Training for Tourism - Financial Statements Module

Financial Statements

Assessment Type:	Multiple Choice.
Pass Mark:	80%
Estimated Time to Complete:	120 mins

Introduction

Although you may never actually prepare accounts within your business it is vital that you are aware of the impact of day-to-day decisions on the financial outcome of the business. If you enter into transactions with other businesses it would also be wise to understand more about their financial position. Accounts contain financial information about a business and can answer many questions such as:

How much profit did the business earn?
What does the business own?
What does the business owe to others?

Each year businesses produce sets of accounts. If a business has set itself up as a Limited Company then it must adhere to Companies' Acts where there are legal requirements as to how the accounts are laid out and whether an audit is required.   A copy of these accounts should be sent to each shareholder and to Companies House for public access.

However many businesses, especially small ones, do not trade as limited companies.   For example someone may open a small country hotel trading in their own name.   This person is referred to as a Sole Trader. If a group of owners begin trading together as a business this would be referred to as a Partnership. They would have a legal agreement outlining the sharing of profits and contribution to capital.

Accounts of Sole Traders and Partnerships are not governed by legislation and are usually much less informative than company accounts.   These accounts do not require an audit report but there may be an accountant's report for tax purposes.

There are many different groups of people who use Financial Statements to obtain useful information to assist with their own decisions in relation to the business in question. Users of these accounts range from Current and prospective Shareholders, Employees, Competitors, Government, Market Analysts, Lenders, Customers to Suppliers.

As a non-accountant to understand the information contained in any of these accounts you will have to gain an understanding in the terminology used, a basic background into the concepts involved in the preparation of the accounts and then tools to assist in the interpretation of the accounts.

Benefits
By the end of this skill section, you will have an understanding of the:

Contents of a Balance Sheet and a Profit and Loss Account for all organisation types.
Relationship between Profit and the Cash position of a business.
Use of accounting ratios to assess the financial performance of a business.
Terminology used.

Associated Interests: Law.

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