Chapter 13 Flashcards
What is the accounting function?
Accounting is the systematic recording, reporting and analysis of financial transactions within a business
What is financial accounting?
Concerned with recording and processing transactions as they occur.
This role contributes to the preparation of the annual financial statements in accordance with relevant accounting standards and legistlation
What is treasury management?
May include the management of working capital, cash, financing and foreign currency and tax
What is management accounting?
Preparing and presenting accounting info to assist management with policies. planning and controlling activities
What are the key areas of management accounting?
Budgeting, standard costing, variances and KPIs
What is the importance of the accounting function?
Historically it was to report performance, now we influence business strategy and enhance performance, add value to business and advice on cutting costs
What is the role of the financial accounting function?
- Statutory accounts
- It is the classification and recording of monetary transactions; and
- the presentation and interpretation of the results of those transactions in order to assess performance over a peroid
What does the SPL show?
Performance over a period of time
What does the SFP show?
position at this point in time
What is the statement of cash flow?
Shows the generation of cash and cash equivalents and the uses if cash and cash equivalents in the period.
Why is the statement of cash flow important?
as the final profit figures include assumptions and estimates e.g., valuation of inventories, depn policies and doubtful debts
What is the financial accounting integrated reporting?
A concise communication about how an organisations strategy, governance, performance and prospects in the context of its external environment, lead ot the creation of value in the short, medium and longterm
What are the key features of management accounting?
- Internally focussed
- wider in scope
- concerned with identifying, presenting and intercepting info which is used for formulating strategy, planning and control, decision making and optimising the use of resources.
What does management accounting include?
- setting budgets and budgetary control
- analysing company’s performance
- investment appraisal
Why do we have cost schedules in man accounting?
- value inventory
- record costs/calculate profits
- price products
- make decisions
What is the standard cost unit?
the planned unit cost of a product or service
What are the different budgetary systems?
- top down vs bottom up
- incremental
- zero- based
- rolling
- activity based
- feedforward control
What is the purpose of budgets?
PRIME
- Planning
- Responsibility
- Integration
- Motivation
- Evaluation
Why are variance reports important?
as they are a tool that can be used as a starting point to understand how the business has performed.
where problems have arisen?
They pinpoint the problems
What are the functions of a treasury?
Deal with investigating surplus funds and raising finance
What must a treasury fund ensure?
- surplus cash is invested profitably
- excessive risks are not taken
What is the treasury responsible for?
- cash management
- overseeing bank relationships
- including bank borrowing
- liquidity management
- foreign exchange
- risk
- corporate finance
What are the steps to raising finance?
1) Issue shares (equity finance)
2) Loan money (debt finance)
3) Simplest and cheapest - use retained earnings to invest
4) Grants
What is more riskier debt or equity?
Debt
Does equity finance get repaid?
No
Investing in debt guarantees what?
returns
Does equity investors have guarentees?
no
Is debt cheaper than equity?
Yes
Is equity easier to source than debt?
no
What happens if the debt to equity ratio is low?
There is scope for the company to raise finance by means of debt
Is tax avoidance legal?
No
Is Tax evasion legal?
Yes
What is tax avoidance?
tax planning to arrange affairs within the scope of the law, to minimise the tax liability
What is tax evasion?
The illegal manipulation of the tax system to avoid paying tax
