship’
function of a business.
– Accounting for what has happened
over the past financial year and
reporting that information to
shareholders and other interested
parties
Financial Accountant
• Records all the financial transactions
which affect the business:
– Setting up book-keeping/record-keeping
systems to record the income and
expenditure of a business
– Keeping a record of the businesses assets
and liabilities
– Preparing the final accounts of a business –
Trading and Profit and Loss Account and
Balance Sheet
– Preparing tax figures
Financial Accounting
• So Financial Accounting is about
keeping records in order to satisfy legal
requirements of reporting to
stakeholders (users of accounting
information).
• Limited Companies have far greater
legal requirements than do ‘smaller’
businesses such as sole-traders and
partnerships.
Management Accounting
The managers of the business will want to know
how things are going.
They need financial information in order to plan
for the future.
They then need more up-to-date information in
order to check whether actual performance is on
target.
This process is known as controlling the costs
and finances.
Management Accounting
 In accounting this is known as Management
or Cost accounting.
 So, management accounting is done by the
managers, for the managers, for the purposes
of planning and control.
 Plan for the future
 Make decisions
 Control costs
Management Accountant
Provides information to assist management make
better informed decisions and to help them plan
ahead and to control the costs of the business.
–Classifying costs – that is, deciding whether costs relate to
materials, labour or overheads
–Working out the final cost of a job/product/service in order to
determine the price to be charged to the customer
–Providing detailed analysis of costs to help management make
better informed decisions
–Preparing budgets of future requirements in order to meet
planned sales and production targets.
Financial & Management
Accounting
Purpose
Users
Finance and Accounts
Bannerman High
School:
Stakeholders
• The interested parties of accounts are
often referred to as ‘stakeholders’.
Shareholders
Customers
Government
Stakeholders
Trade Unions
Investors/Lenders
Shareholders
• Current and potential shareholders
will be interested in the following:
– Recent profit and dividend percentage
trends
– The dividend yield in relation to
alternative investments
– The market price in relation to
nominal value
Customers
• How early will payment be
required? Liquidity ratios will give
such an indication
• Continuity of existence, as it
affects after-sales service
Investors/Lenders
• Are there sufficient funds available to meet
interest charges? An examination of the
various liquidity ratios will provide significant
data in this respect
• Are profit levels high enough to produce funds
to repay any loans?
• Potential lenders will be particularly interested
in such items as the Net Book Value of Assets
in relation to borrowing requirements and
profit trends in recent years.
Trade Unions
• The existence of profit-sharing schemes
and, if so, the level of profits
• The relationship between changes in
profits and changes in wage levels
• The nature and level of directors’
salaries
• The firm’s investment policy and its
effect on employment
Government
• Sales and costs for VAT purposes
• Profits for Corporation Tax
purposes
• Wages for PAYE purposes
• Other information eg for
employment statistics