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This section
focuses on a business' finance
Photograph: CIMA
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Accounting is divided into two branches:
- financial accounting
- management accounting
Financial accounting is mainly concerned with
financial reports at the end of each period to
the shareholders, ie the production of:
- the profit and loss account
- the balance sheet
- the cash flow statement
- notes to the accounts
These are accounts produced with an external
audience in mind, primarily the shareholders,
but many other groups use and rely on these accounts,
such as banks, employees and suppliers. These
accounts are checked (audited) by external accountants
(auditors) who verify that the accounts give a
"true and fair" picture of the business. Note
that the accounts are not confirmed as being "correct".
It would be too time consuming to do and the values
placed on some assets and liabilities rely on
professional judgement.
Management accounting is mainly concerned with
providing critical financial information for management
to make strategic and tactical decisions. There
is no legal requirement for companies to produce
management accounts. They are financial reports
that are generated over and above the normal recording
of transactions and provide management with the
financial information to manage. Included in management
accounts might be:
- budgets and variance analysis
- investment appraisal
- break even analysis
- costing and pricing methods
These accounts are produced with an internal
audience in mind and are used by all levels of
management. Different levels of management receive
different amounts of detail in order for them
to:
- keep records of their departments' past performance
- address current problems in their departments
- control their current activities
- plan for the future activities of their department
Management accounts are made especially powerful
by the use of "exception reporting". This is filtering
information so that managers can quickly pick
out exceptional or unusual items and address those
issues first.
This section will focus on how Shinkendo Oi will use financial data to make decisions. It will also explore how payback on investment is calculated and how the value of money changes over time.
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