TABLE OF CONTENTS After studying this chapter, students should be able to describe:
why a business needs money;
the sources of money;
the types of accountants and their roles;
the structure and content of the legally-required financial statements;
the principal methods of analysing financial performance of organisations.
Essentially, business can be said to be all about money acquiring it, managing it, investing it and spending it. It follows that the management of money in an organisation is a job of great importance. In most organisations, this responsibility rests with the accounting function (sometimes called the finance function).
At the beginning of a chapter on accounting and finance, it seems appropriate to ask the question: why does a business need money?
Firstly, a business needs money to meet its operating costs. In the course of normal business activities, a business incurs costs through having to pay for such things as:
wages and salaries;
rent and local authority taxation;
raw materials and purchased items;
insurance;
energy (e.g. fuels).
Secondly, money is needed to purchase new capital items to enable the business to grow and develop. Included in this category are such things as:
new land and buildings,
new plant and equipment,
new technologies.
Thirdly, money is sometimes needed to make good short-term cash deficits that arise from overspends on operating or capital costs. From time to time, a business runs out of money for a short period of time, in much...
