BSBFIM601 Manage Finances

BSBFIM601

Manage finances

DESCRIBE RESPONSIBILITY ACCOUNTING

 The process of measuring and reporting

operating data by areas of responsibility.

WHICH OF THE FOLLOWING STATEMENTS

RELATING TO A BUDGET IS NOT TRUE?

 It is a detailed plan

 It is a management tool

 It provides many of the performance targets used

in responsibility accounting

 It is prepared on a historical basis

 It identifies certain financial and operating

targets

DETAIL 4 DIFFERENT TYPES OF BUDGETS, AND

THEIR PURPOSES.

REVENUE BUDGETS

 The revenue budget is a forecast because it is

based on projecting future sales. Managers must

take into consideration their competitors,

advertising budget, sales force effectiveness and

other relevant factors, and they must make an

estimate of sales volume. Then, based on

estimates of demand at various prices, managers

must select an appropriate sales price. The result

is the revenue budget.

EXPENSE BUDGETS

 Found in all units within a firm and in not-for-

profit and profit-making organisations alike.

Expense budgets list the primary activities

undertaken by a unit to achieve its goals and

allocate a dollar amount to each. Managers give

particular attention to those that remain

relatively unchanged regardless of volume. As

production drops, the variable expenses tend to

control themselves because they fall with volume.

CASH BUDGETS

 Cash budgets are forecasts of how much cash the

organisation will have on hand and how much it

will need to meet expenses. This budget can

reveal potential shortages or the availability of

surplus cash for short-term investments.

CAPITAL EXPENDITURE BUDGETS

 Investments in property, buildings and major

equipment are called capital expenditures. These

are typically substantial expenditures both in

terms of magnitude and duration. The magnitude

and duration of these investments can justify the

development of separate budgets for these

expenditures. Such capital expenditure budgets

allow management to forecast future capital

requirements, to keep on top of important capital

projects, and to ensure that adequate cash is

available to meet these expenditures as they

become due

INFORMATION WOULD YOU REQUIRE TO PLAN

AND PREPARE A BUDGET FOR A NEW BUSINESS

Identify

 what do we want to achieve?

 how will we go about it?

 what resources will we need?

 how many people?

 how much time?

 what rates of pay?

 what can go wrong and how can we plan for

emergencies

 Talk with managers, supervisors, customers,

banks, etc

EXTERNAL FACTORS

 Direct costs

 Salaries and Wages

 Contract Teaching

 Casual Staff Costs

 Overheads

 Consumables

 Other Contract & Consultants

 Non Capitalised Equipment

 Entertainment

 Scholarships

 Repairs & Maintenance

 Travel

 Other Direct Costs

TERMS

 CAPITAL INVESTMENT

 The initial capital and the long-term

expenditures made to establish and maintain a

business or investment property.

 CASH FLOW

 A measure of cash inflow and outflow from the

business. Positive cash flow means more money

is coming into the business than is leaving it.

Negative cash flow is the converse.

TERMS

 BREAK EVEN

 Having income exactly equal to expenditure, thus

showing neither profit nor loss

 RISK MANAGEMENT

 The strategy of monitoring and offsetting various

risk factors in an business with the aim of

stabilising investment returns.

FINANCIAL REPORTING CYCLES RELEVANT

TO YOUR INDUSTRY

 BAS,

 Tax,

 Stock take,

 Payroll,

 Work cover, etc

2 DIFFERENT CAPITAL INVESTMENT

EVALUATION TECHNIQUES

 Cash Flow Estimation Method

 or Net Present Value

BENEFITS OF PARTICIPATIVE BUDGETING

 The process of involving people throughout an

organization in the budgeting process.

Discuss

 accountability,

 responsibility,

 increase of knowledge, etc

EFFECTIVELY IMPLEMENT THE BUDGET

INTO A TEAM ENVIRONMENT

 Dissemination of information

 Team meetings

 Actioning as per action plan

TRADES PRACTICE ACT

 The object of this Act is to enhance the welfare of

Australians through the promotion of competition

and fair trading and provision for consumer

protection.

 The Trade Practices Act applies to just about

every aspect of a business—for example, selling,

advertising, retailing, and transactions with

other businesses or consumers. Understanding

the TPA reduces the risk of breaking the law and

may actually improve performance by giving

businesses a competitive edge. It can also

strengthen consumer trust in a company.

TRADES PRACTICE ACT

 Heavy penalties can apply for breaches of the

Act. Most breaches of the Trade Practices Act are

unintentional and could have been avoided

through having a well structured TPA

compliance program. A TPA compliance program

is an important risk mitigation factor in any

business and can also reduce the penalty

associated with an unintentional breach of the

Act.

FINANCIAL PROBITY

 Financial probity is exploring the financial situation of a company or

person. It normally includes:

 Ensuring that the fiscal and financial affairs are in good order, ethically

sound, and fully compliant with the law and with good accounting practice

 Ensuring that any financial arrangements are on a sound footing, honest

and open, and causing no conflict of interest

 Avoiding inappropriate financial gain or conflict of financial interest in

the pursuit of business

 Understanding the business and managerial aspects of the business, such

as sources of income and expenditure, use of premises, marketing, and the

interpretation of accounts

 Demonstrating truthfulness and honesty when completing documents

 Ensuring that any research undertaken is done to the highest standards,

as approved by are search ethical committee.

 Providing accurate, objective, honest and unbiased comments in

references and including relevant important information, which might

have a bearing on a colleague’s competence, performance, reliability or

conduct

 Consider the following information:

 As an accountant to a large production firm, John looks at a proposal to purchase a

$900,000 stamping machine to increase output. He determines the following

information:

 The new machine can do 100 more units per hour

 The 4 workers currently doing the stamping can be replaced

 The units will be higher quality because they are more uniform

 John calculates the selling price of the 100 units per hour multiplied by the number

of production hours per month, plus adding the 3% that aren’t rejected due to the

increased quality of the machine output vs. manual stamping. He adds the monthly

wages of the workers that are no longer required and in the end you have a healthy

benefit calculated.

 John then calculates the monthly cost of the machine by dividing the purchase price

by 12 months per year and divide that by 10 years the machine should last. The

manufacturer’s specs state the power consumption of the machine and John

calculates the cost of that as well. He subtracts the total cost figure from the total

benefit figure and this shows a healthy benefit calculated.

 Consider the above example of cost benefit analysis. Do you think John has done a

good job in calculating the benefit of the machine? Has he used the information at

his disposal correctly?

SOLUTION

 John has made several errors. Firstly, by using the selling price

of the units he has introduced additional factors that will

complicate the analysis, especially the profit margin. The activity

based value of the units should be ascertained and used in his

calculations instead.

 John remembered to add the value of the increased quality by

factorising the rejection rate; however he should have reduced it a

little as even machines are not perfect.

 When calculating the value of the employees in addition to their

wages, John has not included other costs such as benefits etc

which can add a lot also.

 John should have also checked out the amortisation period – just

because the machine may last 10 years doesn’t mean the company

will keep it for 10 years