Chapter 1: The accounting Function (Task 1) - Part 2

Question 1

Contribution to business objectives

Answer 1

Ensure the organisation:

-Runs smoothly and efficiently
-Complies with legislation and regulation
-Managers its working capital and cash position effectively

Question 2

Efficiency

Answer 2

Efficiency

Cost accounting information that is supplied accurately and in a timely manner will help with efficient and effective use of resources.

It is important that all resources as used effectively (people, material, assets).

Efficient use of resources leads to increased productivity, reduction in costs, improve profit and a better customer experience.

Question 3

Legislation

Answer 3

Any finance department must comply with all legal and regulatory frameworks.

This is to minimise penalties and to protect the reputation of the organisation.

Question 4

Cash management (solvency)

Answer 4

Cash is the life blood of the business, without which it cannot pay its employees or suppliers.

If the business could not afford to pay your wages, how much longer would you turn up?

If a supplier does not get paid, how much longer will they provide goods and services?

Effective management and control of cash is vital.

Question 5

Working capital

Answer 5

This is the day to day financing of an organisation.

Working capital is made up of:
Inventory
Receivables
Payables
Bank / Cash

The finance department manages receipt of money owed and payment of payables.
It also provides all other departments with information about the cash flow of the organisation.

Question 6

Managing working capital.

Answer 6

We must work within our internal policies on:
Credit period offered to customers.
Credit control – chasing customers for payment.
Inventory levels.
Payment to suppliers (ensuring maximum credit period is taken).
Managing overdraft / investments.

Question 7

Smooth running of the business

Answer 7

Inventory
Inventory must be well managed to ensure we don’t run out of finished goods to meet customer demand.
Inventory of raw materials must be managed to ensure we don’t run out and production is not halted.

Planning
How many products do we need to make?
Are we making the best use of our resources?

Procedures
Do we have procedures for authorisation and ordering?
Have we appointed someone with responsibility for these procedures?

Costings
Does our selling price cover our costs so that we can make a profit.

Question 8

Payroll department

Answer 8

Responsible for calculation and payment of employee wages.
Responsible for calculation of amounts due to HMRC.
Compliance with detailed regulations covering pay and deductions.
Protection of sensitive employee information.
You do not need to calculate payroll but are expected to know what information the payroll department requires and why.

Question 9

Gross pay

Answer 9

Initial calculation of payroll for each employee.
Could be based on volume of work completed, hours worked or a fixed period sum.

Question 10

Payroll - Deductions

Answer 10

Compulsory
Income tax (PAYE)
National Insurance Contributions (NIC)

Voluntary
Pension contributions
Savings scheme (SAYE)

Question 11

Payroll - HMRC

Answer 11

All deductions of income tax and National Insurance must be paid to HMRC.
Payment is made periodically of all sums deducted from gross pay.

Question 12

Payroll - Net pay

Answer 12

The net sum after all deductions that is made to each employee.
The payroll department is responsible for ensuring that employees receive their net pay.

Question 13

Payroll accounting procedures

Answer 13

The payroll department provides information to the accounting department on:
Gross pay
Deductions, and
Ensures the payroll cost of the business is recorded in the accounting records.

They payroll department receives information as follows:
Hours worked by staff and benefits they receive.
Claims for expenses
Details of new employees and leavers from HR / personnel.
Changes of circumstances of employees from HR / personnel.