Further Work
This section looks at some other theories about accounts and financial performance and suggests some further work you may want to try. Before considering this it would probably be a good idea to have tried the worksheets on ac
counts in the Cameron Balloons virtual factory.
A printable version of this further work is available for filling in
answers.
The External Accounts
Who are the different groups who use the firm's annual report and accounts? There are a variety of stakeholders who may be interested in the accounts and the accounts of all limited companies are freely available in the public domain. Listed below are
the different groups who may have an interest - what do you think that interest may be?
- Potential investors
- Suppliers
- Competitors
- Local community
- Bankers
- Employees
To ensure their reliability and consistency, there are a number of laws about how accounts have to be presented. There are various ways in which companies may try to "window dress" their accounts to disguise the situation from some of the gro
ups above (particularly competitors?), though the law tries to minimise this.
All accounts have to be audited by a firm of accountants to check that they represent a "true and fair view of the state of the companies finances". Once again this is a form of legal protection for all the above groups.
Construction Of Accounts
There are various different concepts that are relevant to the construction of accounts. You may want to find out a bit more about these terms:
- Historical cost accounting
- Double entry accounting
- Current cost accounting
- Going concern
Cash Flow
All companies are now required (since 1992) to produce a cash flow statement as part of their annual accounts. The statement shows a summary of all the flows of cash in and out of the business during the course of the year.
A vital part of any business is the monitoring of cash flow. Many potentially profitable businesses have gone under because of a lack of cash. Businesses need to be sure that they will be able to meet all their commitments - paying creditors, wages,
interest payments and anything else that requires cash.
The best technique for this is cash flow forecasting. You may want to look this up to find out more about it.
