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Financial Management

Introduction

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RA21/04/2012

Role of

Finance 

Payment of wages

and salaries

Maintenance offinancial records

Production oforganisations

annual accounts

Analysis ofAccounting info

e.g. ratio analysis

Payment ofaccounts and

credit control

Preparation and monitoringof internal financial

information (e.g. budgets)

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RA21/04/2012

Role and importance of financial

managementVitally important to success or failure of anorganisation. Efficient financial management has to:

Ensure funds available to achieve objectives e.g.

pay bills - materials, electricity, advertising pay wages and salaries acquire resources

develop new products Ensure costs are controlled Ensure adequate cash flow Establish and control profitability levels

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RA21/04/2012

Question

In your own words, explain the role andimportance of financial management to a

manufacturer whose objective is to improvequality.

(4 marks)

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RA21/04/2012

Solution

to make sure there are sufficient funds for the organisation tobuy all the resources it needs to achieve its objectives i.e.appropriate quality of raw materials, correctly trained staff,well maintained machinery (1)

to make sure there is enough money to recruit and trainappropriately skilled staff to satisfy the objective of improvingquality. (1)

to make sure that all the costs/expenses are under control (1) to make sure that the organisation is performing profitably and

efficiently without compromising quality (1) to reduce costs of raw materials by ensuring the best value for

money from suppliers. (1)

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RA21/04/2012

Question

Outline 2 reasons why the marketing andfinancial departments may face conflicts of

interest within an organisation(2 marks)

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RA21/04/2012

Solution

Marketing department may require cash in order tocarry out promotional activities e.g. advertising,free gifts

Marketing may wish to discount price

Marketing may wish to use techniques like BOGOF 

All of the above are costs to the business and mayresult in reduced profits.

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RA21/04/2012

Payment of wages & salaries

Work closely with HR department to calculatewages/salaries

Use information held by HR Dept. to calculate wages e.g.name, address, bank account details, sick days, hours

worked etc. before payment takes place. Most organisations use Bank Automated Credit System

(BACS)

Advantages: No need for large sums of money to be kept on business

premises No need for large sums of money to be transported to the

business premises Cheaper for the business

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RA21/04/2012

Payment of accounts

Accounts fall into CASH or CREDIT categories.

CASH accounts

Normally paid to companies or individuals that the businessdoesn’t deal with on a regular basis.

Normally paid using petty cash. Imprest used to meet daily cash expenses of the business.

CREDIT accounts

Business receive goods or services and pay at a later date. Amount and timescale dependent on ‘credit history’ 

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RA21/04/2012

Question

Distinguish between a cash account and acredit account.

(1 mark)

Describe the advantages of using the BACSsystem to pay wages.

(3 marks)

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RA21/04/2012

Solution

A cash account is normally paid using pettycash whereas a credit account is where a

business receive goods or services and payat a later date.

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RA21/04/2012

Maintenance of financial records

Companies must maintain financial records - a history ofthe business’s activities. 

Inland Revenue require businesses to retain financialrecords for a period of 6 years for possible investigation.

Limited companies must comply with Companies Act of1985 & 1989 which states that it is an offence not to

maintain proper financial records.

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RA21/04/2012

Managers and decision makers can makeinformed judgements and decisions based onfinancial information identified by the financedepartment.

Identify financialinformation fordecision makers

Cash Flow Financial

Statementsand Reporting

FinancialAnalysis

Budgets