Financial Monitoring Workshop - PowerPoint PPT Presentation

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Financial Monitoring Workshop

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Financial Monitoring Workshop Presenters: David O Brien & Hitesh Mohanlal – PowerPoint PPT presentation

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Title: Financial Monitoring Workshop


1
Financial Monitoring Workshop
  • Presenters David OBrien Hitesh
    Mohanlal

2
Objective
  • We will look at the accounting system of an
    organisation by stepping through profit and loss
    accounts, balance sheet, cash-flow, assets,
    liabilities and introduce you to the tools you
    need to gain a deeper understanding of the core
    financial drivers that affect your organisation's
    financial health. 

3
Users of Financial Information
  • Management (i.e you)
  • Creditors
  • Shareholders or partners
  • Taxation Authorities

4
Profit Loss Account
A profit and loss account provides a complete
picture of the operating results of a business
over the financial period, by detailing the
amount of revenues and expenses and the results
in a net profit or loss.
   
           
5
Revenues
  • Revenues are inflows or other enhancements of
    service potential or future economic benefits
    arising from
  • the provision of goods and services e.g sales
  •  
  • investments in or loans to another individual or
    entity e.g. Interest or grants received
  • the holding and disposal of assets e.g. rent and
    proceeds of sale of assets
  •  

6
Expenses
  • Expenses are consumption of or losses of service
    potential or future economic benefits arising
    from
  • the use of goods and services e.g. property rates
  • the use of assets e.g. depreciation
  • the incurrence of a liability e.g. interest and
    income tax.

7
  • Workshop Exercise 1
  • Bank Charges REVENUE / EXPENSE
  •  
  • Interest Received REVENUE / EXPENSE
  •  
  • Wages Subsidy from Govt REVENUE / EXPENSE
  •  
  • Interest Paid REVENUE / EXPENSE
  • Rates REVENUE / EXPENSE
  • Depreciation REVENUE / EXPENSE
  •  
  • Sales REVENUE / EXPENSE

8
  • Accruals
  • An accounting expense recognised in the books
    before it is paid for. It is a liability, and is
    usually current. These expenses are typically
    periodic and documented on a company's balance
    sheet due to the high probability that they will
    be paid.
  • E.g A telephone bill received on 15 July 2008
    but relates to the period 1 June 2008 to 30 June
    2008 for 77 would be included as an expense in
    the accounts for the year to 30 June 2008.

9
  • Prepayments
  • These are the opposite to accruals. An
    accounting expense recognised in the balance
    sheet after it is paid for. It is an asset, and
    is usually current. These expenses are typically
    periodic and documented on a company's balance
    sheet due to the high probability that they will
    be utilised.
  • Eg insurance paid for 2,000 for the period 1
    January 2008 to 31 December 2008. In the accounts
    to 30 June 2008 1,000 (50) will be included as
    an insurance expense and 1,000 as a prepayment
    on the balance sheet.

10
  • Some Examples
  •  
  • A cheque banked 26 June 2008 for rent received
    on the building you own from 1 January to 31
    December 2008. Year end is 30 June 2008.
  • Half of the amount banked would be revenue of
    the 30 June 2008 year and the other half would be
    a liability of the entity until 31 December 2008
    because you are obligated to provide the building
    to the tenant until that time.
  • An invoice for printing of pamphlets/brochures
    is in the office at 30 June 2008 but has not been
    paid. The brochures were all distributed at a
    Trade Fair attended early June 2008.
  • The printing costs would all be an expense of
    the 30 June 2008 year because the brochures have
    been used in that period. If the brochures were
    for a Trade Fair in July 2008 and the amount
    involved was substantial then the printing
    expense would belong to the following year and
    the brochures would be an asset (stock on hand).

11
  • Example - Le Art Trader
  •  
  • Purchase painting in poor condition for 1,000 -
    1 June 2008
  • Arrange for painting to be cleaned for 55 on - 3
    June 2008
  • Place painting at gallery with a sale ticket of
    2,950 on it - 20 June 2008 and
  • Painting is sold for 2,500 - 29 June 2008-
    Commission due to gallery owner is
  • 10 and is paid on 5 July 2008.
  • The commission on the sale of the painting was
    not paid until the following
  • financial year, it is still an expense of the
    current period because it matches the
  • revenue (sale) for this period.

12
Example - Le Art Trader
  • Profit Loss Account
  • Sale 2,500
  • less expenses
  •   Purchase 1,000
  • Cleaning 55
  • Commission 250
  • 1,305
  • NET PROFIT 1,195

13
Balance Sheet
  • A balance sheet is a detailed. "snapshot" of the
    condition or financial health of a business on a
    specific date. Most businesses prepare a balance
    sheet at the end of its financial year, usually
    June 30 many businesses prepare them monthly or
    quarterly.

14
A balance sheet shows the dollar amount of
  • Assetsi.e. what the business owns
  • Less
  • Liabilitiesi.e. what the business owes
  • equals
  • net worth i.e. what the owners, stakeholders or
    shareholders own.

15
Balance Sheet Classifications
  • Assets and liabilities are generally classified
    as
  • either
  • Current
  • i.e. consumed or converted into cash or due and
    payable within 12 months of the end of the
    financial period or
  •  Non-current
  • i.e. not to be consumed or converted into cash
    or not due and payable within 12 months of the
    end of the financial period.

16
Workshop Exercise
  • Current/ Non Current
  • Trade Debtors 15,500
  • Bank Overdraft (8,000)
  • Bank Deposit 25,000
  • Lease Liability
  • lt 1 year (5,500)
  • gt 2 years lt 5 years (20,000) 
  • Accrued Charges (16,000)
  • Bank loan (15,000)

17
Cashflow Statement
  • It is a statement that shows the net of
  • Inflows cash that has come into the
    organisation.
  • Eg When a grant is received.
  • Outflows cash that has left the organisation
  • Eg When salaries are paid
  • ... It is not the same as Profit!!

18
Because ......
  • Some things are paid or received in cash but
  • not included in the profit and loss account.
  • Examples are
  • Purchase of assets (balance sheet item)
  • Depreciation charge (not a cash transaction)
  • Accruals and prepayments (balance sheet item)

19
Board Information
  • As a board you should have the following
  • financial information
  • A budget prepared at the beginning of each
    financial year which is reviewed periodically.
  • A monthly profit and loss account, balance sheet
    and cashflow forecast.
  • Comparison of budgets to actual figures
  • The ability to identify differences between
    actual and budget.

20
  • Question time

21
  • The Tea Trees
  • Theatre Company
  • Case Study
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