Accounting Terminology Explained Allison Taylor and Paul Cropper Guide to how we organise our budgets at Huddersfield

Objectives Understand the differences between key words (accrual, deferral and prepayment, debtors and creditors, cash and profit, asset and liability, financial and management accounts, etc…) Identify how accounting processes and procedures work at the University of Huddersfield Understand the meaning of common financial statements

Part 1 - Accounting Theory Accounting terms Management v financial accounts Accounting data entry Profit & Loss Balance sheet Debits and credits Costing Cash Measuring performance

Accounting terms Transactions Chart of accounts Trial Balance Profit & Loss accounts Costing analysis Cash flow statements Balance sheets

Financial v management accounts Financial Accounts: Prepared at the end of each year and are a ‘snap shot’ of an organisation’s financial standing. Published externally. Management Accounts: Prepared each month and compare forecast income and expenditure with actuals. Published internally.

Accounting data entry Where do transactions go? Journals Ledgers Agresso

Profit and loss account An analysis of income and expenditure which includes: Turnover (All income) Staff expenditure (salary payments) Non-pay costs (any expenditure other than pay e.g. printing, stationery, telephone bills etc..) Gross profit Net profit

Balance sheet “A summary of all the accounts of a business. Usually prepared at the end of each financial year. The term 'balance sheet' implies that the combined balances of assets exactly equals the liabilities (i.e. net worth)”.

Debits and credits Newton’s third law of physics “to every action there is an equal and opposite re-action” Accountancy principles “to every debit there is an equal and opposite credit(s)!” (eg. if you are paying money into your bank account you would debit the bank when making a journal entry and credit an income account).

Costing Identifying the expenditure of an activity Different types of costing: ABC, marginal costs, absorption costing, etc.. University wide methodology: Transparency Review and full Economic Costing

Cash Cash flow statement: A report which shows the flow of money in and out of the business over a period of time. Cash accounting: This term describes an accounting method whereby only invoices and bills which have been paid are accounted for. However, for most types of business in the UK, as soon as you issue an invoice (paid or not), it is treated as revenue and must be accounted for.

Measuring financial performance Variances from budget Profit or loss Sufficient cash Ratio analysis Published Annual Financial Accounts (http://www.hud.ac.uk/finance/finstat/index.htm) Monthly Management Accounts (Available from Agresso or Accounting Technicians)

Historical cost surplus has slipped from MS No 1 last year to 4th, marginally behind Institute of Cancer Research and Edge Hill (a recurring name!). Plus London Met which delivered 59.5% - this was after a reported deficit of £5.5m on ordinary operations but a property surplus on disposal of £67.8m (consolidate all its courses on one site.

Our staff cost to income is almost exactly on the sector average at 52 Our staff cost to income is almost exactly on the sector average at 52.63% (v 52.45% MS average) Position was achieved largely as a result of income growth. So care for the future here as growth is potentially constrained

7 MS including ourselves with no debt, or 11 with debt under 1%. University of the Highlands and Islands University of Wales Trinity Saint David The Institute of Cancer Research London Business School The University of Huddersfield The City University The University of Glasgow

Part 2 - How do things work at Huddersfield? Budgeting Structure of the accounts Transactions Reporting Where to go for help Financial Services department I am going to run through some of the terms you might hear used at Huddersfield

Budgeting The annual budget planning function utilizes a University-wide Devolved Revenue model to allocate funds to schools, services and strategic provision. Practice here: The ‘Income’ that schools can spend comes out of the resource allocation model DevRev.

Budgeting The DevRev model is simple, straightforward and transparent. All qualifying income is top-sliced to give the strategic provision [SP] and the remainder is split between schools and infrastructure. Basically all the income streams are identified and out of this total ‘pot’ of money a proportion goes to schools, services and strategic provision to fund university wide initiatives (For 2013-14 5% is set aside for Reserves , 10.96% goes to strategic provision (this includes a further 5% for reserves) and the remainder is split between schools and services – 27.6% to services and the balance to schools)

Budgeting The budget operating function is contained within the finance system, Agresso, which allows budget holders and financial services staff to update, maintain, and monitor the operating budget throughout the financial year. Budgets are contained within Agresso and reflect the amounts that the university will earn and spend during the year. These amounts are monitored regularly by budget holders and finance staff. We operate a devolved budgeting system whereby budget holders are responsible for allocating and managing their own budgets – Agresso allows this and also gives us the ability to pull together the budget as a whole for reporting at a high level to see the bigger picture.

Budgeting Forecasting of income and expenditure Profiling (placing ‘pots’ of income and expenditure into the correct month) Virements (Moving budgets around) Forecasting or Planning/Estimating – For a given period Also can relate to student numbers or staff numbers for a given period At the University we budget for the current year and also plan for the following year in Feb/Mar. Also do 5 year forecasts so that we can plan for the future and so that senior staff can make strategic decisions. Profiling – Helps with variance analysis so that we can identify variances through out the year rather than having a surprise at the end of the year

Structure Coding Structure: The account identifies the type of income or expenditure being recorded Account (Nominal) Income codes have the form 8nnn Salary codes have the form 1nnn Other expenditure codes have the form annn (product code) Balance sheet codes have the form Bnnnnn We need a coding structure in order to post or to record a transaction in the finance data base. The posting string is the code that has to be keyed in when transactions are being recorded. Split into Account and Sub-Project (previously called Cost Centre)

Structure Sub Project (aaannn-nn) identifies which part of the university ‘owns’ the transaction Additional codes can be ‘attached’ Trees are used for reporting and analysis Next area is to identify which part of the University owns the transaction Might be a specific grant / project or expenditure relating to part of a school or service – eg School Office

Structure

Transactions What type of transactions? Budgets Actuals Commitments (orders) Several different types of transactions :- Budgets – Plan or expect to spend or hope to earn or receive Actuals – What you have actually spent – Invoice/journal/purchase card/cheque/ bacs Orders – Something you have raised a requisition for – After it’s been approved before it’s been invoiced

Complicated transactions Accruals Prepayments Deferred Income/Expenditure Reversing journals Recharges Legislation currently states that you should account for the income and expenditure in the period/year that it relates to Accrual – Eg – Bookcase Order June – Receive July – Invoice Sept Prepayment – Eg – Subscription to Prof body January to December – Paid in January Deferred Income/Exp – Grants Matched Recharges – Expenditure charged directly to one sub-project and then moved/recharged to another

Reporting Full picture by Sub Project Excelerator is our software for producing reports

Also another report that you might find useful – Funds Check

Where to go for help? Accounting support team Agresso training and other courses University web site for Financial Services pages (www.hud.ac.uk/finance/index.htm) – Link to glossary of terms External web sites Library texts

Accounting Support Team - Structure Allison Taylor Management reports Capital Expenditure Business Computing & Engineering Computing & Library Diane Webster Applied Sciences Art, Design & Architecture NHS Contract Cash Flow Forecasting Statutory Reporting TRAC Phil McEwan Management reports Music, Humanities & Media Estates Department Education & PD Education Consortium Nathalie Chavrimootoo Human & Health Sciences Service Departments Research & Enterprise Office Statutory Reporting Investment Appraisals