1. Financial Monitoring Workshop Presenters: David O’Brien & Hitesh Mohanlal

2. 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. Objective

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 ChargesREVENUE / EXPENSE Interest ReceivedREVENUE / EXPENSE Wages Subsidy from Gov’tREVENUE / EXPENSE Interest Paid REVENUE / EXPENSE Rates REVENUE / EXPENSE DepreciationREVENUE / 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. Profit & Loss Account Sale2,500 less expenses Purchase1,000 Cleaning 55 Commission 250 1,305 NET PROFIT1,195 Example - Le Art Trader

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: Assets i.e. what the business owns Less Liabilities i.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$25,000 Lease Liability: < 1 year$(5,500) > 2 years < 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