Business Management 3.4 – FINAL ACCOUNTS
BUSINESS MANAGERS CUSTOMERS
Performance; compare targets, past data If business is secure
and competitors If assured of future supplies
Decision making Security of spare parts and service
Control and monitor business divisions facilities
Set targets / budgets
WORKFORCE GOV AND TAX AUTHORITIES
If business is secure to pay wages and Calculate tax
salaries Business expansion and job creation
Business expansion or reduction in size Business danger of closing down (-jobs)
Jobs security Business stays within the law in
If wage increase can be afforded accounting
Theirs vs. directors salaries
BANKS INVESTORS
Lend money Value on business and investment on it
Increase in overdraft facilities or continuity Business profitability
Share of profits received
Business potential to growth
Compare business to decide where to
invest
Selling their holding
CREDITORS (suppliers) COMMUNITY
Business secure and liquid to pay off debts Business profitability as good for local
If it is a good credit risk economy
Pressure for early repayment Business leading to closure
ACCOUNTING INFORMATION & STAKEHOLDERS
LIMITATIONS OF ACCOUNTING INFORMATION
1. One set of accounts is of limited use: need to be compared with other businesses or the
same over time. No trend picture
2. Accounts do not measure items which cannot be expressed in monetary terms: do not
reflect state of technology or skills of managements team. No evaluation on reputation or
valuation of employees
3. Account on 1 business do not allow comparisons: need to be compared with other
business with similar activities
4. Business accounts publish the minimum information required by law: all data is not
published so as not to help competition
5. Accounts are historic: report what has happened and not what is going to happen (except
for management accounts)
6. Window dressing: presenting the accounts of a business in the best possible, or most
flattering, way which could potentially mislead users of accounts. Cover up information
(fraud or is unethical). Try to make companies more successful than what they are.
Methods
a. Recording revenue expenditure as capital expenditure. Spread the payment so profit
increases in current year.
b. Selling assets before end of financial year (seem + liquid). More instant cash, but it
will have long-term expense (lower long-term profits)
1
, Business Management 3.4 – FINAL ACCOUNTS
c. Delay payments to creditors and encourage early payments to debtors (+ liquidity).
Or delay purchases
d. Loans may be taken out to improve liquidity, but may be repaid a few days later
e. Inflating intangible assets value
PRINCIPLES OF ACCOUNTING PRACTICE
1. INTEGRITY – Honesty in all dealing with clients, tax authorities and other stakeholders. Can´t
be associated with a false or misleading statement
2. OBJECTIVITY – Not allow bias, conflict of interest or be influenced to override their
professional judgement
3. PROFESSIONAL COMPETENCE AND DUE CARE – No-one should undertake professional work
which they are not competent to perform. Need to constantly update their level of
professional knowledge.
4. CONFIDENTIALITY – Not disclose professional information unless they are allowed
5. PROFESIONAL BEHAVIOUR – Not bring their professional body into disrepute. Behave with
courtesy and consideration
MAIN BUSINESS ACCOUNTS
PROFIT AND LOSS ACCOUNT Revenue, costs and profit of a business over a period of time.
(income statement) Gross and net profit. How net profit is divided to shareholders
and retained profits
BALANCE SHEET (financial Net worth of a company (assets – liabilities)
position)
CASH FLOW STATEMENT Where cash was received from and what it was spent on
PROFIT AND LOSS ACCOUNT
Internal use is more detailed and a less detailed one is published for external users
Revenue +
Cost of sales (-) Trading account
Gross Profit =
Overheads (-)
Net profit (profit before tax and interest /
=
operating profit)
Interest (-) Profit and loss account
Pre-tax profit =
Tax @20% (-)
Profit after tax =
Dividends (-)
Appropriation account
Retained profit =
Retained profit: profit after all deductions that is ploughed back into the business as source of
finance
USES
Measure and compare performance (accompanied with ratios)
2
BUSINESS MANAGERS CUSTOMERS
Performance; compare targets, past data If business is secure
and competitors If assured of future supplies
Decision making Security of spare parts and service
Control and monitor business divisions facilities
Set targets / budgets
WORKFORCE GOV AND TAX AUTHORITIES
If business is secure to pay wages and Calculate tax
salaries Business expansion and job creation
Business expansion or reduction in size Business danger of closing down (-jobs)
Jobs security Business stays within the law in
If wage increase can be afforded accounting
Theirs vs. directors salaries
BANKS INVESTORS
Lend money Value on business and investment on it
Increase in overdraft facilities or continuity Business profitability
Share of profits received
Business potential to growth
Compare business to decide where to
invest
Selling their holding
CREDITORS (suppliers) COMMUNITY
Business secure and liquid to pay off debts Business profitability as good for local
If it is a good credit risk economy
Pressure for early repayment Business leading to closure
ACCOUNTING INFORMATION & STAKEHOLDERS
LIMITATIONS OF ACCOUNTING INFORMATION
1. One set of accounts is of limited use: need to be compared with other businesses or the
same over time. No trend picture
2. Accounts do not measure items which cannot be expressed in monetary terms: do not
reflect state of technology or skills of managements team. No evaluation on reputation or
valuation of employees
3. Account on 1 business do not allow comparisons: need to be compared with other
business with similar activities
4. Business accounts publish the minimum information required by law: all data is not
published so as not to help competition
5. Accounts are historic: report what has happened and not what is going to happen (except
for management accounts)
6. Window dressing: presenting the accounts of a business in the best possible, or most
flattering, way which could potentially mislead users of accounts. Cover up information
(fraud or is unethical). Try to make companies more successful than what they are.
Methods
a. Recording revenue expenditure as capital expenditure. Spread the payment so profit
increases in current year.
b. Selling assets before end of financial year (seem + liquid). More instant cash, but it
will have long-term expense (lower long-term profits)
1
, Business Management 3.4 – FINAL ACCOUNTS
c. Delay payments to creditors and encourage early payments to debtors (+ liquidity).
Or delay purchases
d. Loans may be taken out to improve liquidity, but may be repaid a few days later
e. Inflating intangible assets value
PRINCIPLES OF ACCOUNTING PRACTICE
1. INTEGRITY – Honesty in all dealing with clients, tax authorities and other stakeholders. Can´t
be associated with a false or misleading statement
2. OBJECTIVITY – Not allow bias, conflict of interest or be influenced to override their
professional judgement
3. PROFESSIONAL COMPETENCE AND DUE CARE – No-one should undertake professional work
which they are not competent to perform. Need to constantly update their level of
professional knowledge.
4. CONFIDENTIALITY – Not disclose professional information unless they are allowed
5. PROFESIONAL BEHAVIOUR – Not bring their professional body into disrepute. Behave with
courtesy and consideration
MAIN BUSINESS ACCOUNTS
PROFIT AND LOSS ACCOUNT Revenue, costs and profit of a business over a period of time.
(income statement) Gross and net profit. How net profit is divided to shareholders
and retained profits
BALANCE SHEET (financial Net worth of a company (assets – liabilities)
position)
CASH FLOW STATEMENT Where cash was received from and what it was spent on
PROFIT AND LOSS ACCOUNT
Internal use is more detailed and a less detailed one is published for external users
Revenue +
Cost of sales (-) Trading account
Gross Profit =
Overheads (-)
Net profit (profit before tax and interest /
=
operating profit)
Interest (-) Profit and loss account
Pre-tax profit =
Tax @20% (-)
Profit after tax =
Dividends (-)
Appropriation account
Retained profit =
Retained profit: profit after all deductions that is ploughed back into the business as source of
finance
USES
Measure and compare performance (accompanied with ratios)
2
