Final accounts 3.4

How stakeholders use business accounts

Managers

  • Control and monitor the operation of each department and division.
  • Set targets or budgets for the future and review these against actual performance.
  • Provide info for taking decisions e.g. new investments, closing branches and launching new products

Workforce

  • Determine if jobs are secure
  • Determine if the business is likely to expand or decrease in size
  • Asses if the business is secure enough to pay wages and salaries
  • Find out how the avg wage compares with directors' salaries

Banks

  • Decide whether to lend money or not
  • Assess whether to allow an increase in overdrafts
  • Decide whether to continue a loan or overdraft

Principles and ethics

Integrity: Being honest, truthful and straightforward about all business practice. Accountants should have no association with info that is believed to be false of misleading.

Objectivity: Shouldn't allow bias, conflict of interest or the influence of other people to override their professional judgement.

Confidentiality: Accountants shouldn't disclose personal info unless there is specific permission or legal duty

Intangible assets

Creditors - suppliers

  • Assess whether the business is a good credit risk
  • Assess whether the business is secure and liquid enough to pay debts
  • Decide whether to press for early repayment of debts

Customers

  • Asses whether the business is secure
  • Determine whether they will be assured of future suppliers of the goods they are purchasing

Government + tax authority

  • Calculate the tax due
  • Determine whether the business is likely to expand thus, provide jobs
  • Asses whether the business is in danger of closing down = economic problems
  • Make sure the business respects the law and regualtions

(Potential) investors

  • Asses the value of the business + their investment
  • Establish if the business is becoming more or less profitable
  • Determine what share of the profit investors will receive
  • Decide whether there is potential growth
  • Decide to sell or keep their share
  • Comparing these details with other firms also

Professional competence: No one should undertake professional work which they're not competent to preform. Should also constantly update level of professional knowledge and skills.

Professional behaviour: Even if there is no obligation to act in a certain way, accountants should not act in a way that will disrepute their professional body.

Main acc + features

Profit and loss: Shows how gross profit/loss has been made form the trading activities of the business.
Use: Many different for different stakeholders.

Balance sheet: Records the net wealth of a business. In a company the 'net wealth' belongs to shareholders.

  • Working capital/ net current assets = current assets - current liabilities
  • Curren assets = Stocks, debtors and cash balance
  • Current liabilities = Overdraft, unpaid dividends, unpaid tax
  • Fixed assets = Land, buildings, vehicles and machinery - tangible assets
  • Sharholders equity = The capital invested int he business by the shareholders originally or retained profits in the business. the equity will not be repaud to shareholders unlike loans.
  • Long-term liabilities = Long term loans owned to a business. Paid over a year. Loand, mortgages, debentures.

Marketing-related: Trademarks, logos or trade-names are words or symbols that distinguish the company. These can be renewed for a period of 10 yrs.

Customer-related: Result from business relations with outside parties. Include a lost of regular customers and contracts from long-term customer relations.

Artistic-related: Gove ownership rights to plays, literary works, musical works and photos, pictures etc. A copyright can be granted for the life of the producer + 70 yrs.

Technology-related: From patents taken out on innovations or tech advances. It gives its holder the exclusive right to use, manufacture and sell a product or process for 20 yrs.

Contract-related: Value of rights from contractual agreements = franchises, construction permits, broadcasting rights, licensing agreements etc.

Goodwill: When the business is valued at or sold at a higher value than the balance sheet value of assets. e.g. a company buys another company for more than it is worth

They are difficult to put a value on as they're bought and sold on the open market also, their value can fluctuate wildly. These assets do not have any physical substance and aren't financial instruments.