Why Should Organisations Collect Financial Records Essay

Custom Student Mr. Teacher ENG 1001-04 25 September 2016

Why Should Organisations Collect Financial Records

To have a record of how the business is running. This allows us to determine how the business is sitting financially and display what money is going where and whether there is room for improvement. Basically, it is used to anaylse the business as a whole and to determine performance for both employees and for the organisation.

What are the expectations of managers and supervisors in relation to budget or financial plans? Managers and supervisors should understand financial information relating to costs, operations, assets, credit analysis, GST transactions, inventory management, invoices and accounts, ect. This will allow them to monitor and control cash flow, production and productivity, solve problems, plan improvements, implement quality control procedures and plan future strategies. They should also understand how financial KPIs and appropriate record keeping systems fit with taxation and other legal requirements and educate the process/ responsibilities to their staff.

What are the reports that can be used for financial planning in an organisation? Profit and Loss Balance sheet Revenue and Expenditure report Cash flow statement Debtors and Creditors reports

What is the process for preparing budgets or other financial plans?

1. Identify data that needs to be collected. 2. Identify the appropriate sources of data. 3. Ensure currency, reliability and validity of data. 4. Classify and code the data according to accounting and organisational principles. 5. Calculate costs, profit and loss and/or breakeven analysis etc where necessary. 6. Access the results of data analysis and provide formal or informal reports on the outcomes. 7. Keep accurate and secure records of financial transactions. What two forms of budgeting might be used?

Fixed and Flexible

Which form of budget allows changes to be made?
Explain how contingency plans work.

Contingency plans are put in place to address any unexpected to your plan or operations that may occur. They are developed using a ‘What if’ scenario and are created ahead of time to avoid any disruptions to the running of the business. Why should team or work group members be actively involved in designing and developing contingency plans? They can add valuable ideas to the creation of the plans and they will also be aware of the processes should a plan need to be put into place. How can employees be engaged in the preparation of financial reports, allowing details to be easily disseminated among team members? It should be communicated down through management and given them the opportunity to contribute. Performance measures should also be incorporated into their job descriptions to drive processes through the business.

Why should employees be involved in setting and monitoring the budget? So they can gain a better understanding of what the financial expectations are, how they are implemented, and how they are maintained. Explain what you understand responsibility accounting to mean and its importance to an organisation. It’s allocating costs to specific areas such as departments, teams, sections, etc. Doing this gives a correct analysation of where the main costs are coming from and shows how different areas compare. Further to this, it can give an indication of where improvements need to be made and also what leeway areas have.

What are cost centres? Give examples of cost centres that might be encountered in an organisation. Cost centres are the sections, departments, areas, etc that are accountable for their own expendature. These areas include marketing, admin, manufacturing, sales, and production. What is the importance of a cash flow budget or report?

A cash-flow budget forecasts what cash your business will have to meet expenses and helps you ensure your business meets its day-to-day commitments. It compares all outgoing funds with the incoming to determine whether the business is in front or struggling to keep up. It’s important to understand the cash flow and to understand the items that need to be listed in each category. It’s also important to understand when these transactions are taking place. There is the chance that a customer has bought an item but takes a long time in paying it off. Although you might have made a profit on the sale of the item, there is a cash flow gap as you have not yet received the funds to pay for the item yourself. Simple things like can put smaller businesses in a lot of financial trouble.

This cash flow gap could damage credit ratings, miss other opportunities, and force the borrowing of funds. What data do you need to collect, and from whom, in order to construct a cash flow budget? Sales reports – last periods figures Outgoings such as purchases, marketing, loan repayments, etc Staff costs Capital such as stock on hand and cash Describe how the budget is used to monitor work, performance, variation, and team/ division outputs. The budget reports are designed to give a clear overview of how the business is running.

Every expense can be calculated as a percentage of the total expense/margin to see if it is cost effective. If it is being overspent then something needs to be done. This could be a number of things such as reducing spending, reducing or increasing staff levels, cross-training staff, incorporate techniques to increase sales, reduce stock levels, outsourcing, and renegotiating supplier costs. Why do you think it is necessary to report on these things? – For the monitoring of costs and for future reference. The report can be used to assist in the creation of a future cash flow budget.

– Particular figures will need to be recorded for legal and taxation purposes. – Also, the possibility of selling the business in the future. What is the meaning of the following terms:

A Assets

Usually referred to as property or products that are of value and also cash. Can also be referred loosely to employees of the company.

B Liabilities

Something that is a responsibility or what the business owes. Can be an object, debt, financial obligation, time, etc.

C Expenses

Something that needs to be paid or something that will cost money. It can be fixed such as rent or insurance or it can be variable such as purchases and outgoings.

D Equity

The portion of a business or property that is owned beyond the debt. Can also be referred to as stock. Describe what the following budgets/ reports are and how they might be used to inform a team’s operations.

A Variance analysis

Comparing the difference between the actual figures and the budgeted/targeted levels of the businesses performance. The analysis includes an explanation of the difference between actual and expected figures as well as an evaluation to why the variance may exist. The purpose of this is to assist in determining what may have gone right or wrong and to help in future decision-making.

B The general ledger

A company’s main accounting records. It’s a complete record of financial transactions over the life of a company. It holds account information that is needed to prepare financial statements, and includes accounts for assets, liabilities, owners’ equity, revenues and expenses.

C A sales analysis report/ budget report

Sales analysis reports are used to measure and monitor sales performance. It can include figures such as actual sales revenue, sales goals, kpi’s, sales profit, and the type of products sold.

Managers can use this information to develop sales strategies, better understand past results and to help forecast future sales.

D Variance analysis reports

A detailed report involving the figures as described in 2a of this assignment.

E The revenue and expenditure report/ budget

– Management need access to reports to analyse the current, past, and forcasted ‘health’ of the business. They need to use the reports to determine decision making to grow the business. – Investors need to see the reports to determine whether it’s a viable option to invest money or goods into the business. – Creditors need to view reports to see whether the business has enough cash flow/equity/assets to back-up a further debt and whether the institution will lend the money and how much it will grant. – The government needs to see reports to understand whether the business is being compliant in OHS and other legislations relating to the business. It also needs the information to determine if accounting information is being recorded correctly. What details might be provided in a financial report?

A financial report would contain all the financial records of the business including revenue, expenses, assets, liabilities, etc. It may contain the full details or a detailed summary. It is a formal record of the financial activities of a business.

Why do organisations need accurate and timely financial information? What information is required to manage the organisation’s finances? Who is usually responsible for an organisation’s financial management?

An organisation needs accurate and timely information to determine the ‘health’ of the business. It will also assist in the need of making sudden and long-term decisions. You will need information such as income and expenses, cash flow, labor costs, tax records, supplier quotes, overheads, and assets. Usually in a large multi-site organisation, the site manager is responsible for the individual sites financial control in relation to the direct costs such as labor and purchases. Further to this, the operation managers are in control of collecting this information and also negotiating other costs that are reflected within contracts and the performance of several sites against other areas. The collected data would then be distributed to the accounts/finance department of the organisation where everything is officially processed. In a smaller organisation there may only be a handfull of people in charge of the finances.

There would be control practices from the head of departments such as a kitchen and front of house in a restaurant for example and this would be passed on and overlooked by the owners and possibly discussed with their accountant. There are several ways organisations maintain financial records. They include manual systems (hard copy) and computer-based (electronic) systems. How do computer and manual systems operate? Computer systems work by using software such as MYOB, Excel, or similar. The advantages of computer based systems are that details can be updated regularly and easily and also found easily without the need for excessive paperwork filing. Formulas can be calculated instantly and there is rarely an error in doing so. It is much easier to forecast figures and manipulate areas for business improvement.

The computer based system is ideal for larger businesses with more complex record keeping practices. Manual based systems are good for smaller businesses with little accounting requirements, especially ones operating without GST expenses. Records can be filed away and updated periodically. Manual based systems can make accounting more simplified as you don’t need to be familiar with how accounting software calculates and treats your information and it can sometimes be easier to read and understand as everything can be organised in front of you. What is GST and how is it implemented? Who is required to register for GST? What piece of legislation primarily governs GST?

The GST is a tax of 10% on most supplies of goods and services in Australia. From a business point of view, in most cases it’s refunded to all parties in the chain of production other than the final consumer. Businesses will charge the GST when the service or product is passed on to the consumer. If your turnover is less than $75,000 then you don’t have to register for GST although you may do so. All other businesses, with minor exceptions, need to register for GST. The GST Act 1999 governs the GST – A New Tax System (Goods and Services Tax) Act 1999 http://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/ What are audits and why are they carried out?

a. Budgets are a planned expenditure for a set period of time. It is based on the forecasted income and worked out as a particular percentage of allowance. b. Basically, Cash Flows are the total amount of money being transferred into and out of the business. c. The General Ledger contains all of the financial accounts of a business. d. A Profit and Loss Statement is a list of all the business income less all business expenses, to determine whether the business is at a profit or loss for a particular period. It reflects the past performance of the business and is the report most often used by small business owners to track how their business is performing. Conduct some research or use an organisation that you know of, get a copy of an Annual Report.

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