Accounting involves the creation of financial records of
business transactions, flows of finance, the process of
creating wealth in an organisation, and the financial
position of a business at a particular moment in time.
Users of Accounts
A number of users make use of accounts for different
purposes: these are also refered to as stakeholders. The
main users of accounts are shown below:
Shareholders read accounts to examine the health of
business, and the returns (dividends) that they can expect
to make. Employees read accounts to see how safe their jobs
are. The Inland Revenue read accounts to calculate how much
tax businesses should be paying. Suppliers read accounts to
check that the company they supply with goods on credit will
be able to pay the money owed when it becomes due.
In a typical large business the accounting function might be
organised in the following way:
Financial accounting is concerned at one level with
book-keeping i.e. recording daily financial activities, and
at a more advanced level with preparation of the final
accounts e.g. the profit and loss account and balance sheet.
Management accounting is concerned with providing managers
with management information such as information about costs,
and forecasts of future costs and revenues. Financial
information can be fed to those who require such information
for decision-making and record-keeping purposes.
For example, managers need information in order to manage
the business efficiently and constantly to improve their
decision-making capabilities. This is especially true when
analysing accounts using ratios. Shareholders need to assess
the performance of managers and need to know how much profit
of income they can take from the business. Suppliers need to
know about the company's ability to pay its debts and
customers wish to ensure that their supplies are secure. Any
provider of finance of the business (e.g. bank) will need to
know about the company's ability to make repayments. The
Inland Revenue needs information about profitability in
order to make an accurate tax assessment. Employees have a
right to know how well a company is performing and how
secure their futures are. This helps towards the employer -
The reasons why businesses keep accounts for these users can
therefore be summarised as:
1. To comply with legal and other requirements e.g. Stock
Exchange listing rules.
2. To provide information for stakeholders about financial
performance and viability.
3. To provide managers with information for decision making.
4. To provide a structure to business activity based on the
careful processing of numerical data.
Fund management is the professional management of various
securities (shares, bonds etc) assets (e.g. real estate), to
meet specified investment goals for the benefit of the
investors. Investors may be institutions (insurance
companies, pension funds, corporations etc.) or private
investors (both directly via investment contracts and more
commonly via collective investment schemes e.g. mutual funds) .
15. Which statement about ADRs is true?
a) An ADR is the receipt for the shares of a foreign
based corporation held in U.S bank
b) ADRs do not trade on U.S exchange
c) ADRs give non U.S investors a way to buy non US
company shares in the US market.
d) The holder of an ADR is entitled to only the
dividends for the security