SAGE MODULE 1

1.1 Introduction

Definition of Accounting and Financial Management

Accounting and financial management are considered two key elements that contribute to business performance. A basic understanding of accounting practices and principles is extremely useful in the context of the day-to-day management of a business. In general, accounting and finance are broad subjects that comprise several different concepts and ideas. Accounting knowledge is important, and not only to business owners, and a basic understanding helps reduce the likelihood of financial loss through negligent management of finances.

The Meaning of Financial Management, Accounting and Accountancy

In a broad sense, accounting and financial management refer to the organisation of financial resources. Business owners and individuals aspiring to be accountants benefit from learning the principles and practices in accounting. Although the words ‘accounting’ and ‘accountancy’ are used interchangeably, they actually mean the subject and the profession respectively.

Applications of Accounting and Financial Management

Both accounting and financial management include measuring and communication of financial information from records and reports, etc. that are generated from accounting systems.

The purpose of efficient and accurate accounting and financial management comprises maximising objectives, in order to benefit owners and shareholders of different business entities.

Before moving on to understanding the basics of Sage 50 software, it is important to understand the terms and concepts of accounting and financial management.

Emphasis on Reconciling Accounting Standards

Over the past few years, there has been an increasing emphasis on reconciling accounting principles of different countries for greater unification in accounting standards.

For example, in 2005, the European Union stipulated that all stock exchange companies within the EU were required to comply with a set of accounting standards, so as to facilitate easier understanding and processing of information.

Transition to Computerised Accounting Systems and Software

Accounting software packages like Sage 50 have evolved and developed over the years and are considered world class applications. Sage 50 offers its users a comprehensive range of features, tools and benefits and it is designed to suit the needs of a wide range of business environments.

Computerised invoicing, tax management, payroll systems and VAT processing are some of the important functionalities offered by Sage 50.

This module will introduce readers to the basics of accounting and finance management, its importance in business management and the advantages of automated accounting systems.

1.2 Overview of Accounting, Applications and Benefits

The timely and accurate disclosure and communication of financial information is crucial to the financial position of a business.

Directors and managers of a business are ethically and legally obliged to update shareholders on the activities of the business.

In simple terms, the fundamental objective of accounting is to classify and record monetary transactions, in order to keep a scorecard that reflects business performance.

The field of accounting has evolved and developed over the years, and modern techniques are applicable in a much broader business context.

In order to understand and analyse the current nature of accounting standards, you would need to take into account certain basic questions that should be answered by any high quality accounting system:

1. How is the business doing? (Including supporting facts, dates and figures)
2. Is the business doing well or showing poor performance?
3. Which areas appear to be problematic?
4. What can be done about the problematic areas? (Solutions, options and problem-solving ideas)

Although accountants have retained their fundamental roles, their responsibilities and specialisations have since grown into other branches of accountancy and business management.

Accounting can be clearly defined as a component of the information system in an organisation. It is also a service function that ensures that all users of financial information are able to present the information in an appropriate manner. Accounting helps standardise the presentation of information.

In order to achieve this objective, accountants or business owners must ensure that the information is presented to the highest standards of punctuality, reliability and accuracy. In addition to these important prerequisites, the information must have consistency of purpose, comparability and transparency.

To summarise, the financial information required by users should ideally meet the following requirements:

1. Accuracy: The information must be error-free, with regards to content as well as principles.
2. Reliable: The information should be dependable and the user must be able to trust the content implicitly.
3. Timely and prompt: Timeliness helps support crucial decision-making.
4. Consistency: Accounting methods and the technique for measurement and representation should be standard, to allow for improved comparability and readability.
5. Clarity: The financial information must be clear and comprehensible to the users for whom the information was intended.

Software packages like Sage 50 are designed to incorporate all the above features. Computerised accounting software packages comprise the frameworks explained in the section below. Top applications meet all the criteria stipulated by a stringent and high quality accounting system.