Company accounts unit 1

managers, employees, government, competitors, suppliers, customers, local community, shareholders

use information to record financial activities, plan actions, control use of resources and evaluate effectiveness of actions

assess the security of a job, assess ability for fair wages

check the business meets legal requirements and if they have paid the right level of tax

to compare and benchmark performances

to help decide if they should agree to supply, and to identify the sort of payment terms offered to other suppliers

to look for guarantees and if after sales servicing is secure

because employment, wealth, housing and road plans depend on the financial state

to compare financial benefits of their investments

the amount of actual money a business has at its disposal

the money a business has made after accounting for all expenses

• receive cash at the beginning of trading year from sales made in the previous year (increase in cash)

• owner introduces more cash

• purchases of fixed assets reduce cash balance

• sales of fixed assets increase cash balance

summarises income and expenses and details the profits and loses made by the business

• measures success of the business compared to previous years or other businesses

• assesses actual performance of business with expectations

• helps obtain loans or finances from banks or lenders

• helps plan ahead

• sees overall profit

• shows earnings per share for shareholders

• other stakeholders use it to compare

• helps control costs

• measures growth

• other financial data - cash flow

• other business data - social and environmental impact

• record of past performance: not always indicator of present or future

• trends - 1yrs figure not indicate growth or decline, more periods needed

• manipulated accounts to look better

• level of detail in the account

low profit quality if 1 year is higher than expected but not retains in other years

the way profit is used after tax e.g. paid out as dividends or retain profit for future use

summarises the assets, liabilities and capital of a business at a particular date

Non Current Assets (business can fall back on this by selling it)

Gearing %: Image

Working capital= Current Assets- Current Liabilities

Enables management to summarise the financial position of the business at end of accounting period + useful for stakeholders

Income statement: determines profitability and can compare with previous accounting periods or budgets

Statement of FP: helps review FP an provide guidance in effective working capital management

Enables decision to be taken

Owners/Shareholders access to more detailed financial info + enables shareholders to evaluate the management team operating on their behalf

Governments verify the companies liabilities to various forms of taxation and duties

Supplier inspect financial position and make decisions on credit worthiness of company

info may be out of date so no reflect on economic reality

difficult to fully understand content of financial statements and its impossible for external shareholders to gain full understanding

concentrate of quantitative issues effecting the business so limited

difficult for users to compose financial performance with other companies

subject to public scrutiny