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(those Of You Who Are Professional Accountants Can Leave Out The Next
(Those of you who are professional accountants can leave out the next few paragraphs. However, even for you, they may help to interpret your relationships with future colleagues, if you consider how one simple manager views and understands your role.) You should look at finance and accounts mainly as a language, which consists of models. They either tell a story of past history, or attempt to write a future scenario.
In neither case will you deal in realities, only abstract concepts. They attempt to describe reality from specific viewpoints, such as the following.
? How have you spent your money in the past? ? Where is it now? ? What is a reasonable estimate of its current worth? ? How much money are you likely to require in the future? ? What will you be required to spend money on in the future? ? When will you require money in the future? ? From where can you expect to receive money in the future? ? How much can you reasonably expect to receive? ? When will you receive these sums? Profit Remove from your mind any notion that 'profit' is in any way an absolute, or has any relationships with reality. You can never know the 'real' profit at any one time Annual profit is merely an abstract concept originating firstly from governments seeking ways to extract finance from companies to contribute to social needs (i.e. how to tax companies); and secondly, as a means ofenabling managers and owners of a company to make value-judgments on how well managers have used and propose tc use those funds and economic resources for which they have been or are currently responsible. You will find that most companies, when going into liquidation and being wound up, have in their recent past been making 'good profits' using any normal accountancy fiction (conventions). What you as a manager are concerned with is: (a) cash in the short term; (b) profitability (not profit) over the long term.
This is how accountants help managers make their decisions. This is accountancy and the financial role and contribution to a management team effort of the accountant. For a moment consider this in very simple terms.
You can consider the published accounts of any company as using figures to present a model of a plumbing system which shows the flow of money within a business at a specific moment of time. These are snapshots. Place enough of these over a period of time and in order, then we can begin to interpret trends and movement. Supplies of funds Together we will endeavour to construct such a model. Initially we will need a tank to hold our cash (for our purposes we will think of this as a liquid). From what sources can we obtain our initial supplies of funds? There are three main sources of supply.