Professional Documents
Culture Documents
Assignment
Assignment
I. Introduction
invested into the selected projects. Part of the finance function is dealing with the
capital market since a large part of the finance is obtained through the capital market,
not least those funds provided by the equity owners, the ordinary shareholders. This
function does not just deal with the raising of funds but also with the ongoing
relationship between the company and the market place.
II. Differences
1. Financial management
• Provide an adequate return on investment bearing in mind the risks that the
business is taking and the resources invested.
Management need to ensure that enough funding is available at the right time to
meet the needs of the business. In the short term, funding may be needed to invest in
equipment and stocks, pay employees and fund sales made on credit. In the medium
and long term, funding may be required for significant additions to the productive
capacity of the business or to make acquisitions.
- Financial Control
- Financial Decision-making
The financial management system for a small business includes both how you
are financing it as well as how you manage the money in the business. In setting up a
financial management system your first decision is whether you will manage your
financial records yourself or whether you will have someone else do it for you. There
are a number of alternative ways you can handle this. You can manage everything
yourself; hire an employee who manages it for you; keep your records inhouse, but
have an accountant prepare specialized reporting such as tax returns; or have an
external bookkeeping service that manages financial transactions and an accountant
that handles formal reporting functions. Some accounting firms also handle
bookkeeping functions. Software packages are also available for handling bookkeeping
and accounting. Bookkeeping refers to the daily operation of an accounting system,
for loss of critical employees. Even in businesses that have a well set up system, cash
flow can be a problem. There are some tried and true methods for Managing Cash
Shortages that can help prevent cash flow problems and deal with them if they come
up. In the worst case you may have difficulties meeting all you debt obligations. Take a
look at Financial Difficulties to learn more about ways to manage situations in which
you have more debt than income.
2. Financial Accounting
The purpose of accounting is to provide the information that is needed for sound
economic decision making. The main purpose of financial accounting is to prepare
financial reports that provide information about a firm's performance to external parties
such as investors, creditors, and tax authorities. Managerial accounting contrasts with
financial accounting in that managerial accounting is for internal decision making and
does not have to follow any rules issued by standard-setting bodies. Financial
accounting, on the other hand, is performed according to Generally Accepted
- Accounting Standards
In order that financial statements report financial performance fairly and consistently,
they are prepared according to widely accepted accounting standards. These standards
are referred to as Generally Accepted Accounting Principles, or simply GAAP.
Generally Accepted Accounting Principles are those that have "substantial authoritative
support".
when the cash is received or paid. For example, under the accrual method revenue is
recognized when customers are invoiced, regardless of when payment is received.
Similarly, an expense is recognized when the bill is received, not when payment is
made. Under accrual accounting, even though employees may be paid in the next
accounting period for work performed near the end of the present accounting period,
the expense still is recorded in the current period since the current period is when the
expense was incurred.
- Financial Statements
• Earn a profit
• Remain solvent
Solvency represents the ability of the business to pay its bills and service its
debt. The four financial statements are reports that allow interested parties to evaluate
the profitability and solvency of a business. These reports include the following
financial statements:
• Balance Sheet
• Income Statement
• Statement of Owner's Equity
• Statement of Cash Flows
These four financial statements are the final product of the accountant's analysis of the
transactions of a business. A large amount of effort goes into the preparation of the
financial statements. The process begins with bookkeeping, which is just one step in the
accounting process. Bookkeeping is the actual recording of the company's transactions,
without any analysis of the information. Accountants evaluate and analyze the
information, making sense out of the numbers.
• Understandable
• Timely
• Relevant
• Fair and Objective (free from bias)
This model has been used since the 18th century. It essentially states that a
business owes all of its assets to either creditors or owners, where the assets of a
business are its resources, and the creditors and owners are the sources of those
resources.
- Transactions
Most larger business accounting systems utilize the double entry method. Under
double entry, instead of recording a transaction in only a single account, the transaction
is recorded in two accounts.
III. Conclusion