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Introduction to Finance & Accounts

Introduction to Finance & Accounts. BTEC Business Nationals Unit 5 – An Introduction to Accounting. What is Accounting?. Accounting The collection, recording, compiling and forecasting of financial information Financial Accounting Management Accounting.

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Introduction to Finance & Accounts

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  1. Introduction to Finance & Accounts BTEC Business Nationals Unit 5 – An Introduction to Accounting

  2. What is Accounting? • Accounting • The collection, recording, compiling and forecasting of financial information • Financial Accounting • Management Accounting

  3. Business & Economics is going interactive • Department Twitter account • Revision quizzes and Independent learning using Socrative. • Collaborative projects using Thinglink.

  4. Twitter • Create a twitter account and follow @ActonBusEcon • Look at the following list and follow ones you find interesting. • For links to articles, follow BBC, FT, Economist • For blogs and analysis of exam topics, Jim & Geoff Riley • LSE runs many free events throughout the year.

  5. Socrative • Online quizzes and multiple choice exam practise • If you have an android, iPhone or Blackberry mobile phone, you can download the Socrative Student App. • It can also be accessed from laptops & PCs • No account needed, just my classroom PIN: 610523

  6. Thinglink • You can log in to this using your Twitter account. • Throughout the year, various images such as blank graphs & images will be uploaded and you will be asked to comment on them. • Your first task is to pick an EU country to be “Economics Correspondent” for. • Link to image can be found on Twitter feed.

  7. Financial Accounting • Gathering and publishing information of financial record. • All limited companies publish their accounts each financial year • These accounts are available at Companies’ House

  8. Management Accounting • Accounting statements produced for management purposes • Planning, decision making review and control

  9. Topics • Why businesses need accounts • Major accounting documents • Users of published accounts • Raising Finance • Accounting today

  10. Why do businesses need accounts? • Management Accounting • Ensures firms keep a careful check on their cash flow/working capital • Gives the opportunity to plan ahead • Identify costs/selling price • Work out break even/profit points • Measure how well staff are performing • Control expenditure

  11. Why do businesses need accounts? • Financial accounts • To obtain bank loans/finance • Auditing purposes (by a range of external users)

  12. Management Accounting V Financial Accounting

  13. Questions • What is Accounting? • What is Management Accounting? • What is Financial Accounting?

  14. Task • Using the text book, each of you is going to read and prepare a brief summary of your section. • 1.1 Purpose of accounting • 1.2 Capital Income • 1.3 Revenue Income

  15. Research/Homework Task • Mobile Phone industry • Research one mobile phone company • Describe the different categories of Capital Income and Expenditure • Describe the different categories of Revenue Income and Expenditure • Explain, clearly, the differences between each category of Income and Revenue

  16. Major Accounting Documents • Financial accounting • Balance sheet • Profit & loss account • Cash flow statement

  17. Balance sheet • A snapshot of a firms assets, liabilities and sources of capital • What is the business worth? • Can it afford to expand? • Is it a safe investment?

  18. Profit & Loss Account • The level of profit made in the most recent trading period • Profit = Revenue – Costs/expenses • Is the firm trading successfully? • Are the senior managers proving effective? • Is it likely to be a profitable investment?

  19. Cash flow statement • This appears in the published financial accounts of public limited accounts only • Where cash has come from & where iit has been used over the past year • How easily was the firm able to find the cash to finance its recent activities? • Was the finance generated from within the business, or was outside finance needed?

  20. Major Accounting Documents • Management accounting • Cash flow forecasts • Budgets • Contribution statements • Investment appraisal • Break-even charts

  21. Cash flow forecasts • An estimate of what the firm’s bank account will look like in the each month of the coming year • If an overdraft is predicted, financial arrangements can be made

  22. Budgets • Financial plans which can be set for costs and/or revenues • Used to coordinate, motivate and control the key activities within a business in the coming year

  23. Contribution statements • Set out the contribution to overheads made by each division or department of a firm • Helps make decisions about allocating resources between different parts of the business • More capital to finance expansion of the most profitable product area

  24. Investment appraisal • These calculations help decide whether a prospective investment project is financially attractive • Buying new machinery • Building a new factory etc

  25. Break even charts • Indicate revenues and costs, and therefore profit at all possible levels of output • They enable a break even point, where neither a profit nor a loss are made • Used in decision making: • Pricing • Cost cutting • Expansion

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