4AC012 – FINANCE AND ACCOUNTING FOR MANAGERS

Quiz Answers

1. ------ is about how the business raises funds to sustain its existence and
grow
c) Finance

2. ------ is the language of business

a) Accounting

3. ---------- is about recording, preparing and interpreting business

transactions
a) Accounting

4. Which one of the following are not the external user of accounts
c) Employees

5. Management accounting is not providing information by product or

Department for decision-making
b) False

6. Management Accounting aims to provide information for internal users

a) True

7. Financial accounting looks at the future

b) False

8. What activities managers do?

d) All of the above

9. Define Management accounting

Management accounting is the presentation of financial information to

management in a suitable format to enable them to control the business, to plan
and make decisions

10. What are the four activities of management accounting? explain

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Costing – how much do our products/services cost us to produce?

Evaluation of alternative options – e.g. contribution analysis “what if…?” scenarios or

choice of investment.

Planning & forecasting – e.g. annual budget is a translation of organisational goals/strategy

into a financial plan

Control over activities – e.g. comparison of actual spending to the budget each month to
monitor progress towards goals

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 Tutorial Questions/Answers
In small groups/pairs, write down the answers to the following four questions:

Q1) Why is it important to understand accounting and finance if you are not
an accountant? Please explain your answer by using example from your own
field of study: Business, Enterprise, HR, Marketing, Law and Economics.

Answers will vary according to the field of study

Q2) Accounting is the process of recording, preparing and interpreting

business transactions. Can you find the total cost of the shelves in this
business to see how this process results in communication of financial
information?
A business buys 5 litres of paint, 20 meters of timber and employs a
carpenter for 2 days to build in an office. Paint costs £4 per litre, timber
costs £2.50 per meter and the carpenter charges £50 per day.
£
Cost of paint (£4 x 5 litres) = 20
Cost of timber (£2.50 x 20 meters) = 50
Cost of labour (£50 x 2 days) = 100
Total cost of the shelves = 170

Q3) Can you think of three business decisions for which managers would need
accounting information?

Below are some common decisions.

• Should the business expand its product range?
• Should the business move into new markets?
• Does the business need to borrow money?
• Can the business afford to buy a new factory or machine?
• Should the business take over another company?
• How can the business increase its profit?
• Can the business increase its dividends to shareholders?
• How should the business be funded most effectively?

Q4) Lucy owned a small pizza shop which is a limited company. List four
external parties who might find financial information about the business useful
and how they would use it?

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 i. Banks and other lenders: business might have a current account with
overdraft facility, debit and credit cards or small loan. Bank needs to assess
and monitor business lending risk.
ii. Suppliers: Suppliers who supply goods (pizza material, packaging) and
services (cleaning) to the business, who want to see whether business can
pay them money for the goods and services or not.
iii. Tax authorities: Tax authorities need financial information about the
business to assess the tax needs to be paid.
iv. Competitors: interested to know the financial information of company in
order to compare it with their own performance.

Q5) ‘Managers should only supply financial information on the “current”

shareholders of the companies; no other user groups have any right at all to
information, particularly the general public or government’. Discuss

This is a contentious statement. Effectively, only the shareholders own a company.

Other users such as the government or public are thus non-owners. Some
observers believe that only the shareholders as owners have a right to receive
financial information. On the other hand, many observers believe that companies
and other organisations have a licence to operate within society. In other words,
society allows organisations to trade and there is thus a duty upon organisations to
be responsible citizens. Part of an organisation’s responsibility, it is argued, is to
provide a report of its activities to users, such as the general public. These users
can then assess whether or not the organisation is behaving responsibly.

Q6) Classify the following accounting activities into Financial and Management
Accounting:

a) Auditing (verification of accounting records) systems and records of a

business
b) Managing the tax affairs of a business
c) Analysing the financial implications of management decisions
d) Preparing financial statements (set of accounts) at the end of the financial
year
e) Ensuring compliance with legal and other regulations
f) Providing financial information for managers
g) Keeping the accounting records of business

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 Financial Accounting: a, b, d, e and g
Management Accounting: c & f

Q7) As a manager you need to decide whether you would require the following
information for planning, controlling or decision making:

a) The amount claimed for taxi fares by staff last month

b) The price charged by a new supplier for services or materials.
c) The cost of running the office photocopier.
d) The cost of employing subcontracted staff, compared with your own
employees.
e) The cost of making a component, compared with buying it from a supplier

Planning: The item b) are concerned with planning future cost or you may about to
decide whether to change to another supplier.

Controlling: The items a) and c) are mainly concerned with controlling costs

Decision Making: The items d) and e) are concerned with decision making because
in both items you are choosing between alternatives.

References

These questions have been adopted from:

Collis, J., Holt, A. and Hussey, R. (2012) Business Accounting, 2nd Ed, Hampshire: Palgrave Macmillan
Publication

Jones, M. (2014) Accounting and Finance, Chichester: Wiley Publication

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