NCC Education Limited V1.0 Instructor: Johnson Hsu Unit 1: Introduction to the Module and to Organisations Finance and Accounting

© NCC Education LimitedV1.0

Instructor: Johnson Hsu

Unit 1: Introduction to the Module and to Organisations

Finance and Accounting

Introduction to the Module and to Organisations Unit 1 - 1.2


Module Aim

To provide an introduction to finance and accounting in a trading or organisational environment, giving students:• an understanding of main concepts and

terminology, in order to

• facilitate calculations, analysis and group discussion.



Module Coverage• Getting an organisation started – funding, premises and equipment• The nature of costs – fixed/variable, direct/indirect, break-even

analysis• Costing activities – full-cost, marginal cost• Controlling the organisation – management accounting, cash-flow,

stock, budgets, accruals and profit• Decision making – pricing, special contracts, unprofitable activities• Reporting the results – income & expenditure, profit & loss, assets &

liabilities• Companies – share issues, stock exchanges, accounting standards• Financial evaluation – ratio analysis



Terminology

• The module has no essential textbook, all terminology will be explained in lectures.

• Students should raise any questions as they arise at lectures and seminars

• Students are encouraged to work together as a team to provide mutual support and assistance.



Underpinning Themes

This module is underpinned by 5 themes:

1. Achievement of objectives2. Limited resources3. Competing demands4. Management5. Accountability



Achievement of Objectives



Limited Resources



Scarcity

Is the fundamental fact of economic life: there is a limited amount of resources that can be used to produce a limited amount of goods and services to meet unlimited human want.



Wants

Are the need or desire for goods and/or services.

Goods are visible and touchable, such as bread, audio tapes, and clothes, while services are invisible and untouchable, such as airplane trips, rock concerts, or a lesson in mathematics.



Physical wants

Are those wants or needs that are necessary to sustain human life. Such wants include the need for air, water, food, cloths, and shelter.



Psychological wants

Are wants for those things that are not essential to sustain life. They include wants for exotic food, fashionable clothing, and an air-conditioned home.



Competing Demands



Demand

Is the quantities of a good or service that buyers are willing and able to buy at various prices in a particular period of time.



Elasticity of demand

Means the responsiveness of the quantity demanded to a change in price.



Factors determining elascity of demand

1. Lots of substitutes.

2. Small items in a budget.

3. Essential items.

4. Over time.



Supply

Is the quantities of a good or service that sellers are willing and able to sell at a various prices in a particular period of time.



Management



Line Function Staff Function

President

FinancialVice -

President

ProductionVice -President

ProductionSupervisor

Controller Treasurer

AssemblyForeman

MachiningForeman

InternalAudit

Cost Financial

Systems

Tax

Partial Organization Chart.Partial Organization Chart.Manufacturing Company Manufacturing Company



Accountability



Unit 1 Coverage

• This unit has provided a broad introduction to the module.

• We shall now consider general issues of finance, accounting and organisations to set the context for later units.



What is Finance?

In organisational terms:

‘finance is the money/funding necessary to start-up and run the organisation’



What is Accounting?

Accounting is simply ‘the keeping of records’, and may be subdivided into:• Financial Accounting – ‘records of

financial transactions and balances’

• Management Accounting – ‘records of financial and other factors; for internal management and control purposes’.



Elements of a Traditional Elements of a Traditional Responsibility Accounting SystemResponsibility Accounting System

Reward IndividualsBased on BudgetaryPerformance

Standards Are Set for PerformanceMeasurement

Individual in Charge

Center BudgetsStatic Standards

Controllable Costs

Promotions

Organizational UnitFinancial Responsibility

Standard CostingCurrently Attainable

Comparing Actual Costswith Budgeted or StandardCosts

BonusesSalary Increases

ResponsibilityDefined

PerformanceMeasurement



Financial and Management Financial and Management Accounts - ExamplesAccounts - Examples

Financial Accounts• Purchases

• Sales

• Value of stocks

• etc

Management Accounts

• Production records

• Staff work records

• Machine operating hours and vehicle mileages, etc



MANAGEMENT ACCOUNTING MANAGEMENT ACCOUNTING HANSEN/MOWENHANSEN/MOWEN

Inputs ProcessesProcesses OutputsOutputs

UsersUsers

Economic Economic EventsEvents

Collecting Collecting MeasuringMeasuring

StoringStoringAnalyzingAnalyzingReportingReportingManagingManaging

Special ReportsSpecial ReportsProduct CostsProduct Costs

Customer CostsCustomer CostsBudgetsBudgets

Performance ReportsPerformance ReportsPersonal Personal

CommunicationCommunication



A Question for Students

In an organisation, who needs to understand finance and accounting?



The Answer?

To some degree, everyone!

Even staff at the lowest levels should understand the effect of their actions and individual performance on the performance of the organisation.



What is an Organisation?

There have been many attempts at definition.

Usefully, Anthony (1965, p.8) suggested:

“groups of people brought together for a common purpose”.



A Question for Students

Organisations may perform many different activities (goods or services, buying and selling, manufacturing voluntary work etc) but how might they be structured and organised?

What forms might the organisation take?



Forms of Organisation

• Sole proprietor or sole trader

• Partnership

• Private company (Corporation)

• Public company

• Charity or voluntary organisation

• Local government body

• National government body



Sole Proprietorship

is a form of business organization in which one person owns and operates the business.



Advantage of Sole proprietorships

Easy to establish

can makes all the decisions



Disadvantage of Sole Proprietorship

Liable for the losses of their business

difficult to sell their business

Liability is unlimited

The proprietorship is ended if the proprietor dies, goes to prison, or become insane.



Partnerships

is a business organization in which two or more individuals enter a business as owners, and share the profit and losses.



Advantage of Partnerships

can raise more capital Responsibilities can be divided and therefore handled more efficiently

the business can continue to run under the control of one or more of the other partners if one member of the partnership is absent



Disadvantage of Partnerships

Liability is unlimited

A partner cannot simply withdraw from the business.

A new agreement must be drawn up each time when a partner resigns, or dies.



Corporation

is a form of business organization that has an existence of its own separate form those who created it or own ot.



Advantage of Corporation

Limited liability

Legal personality



How Corporation to raise capital?

to retain the earnings of the corporation rather than distributing them in the form of dividends to the owners.

by issuing securities. (1) Common shares (2) Preferred shares (3) Bonds



Ownership Ownership of organisations depends on their form, for

example:• Sole traders – single owner• Partnership – two or more owners• Company – shareholders• Government and local government bodies –

electors• Voluntary organisations – arguably none, assets

and funds are held in trust.



Stakeholders

‘Stakeholders are those people or other bodies that have legitimate interest in the position, status or welfare of an organisation’.

Who or what might this include?



Stakeholders

• Owners

• Managers

• Employees

• Dependents of above

• Suppliers

• Customers

• Lenders

• Investors

• Local community

• Government



References

Anthony, Robert N. (1965). Planning and Control Systems: A Framework for Analysis. Boston: Harvard University.



Unit 1

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NCC Education Limited V1.0 Instructor: Johnson Hsu Unit 1: Introduction to the Module and to Organisations Finance and Accounting