Accounting and Finance Functions

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Financial Statements (accounting) provides information about firm's historical performance. On the other hand, finance functions are activities and events happening in present and future. Financial analyst forecast future based on past results. Then, what are these activities and what they bring to the firm? Finance or money in organisation stands for liquidity - sufficient holding of money, profitability - power to invest to earn profit and credibility to lenders, which attracts cheep funds. Finance manager focus in balancing liquidity and profitability to maintain credibility.

Statement of Cash Flow represents liquidity and Income Statement represents profitability. Cash flow is divided into three parts. Operating Cash flow deals with the changes in working capital, Financing cash flow deals with issue and repayment of equity and debt, and Investment cash flow accounts cash received by dumping/disposal of assets or cash paid on acquisition. Income statement helps analyze the underlying cost of production to reach gross profit and operational cost to calculate net profit and derives residual profit available for distribution to owner. Finance professionals forecast and project future position and formulate policies and strategies to reduce likely trade-off between liquidity and profitability.

Finance function include debt strategy (new application, renew and repayment of debt), currency management (hedging risk exposed to foreign trade), working capital management (management of current assets and current liabilities), investment appraisal (acceptance or rejection of new project), risk management (project specific and industry specific) and internal financial position. Finance officer use different mathematical and statistical tools. Payoff table, probability, beta values, standard deviation and ratio analysis are some of them.

This way financial officer recast prospective statements taking account of inflation, demand, rising price, change in interest rate and other items influenced by risk and uncertainty. It also facilitates in strategic, tactical and operational planning. Any change in plan and process finally affects financial statements. Thus, accounting and finance are integrated functions of business organisation.