Chapter 13
Accounting and finance
functions within business
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Accounting is the systematic recording, reporting
and analysis of financial transactions within a
business.
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Accounting
Function
The financial • Production of annual financial statements in
accordance with the relevant accounting
accounting standards and legislation.
function
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Share holder, going to the
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company
Financial Accounting
• Recording
• Classifying
• Summarizing
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Prime entry (recording )
The first transaction is entered into a book of prime
entry
Five main books
Purchase day book- record the purchases, listing the
invoice received from supplier (credit purchase)
Sales day book- record the sales, listing the invoice
issued to customer (credit sales)
Cash book- record the receipts into and payments
out of the bank
Petty cash book- record small payments e.g.
purchase tea for staff
Journal- keep proper record of non-routine
accounting adjustments
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Financial statements
Three main financial statements
statement of profit or loss (SOPL)
statement of financial position (SOFP)
statement of cash flows
Now companies moved to integrated reporting
(financial and non-financial)
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TYU-1
Noah has been asked to find four pieces of
information about FGH Ltd for his manager
from the company’s statement of profit or
loss (SOPL) and statement of financial
position (SOFP). He has been asked to find:
(1) The ratio of current assets to current
liabilities
(2) Total shareholders' equity
(3) Gross profit as a percentage of revenue
(4) Total rent expense for the year.
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Why do businesses need
to prepare financial
statements?
To satisfy groups of people who have an
interest in the financial performance of the
business
Owners – interested in how profitable the
business is and how well it is being run.
Managers – interested in the company’s
financial situation so that they can plan
effectively for the future.
Banks – may wish to see whether the
business can afford the repayments on loans
and overdrafts.
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Employees – interested in the
financial position of the company
and the impact this will have on their
jobs and wages.
Suppliers and customers – may
wish to check the financial stability
of the business to ensure it will be
able to make payments/supply goods
as needed.
Government – may wish to check
that the business is obeying relevant
laws on reporting and taxation.
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The Integrated Reporting Framework recognizes the
importance of looking at financial and sustainability
performance in an integrated way
Financial Capital: Traditional capital such as shares,
bonds, or banknotes that enables ownership and
trade.
Integrated Manufactured Capital: Material goods or fixed
assets like tools, machines, and buildings used in
reporting production.
Intellectual Capital: Company’s employee
knowledge, training, and proprietary information for
competitive advantage.
Human Capital: People’s health, knowledge, skills,
and motivation necessary for productive work.
Social and Relationship Capital: Institutions that
develop human capital like families, communities,
businesses, schools, etc.
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Sustainability
reporting
Through sustainability
reporting, companies
communicate their
performance and impacts on
a wide range of sustainability
topics, spanning
environmental, social and
governance parameters.
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