In this chapter you will look at how the flow of finance you met in Chapter 1 is usually accounted for by and within organizations. It is important to point out that the purpose of doing so is contextual; it is not the purpose to establish how a variety of financial statements are constructed. Rather you are concerned here with the nature and utility of the range of statements prepared and used by managers. (As stated in the introduction to this book, for an in-depth consideration of the preparation of financial statements you should refer to another excellent Butterworth-Heinemann text Managing Financial Resources, by Broadbent and Cullen.)
In this chapter you will identify key financial statements, their nature and their utility. Understandably their relationships to the flow of finance are highlighted. As such, reference is made back to three key figures from Chapter 1 and you may wish to prepare yourself by finding these figures now. They are:
• Figure 1.2 The financial dimension of the pyramid of purpose • Figure 1.3 The flow of finance • Figure 1.5 The financial context of management decisions
By the end of this chapter you will:
• understand the nature of profit and income and expenditure statements, balance sheets, cash flow statements and budgets
• recognize the utility of those statements in managing the flow of finance
• appreciate the limitations of those statements.