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12 Cards in this Set
- Front
- Back
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Definition of ‘Budgets’ |
Planned financial reports containing predicted figures. |
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Definition of ‘Variance Analysis’ |
Investigation of differences between budgets and financial accounts for any given period |
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Definition of ‘Income Statement’ |
Show’s company performance in terms of revenue and expenses for the month and states profit or loss. |
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Definition of ‘Balance sheet’ (SOFP) |
Indicates financial structure or position of a business: details assets, OE and liabilities at the end of the period. |
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Definition of ‘Statement of cash flows’ |
Gives details of all cash that has come into the business and what it has been spent on. |
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Importance of Financial Information |
1. To provide information to outside stakeholders 2. To record financial transactions 3. To make decision-making easier for managers. |
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How ‘Shareholders’ use financial information to make decisions |
To decide if their money is safe. To be informed how much they are receiving on the money they invested. |
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How ‘Managers’ use financial information to make decisions |
To see if sales have increased from last year. To decide if inventory should be discounted this week. To see if there are any expenses that can be cut back on. |
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How managers use a ‘Balance sheet’ |
To track spending and earnings and what the company owns and owes through the date listed. |
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How businesses use a ‘Variance report’ |
Businesses use variance analysis to see the impact the variances have on the bottom line (profit). The two strategies that can be employed are Maintain and Change. |
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How to correct a negative budget variance |
A negative budget variance is when there is a significant positive variance in expenses or a negative variance in sales. The business should seek to change it’s operations to try reverse this trend. |
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Reason/s why financial information is important for decision making |
Every decision has a financial component. Whenever managers are making a decision, they must consider the financial implications to decide if it is the best course of action for the business. |
