8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
1/74
ACCOUNTING AND FINANCIALACCOUNTING AND FINANCIAL
MANAGEMENTMANAGEMENT
PRESENTED BYPRESENTED BY
WILFRED OWALLAWILFRED OWALLA
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
2/74
OVERALL OBJECTIVEOVERALL OBJECTIVE
TOTO UPSCALEUPSCALE CAPACITYCAPACITY TOTO EFFECTIVELYEFFECTIVELYAND AND EFFICIENTLYEFFICIENTLY MANAGEMANAGE BUSINESSBUSINESSINFORMATIONINFORMATION CENTRESCENTRES AND AND OFFEROFFER
BUSINESSBUSINESS DEVELOPMENTDEVELOPMENT SERVICESSERVICES
22
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
3/74
MODULE OBJECTIVESMODULE OBJECTIVES
UPONUPON SUCCESSFULSUCCESSFUL COMPLETIONCOMPLETION THETHEPARTICIPANTSPARTICIPANTS SHOULDSHOULD BEBE ABLEABLE TOTO:: IDENTIFYIDENTIFY AND AND UNDERSTANDUNDERSTAND APPROPRIATEAPPROPRIATE
ACCOUNTING ACCOUNTING AND AND FINANCEFINANCE INFORMATIONINFORMATIONNECESSARYNECESSARY FORFOR EFFECTIVEEFFECTIVE BUSINESSBUSINESSINFORMATIONINFORMATION CENTRECENTRE OPERATIONSOPERATIONS
ENSUREENSURE THATTHAT THETHE APPROPRIATEAPPROPRIATE ACCOUNTINGACCOUNTING ANDANDFINANCEFINANCE INFORMATIONINFORMATION ISIS AVAILABLE AVAILABLE ININ THETHE
BUSINESSBUSINESS INFORMATIONINFORMATION CENTRESCENTRES COMMUNICATECOMMUNICATE MEANINGFULLYMEANINGFULLY WITHWITH MICROMICRO ANDANDSMALLSMALL ENTERPRISESENTERPRISES ININ THETHE LANGUAGELANGUAGE OFOFACCOUNTINGACCOUNTING ANDAND FINANCEFINANCE
33
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
4/74
BUSINESS INFORMATIONBUSINESS INFORMATIONCENTRESCENTRES
44
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
5/74
AccessAccess toto accurateaccurate andand upup toto datedate datadata andandrelevantrelevant financialfinancial informationinformation andand commercialcommercialintelligenceintelligence..
RightRight financialfinancial informationinformation andand intelligenceintelligence atatthethe rightright timetime..
BasingBasing businessbusiness decisionsdecisions onon soundsound financialfinancialcommercialcommercial intelligenceintelligence..
55
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
6/74
PossiblePossible objectivesobjectives ofof BusinessBusinessInformationInformation CentersCenters includeinclude::
ResearchResearch onon keykey marketsmarkets includingincluding worldwideworldwidemarketmarket placesplaces
AccessAccess companycompany profilesprofiles worldwideworldwide
GetGet basicbasic guidanceguidance onon settingsetting upup licensing,licensing,agencies,agencies, distributorship,distributorship, andand otherother
agreementsagreements ResolveResolve manymany otherother businessbusiness problemsproblems andand
issuesissues
66
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
7/74
Role of Accounting and Finance inRole of Accounting and Finance in
BICsBICs
77
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
8/74
BICsBICs areare wherewhere smallsmall businessbusiness ownersowners cancanreceivereceive assistanceassistance andand adviceadvice.. ThoseThose
thinkingthinking ofof startingstarting aa businessbusiness shouldshould findfindBICsBICs anan excellentexcellent placeplace toto dodo researchresearch.. IfIfyouyou havehave anan existingexisting business,business, BICsBICs havehavemanymany resourcesresources toto assistassist inin thatthat businessbusiness toto
growgrow.. BICsBICs shouldshould thenthen bebe constantlyconstantlyaddingadding newnew resourcesresources toto serveserve thethe needsneeds ofoftheirtheir locallocal businessbusiness communitycommunity..
TheThe staffstaff inin thethe BICBIC shouldshould bebe trainedtrained staffstaff
whowho cancan suggestsuggest bestbest resourcesresources andanddemonstratedemonstrate howhow toto useuse thethe relevantrelevant datadatabasesbases andand offeroffer usefuluseful servicesservices..
88
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
9/74
Division of BICDivision of BIC
Center for BusinessCenter for Business AllAll sortssorts ofof financialfinancial andand businessbusiness information,information,
statistics,statistics, guidesguides andand toolstools
Center for IndividualsCenter for Individuals Information for decision making and advisoryInformation for decision making and advisory
servicesservices
99
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
10/74
CENTER FOR BUSINESSCENTER FOR BUSINESS
Acts of ParliamentActs of Parliament Bankruptcy ActBankruptcy Act Anti Corruption and Economic Crimes ActAnti Corruption and Economic Crimes Act
Companies ActCompanies Act Public Procurement and Disposal ActPublic Procurement and Disposal Act
Market Information and StatisticsMarket Information and Statistics Legal NoticesLegal Notices TaxesTaxes
Income Tax Act, VAT Act, Customs and Excise ActIncome Tax Act, VAT Act, Customs and Excise Act Tax ReturnsTax Returns Tax Documentation and FormsTax Documentation and Forms Taxpayers CharterTaxpayers Charter
Any other information relevant to business unitsAny other information relevant to business units 1010
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
11/74
CENTER FOR INDIVIDUALSCENTER FOR INDIVIDUALS
Financial TemplatesFinancial Templates EE--CommerceCommerce Business SkillsBusiness Skills Financial Advisory ServicesFinancial Advisory Services
Operating ActivitiesOperating Activities Financial Planning and ForecastingFinancial Planning and Forecasting Cost Cutting and ReorganizationsCost Cutting and Reorganizations
Licensing and Business AgreementsLicensing and Business Agreements Risk ManagementRisk Management
1111
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
12/74
NATURE AND ENVIRONMENTNATURE AND ENVIRONMENTOF FINANCIAL ACCOUNTINGOF FINANCIAL ACCOUNTING
1212
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
13/74
What is Accounting?What is Accounting?
Accounting Accounting isis aa serviceservice activityactivity,,descriptive/analyticaldescriptive/analytical disciplinediscipline andand ananinformationinformation systemsystem..
1313
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
14/74
As As aa serviceservice activityactivity,, accountingaccountingprovidesprovides interestedinterested partiesparties withwith
quantitativequantitative financialfinancial informationinformation thatthathelpshelps themthem makemake decisionsdecisions aboutabout thethedeploymentdeployment andand useuse ofof resourcesresources inin
businessbusiness andand thethe economyeconomy..
1414
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
15/74
AsAs aa descriptive/analyticaldescriptive/analytical discipline,discipline,
itit identifiesidentifies thethe greatgreat massmass ofof eventsevents andandtransactionstransactions thatthat characterizecharacterize thetheeconomiceconomic activityactivity ofof anan entityentity and,and,throughthrough measurementmeasurement,, classificationclassification,, andandsummarizationsummarization,, reducesreduces thosethose datadata totorelativelyrelatively smallsmall highlyhighly significant,significant, andandinterrelatedinterrelated itemsitems thatthat whenwhen appropriatelyappropriatelyassembledassembled andand reportedreported,, describedescribe ananentitysentitys financialfinancial conditioncondition andand thethe resultsresultsofof operationsoperations..
1515
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
16/74
AsAs anan informationinformation system,system, itit collectscollects
economiceconomic informationinformation aboutabout anan entityentity andandcommunicatescommunicates thisthis informationinformation toto aa widewidevarietyvariety ofof personspersons whosewhose decisionsdecisions andandactionsactions areare relatedrelated toto thethe entityentity..
1616
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
17/74
Environmental Factors thatEnvironmental Factors that
influence Accountinginfluence AccountingAccountingAccounting recognizesrecognizes thatthat peoplepeople liveliveinin aa worldworld ofof scarcescarce resourcesresources.. BecauseBecause
resourcesresources existexist inin limitedlimited supply,supply, peoplepeople trytrytoto conserveconserve them,them, toto useuse themthem effectivelyeffectivelyandand efficientlyefficiently.. ForFor example,example, byby measuringmeasuringandand communicatingcommunicating thethe netnet incomeincome ofof andand
assetsassets employedemployed byby aa company,company, informationinformationthatthat isis helpfulhelpful inin determiningdetermining thethe companyscompanysefficiencyefficiency becomesbecomes availableavailable..
1717
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
18/74
Nature Of Financial AccountingNature Of Financial Accounting
TheThe disciplinediscipline ofof accountingaccounting isis commonlycommonlydivideddivided intointo financialfinancial accounting,accounting,managerialmanagerial (cost)(cost) accounting,accounting, taxtax
accounting,accounting, andand publicpublic sectorsector accountingaccounting..
1818
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
19/74
FinancialFinancial accountingaccounting hashas beenbeen
characterizedcharacterized asas that that branchbranch ofofaccountingaccounting concernedconcerned withwith thethe recording,recording,classification,classification, analysis,analysis, andand interpretationinterpretationofof thethe overalloverall financialfinancial positionposition andand
operatingoperating resultsresults ofof anan organizationorganization.. ItItencompassesencompasses thethe processprocess andand thethedecisionsdecisions thatthat culminateculminate inin thethepreparationpreparation ofof financialfinancial statementsstatements
relativerelative toto thethe businessbusiness asas aa wholewhole forfor thetheuseuse byby partiesparties internalinternal andand externalexternal toto thethebusinessbusiness..
1919
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
20/74
FinancialFinancial statementsstatements areare aa principalprincipal meansmeansthroughthrough whichwhich financialfinancial informationinformation isiscommunicatedcommunicated toto thosethose outsideoutside thethe entityentity..TheThe financialfinancial statementsstatements normallynormally
includeinclude::
2020
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
21/74
StatementStatement ofof FinancialFinancial PositionPosition
StatementStatement ofof ComprehensiveComprehensive IncomeIncome
StatementStatement ofof CashCash FlowsFlows
StatementStatement ofof ChangesChanges inin EquityEquity
2121
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
22/74
FINANCIAL STATEMENTSFINANCIAL STATEMENTS
2222
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
23/74
Qualitative Characteristics ofQualitative Characteristics of
Financial StatementsFinancial Statements
QualitativeQualitative characteristicscharacteristics areare attributesattributesthatthat makemake thethe informationinformation providedprovided inin thethefinancialfinancial statementsstatements usefuluseful toto usersusers..
2323
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
24/74
Four principal qualitative characteristics areFour principal qualitative characteristics are
UnderstandabilityUnderstandability RelevanceRelevance
ReliabilityReliability
ComparabilityComparability
2424
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
25/74
User NeedsUser Needs
Assessment of overall performanceAssessment of overall performance--In absolute termsIn absolute terms
--Compared to goalsCompared to goals--Compared to other entitiesCompared to other entities AssessmentAssessment ofof ManagementManagementQualityQuality
--Profits,Profits, overalloverall performance,performance, efficiencyefficiency
--StewardshipStewardship--EstimatingEstimating futurefuture prospectsprospects forfor profits,profits,
investmentinvestment andand capitalcapital needs,needs, etcetc
2525
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
26/74
AssessingAssessing financialfinancial strengthstrength andand stability,stability,
AssessingAssessing solvencysolvency
AssessingAssessing liquidityliquidity
AssessingAssessing riskrisk andand uncertaintyuncertainty
AsAs anan aidaid toto resourceresource allocationallocation byby
--OwnersOwners
--CreditorsCreditors--GovernmentsGovernments
2626
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
27/74
InIn makingmaking comparisonscomparisons
--WithWith pastpast performanceperformance
--WithWith otherother entitiesentities--WithWith industryindustry andand economyeconomy asas aa wholewhole
DeterminingDetermining compliancecompliance withwith lawslaws oror
regulationsregulations
2727
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
28/74
Statement of Financial PositionStatement of Financial Position
2828
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
29/74
Importance of Statement ofImportance of Statement of
Financial PositionFinancial Position
ProvidesProvides informationinformation aboutabout thethe naturenature andandamountsamounts ofof investmentsinvestments inin enterpriseenterpriseresourcesresources
EvaluatingEvaluating thethe capitalcapital structurestructure ofof thetheenterpriseenterprise
Assessing Assessing thethe liquidityliquidity andand financialfinancialflexibilityflexibility ofof thethe entityentity
2929
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
30/74
Format ForFormat For
Statement of Financial PositionStatement of Financial Position
3030
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
31/74
FORMAT FOR PREPARATION OF STATEMENT OF FINANCIALFORMAT FOR PREPARATION OF STATEMENT OF FINANCIALPOSITIONPOSITION
XYZ GROUPXYZ GROUP
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010
2010 20092010 2009Kes'000Kes'000 Kes'000Kes'000
ASSETSASSETS
NonNon--current assetscurrent assets
Property, plant and equipmentProperty, plant and equipment XXXXXX XXX XXX
GoodwillGoodwill XXXXXX XXX XXX
Other intangible assetsOther intangible assets XXXXXX XXX XXX
Investments in associatesInvestments in associates XXXXXX XXX XXX
Current assetsCurrent assets
InventoriesInventories XXX XXX XXX XXX
Trade receivablesTrade receivables XXX XXX XXXXXX
Other current assetsOther current assets XXXXXX XXX XXX
Cash and cash equivalentsCash and cash equivalents XXXXXX XXX XXX
TOTAL ASSETSTOTAL ASSETS XXXXXX XXXXXX
3131
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
32/74
Equity and LiabilitiesEquity and Liabilities
Equity attributable to owners of the parentEquity attributable to owners of the parent
Share capitalShare capital XXXXXX XXX XXX
Retained earningsRetained earnings XXXXXX XXX XXXOther components of equityOther components of equity XXXXXX XXX XXX
Non controlling interestNon controlling interest XXXXXX XXX XXX
Total equityTotal equity XXXXXX XXX XXX
NonNon--current liabilitiescurrent liabilities
LongLong--term borrowingsterm borrowings XXXXXX XXX XXXDeferred taxDeferred tax XXXXXX XXX XXX
LongLong--term provisionsterm provisions XXXXXX XXX XXX
Total nonTotal non--current liabilitiescurrent liabilities XXXXXX XXX XXX
Current liabilitiesCurrent liabilities
Trade and other payablesTrade and other payables XXXXXX XXX XXXShortShort--term borrowingsterm borrowings XXXXXX XXX XXX
Current tax payableCurrent tax payable XXXXXX XXX XXX
ShortShort--term provisionsterm provisions XXXXXX XXX XXX
Total current liabilitiesTotal current liabilities XXXXXX XXX XXX
Total liabilitiesTotal liabilities XXXXXX XXX XXXTOTAL EQUITY AND LIABILITIESTOTAL EQUITY AND LIABILITIES XXXXXX XXXXXX
3232
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
33/74
Statement of ComprehensiveStatement of Comprehensive
IncomeIncome
3333
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
34/74
Importance of Statement ofImportance of Statement of
IncomeIncome
HelpsHelps toto evaluateevaluate pastpast performanceperformance
HelpsHelps toto determinedetermine thethe riskrisk associatedassociatedwithwith thethe enterpriseenterprise
CalculatingCalculating taxtax duedue
ObtainingObtaining loansloans fromfrom banksbanks oror otherothersourcessources
3434
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
35/74
Format forFormat for
Statement of ComprehensiveStatement of ComprehensiveIncomeIncome
3535
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
36/74
FORMAT FOR PREPARATION OF STATEMENT OFFORMAT FOR PREPARATION OF STATEMENT OFCOMPREHENSIVEINCOMECOMPREHENSIVEINCOME
XYZ GROUPXYZ GROUP
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDEDSTATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED31 DECEMBER 201031 DECEMBER 2010
20102010 20092009Kes 000Kes 000 Kes 000Kes 000
RevenueRevenue XXX XXX XXX XXX
Cost of salesCost of sales XXX XXX XXX XXX
Gross profitGross profit XXX XXX XXX XXX
Other incomesOther incomes XXX XXX XXX XXX
Distribution costsDistribution costs XXXXXX XXX XXX
Administrative expenses Administrative expenses XXXXXX XXX XXX
Other expensesOther expenses XXX XXX XXX XXX
Finance costsFinance costs XXX XXX XXX XXX
Profit before taxProfit before tax XXXXXX XXX XXX
TaxTax XXX XXX XXX XXX
XXXXXX XXX XXX
ProfitfortheyearProfitfortheyear XXXXXX XXXXXX
3636
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
37/74
Other Comprehensive Income:Other Comprehensive Income:
Exchange differences on translating foreign operationsExchange differences on translating foreign operationsXXXXXX XXX XXX
Cash flow hedgesCash flow hedges XXX XXX XXX XXXGains on property revaluationGains on property revaluation XXXXXX XXX XXX
Share of other comprehensive income from associateShare of other comprehensive income from associateXXXXXX XXX XXX
Actuarial gains/ (losses) on defined benefit fundActuarial gains/ (losses) on defined benefit fund
XXXXXX XXX XXXAvailable for sale financial assets Available for sale financial assets XXXXXX XXX XXX
Other comprehensive income for the yearOther comprehensive income for the year XXXXXX XXX XXX
TOTAL COMPREHENSIVE INCOME FOR THE YEARTOTAL COMPREHENSIVE INCOME FOR THE YEARXXXXXX XXXXXX
Attributableto:Attributableto:
Owners of the parentOwners of the parent XXX XXX XXX XXX
Non controlling interestNon controlling interest XXX XXX XXX XXX
XXXXXX XXX XXX
Earnings per shareEarnings per share XXX XXX XXX XXX
3737
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
38/74
Statement of Cash FlowsStatement of Cash Flows
3838
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
39/74
Purpose of the Statement of CashPurpose of the Statement of Cash
FlowsFlows TheThe primaryprimary purposepurpose ofof thethe statementstatement ofof
cashcash flowsflows isis toto provideprovide informationinformation aboutabout
cashcash receiptsreceipts andand cashcash paymentspayments ofof ananentityentity duringduring aa periodperiod..
TheThe secondarysecondary objectiveobjective isis toto provideprovide
informationinformation aboutabout operating,operating, investinginvestingandand financingfinancing activitiesactivities ofof thethe entityentityduringduring thethe periodperiod..
3939
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
40/74
These statements should enable users to:These statements should enable users to:
EvaluateEvaluate thethe liquidityliquidity andand solvencysolvency ofof ananenterpriseenterprise
AssessAssess thethe enterprisesenterprises abilityability toto generategeneratecashcash fromfrom internalinternal sources,sources, toto repayrepay debt,debt,toto makemake investments,investments, andand toto makemake
distributionsdistributions toto ownersowners..
4040
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
41/74
AUDITAUDIT
Internal AuditInternal Audit
External AuditExternal Audit
Final AuditFinal Audit
Performance Audit [Value for MoneyPerformance Audit [Value for MoneyAudit]Audit]
Management AuditManagement Audit
Fraud Investigations AuditFraud Investigations Audit
Forensic auditForensic audit4141
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
42/74
GROUP WORKGROUP WORK
KimaniKimani YegoYego,, aa ruralrural farmer,farmer, hashascomecome toto youyou thatthat hehe investedinvested KesKes 11mm
lastlast yearyear inin fishfish farmingfarming andand doesdoes notnotseemseem toto bebe doingdoing wellwell..
HeHe desperatelydesperately needsneeds financialfinancial adviceadvice..
RequiredRequired::
AdviseAdvise KimaniKimani YegoYego
4242
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
43/74
BOOKKEEPINGBOOKKEEPING
Good record keepingGood record keeping
Keeping track of all expenses andKeeping track of all expenses and
revenuesrevenues
Keep proof of all expensesKeep proof of all expenses
Information about assetsInformation about assets
Keep all bank statementsKeep all bank statements
Records of all purchase and salesRecords of all purchase and salesinformationinformation
4343
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
44/74
REASONS FOR BOOKKEEPINGREASONS FOR BOOKKEEPING
Monitoring the success or failure of aMonitoring the success or failure of abusinessbusiness
Providing information needed to makeProviding information needed to makedecisionsdecisions
Obtaining bank financeObtaining bank finance Obtaining other sources of capitalObtaining other sources of capital
BudgetingBudgeting Preparing tax returnsPreparing tax returns Distributing profitsDistributing profits
4444
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
45/74
CONTROLSCONTROLS
General ControlsGeneral Controls Internal CheckInternal Check Segregation of DutiesSegregation of Duties DocumentationDocumentation Physical ControlsPhysical Controls AuthorizationAuthorization
Financial ControlsFinancial Controls BudgetingBudgeting ReconciliationsReconciliations Cash ManagementCash Management
4545
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
46/74
IMPROVEMENT OF BOOKKEEPINGIMPROVEMENT OF BOOKKEEPING
PROCESSPROCESS Hire PartHire Part--Time AccountantTime Accountant
Invest in Accounting SoftwareInvest in Accounting Software
Accounting Classes for EmployeeAccounting Classes for Employee
Employ an AccountantEmploy an Accountant
4646
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
47/74
FINANCIAL MANAGEMENTFINANCIAL MANAGEMENT
4747
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
48/74
SCOPE OF FINANCIALSCOPE OF FINANCIAL
MANAGEMENTMANAGEMENT
FinancialFinancial ManagementManagement involvesinvolves thetheapplicationapplication ofof generalgeneral managementmanagementprinciplesprinciples toto particularparticular financialfinancial operationoperation
4848
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
49/74
OBJECTIVES OF FINANCIALOBJECTIVES OF FINANCIAL
MANAGEMENTMANAGEMENT
AccountabilityAccountability toto stakeholdersstakeholders
ProperProper resourceresource managementmanagement
InternalInternal decisiondecision makingmaking
4949
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
50/74
RELATIONSHIP OF FINANCE TORELATIONSHIP OF FINANCE TO
ACCOUNTINGACCOUNTING TheThe primaryprimary objectiveobjective ofof accountingaccounting isis toto
measuremeasure thethe performanceperformance ofof thethe
enterprise,enterprise, assessassess itsits financialfinancial condition,condition,andand determinedetermine thethe basebase ofof taxtax paymentspayments..
TheThe principalprincipal goalgoal of of financialfinancial
managementmanagement isis toto createcreate ownerowner valuevalue bybyinvestinginvesting inin positivepositive presentpresent valuevalue projectsprojectsandand minimizingminimizing thethe costcost ofof financingfinancing
5050
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
51/74
TheThe accountingaccounting rolerole isis toto provideprovideconsistentlyconsistently developeddeveloped andand easilyeasily
interpretedinterpreted datadata aboutabout anan enterprisesenterprisespast,past, present,present, andand futurefuture operationsoperations
TheThe financefinance rolerole isis toto useuse thesethese datadata asas anan
importantimportant inputinput toto thethe decisiondecision makingmakingprocessprocess
5151
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
52/74
FINANCIAL PLANNINGFINANCIAL PLANNING
5252
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
53/74
FinancialFinancial planningplanning worksworks fromfrom thethestrategicstrategic andand businessbusiness plansplans toto identifyidentify
whatwhat financialfinancial resourcesresources areare neededneeded totoobtainobtain andand developdevelop thethe resourcesresources totoachieveachieve thethe goalsgoals inin thethe twotwo typestypes ofofplansplans.. Typically,Typically, financialfinancial planningplanning resultsresultsinin veryvery relevantrelevant andand realisticrealistic budgetsbudgets
5353
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
54/74
BUDGET MANAGEMENTBUDGET MANAGEMENT
Depicts what you spend and what youDepicts what you spend and what youearnearn
Useful for Planning FinancesUseful for Planning Finances
Tracking FinancesTracking Finances
Budgetary ControlBudgetary Control5454
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
55/74
TYPES OF CONTROL SYSTEMSTYPES OF CONTROL SYSTEMS
FEEDBACK CONTROL SYSTEMFEEDBACK CONTROL SYSTEM Negative FeedbackNegative Feedback Positive FeedbackPositive Feedback
FEEDFOWARD CONTROL SYSTEMFEEDFOWARD CONTROL SYSTEM Cash BudgetCash Budget
VARIANCE ANALYSISVARIANCE ANALYSIS
5555
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
56/74
BUDGETING TECHNIQUESBUDGETING TECHNIQUES
IncrementalIncremental BudgetingBudgeting
ZeroZero BasedBased BudgetingBudgeting
ActivityActivity BasedBased BudgetingBudgeting
5656
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
57/74
Cash BudgetingCash Budgeting
AdvantagesAdvantages
EstimatingEstimating CashCash RequirementsRequirements
PlanningPlanning ShortShort TermTerm FinancingFinancing
SchedulingScheduling PaymentsPayments inin connectionconnection withwithCapitalCapital ExpenditureExpenditure ProjectsProjects
CheckingChecking TheThe Accuracy Accuracy ofof LongLong TermTermForecastsForecasts
5757
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
58/74
CASH MANAGEMENTCASH MANAGEMENT
CashCash flowflow statementstatement isis thethe mostmost importantimportant statementstatement PoorPoor cashcash managementmanagement isis thethe causecause ofof mostmost businessbusiness
failuresfailures
HelpsHelps planplan againstagainst unforeseenunforeseen businessbusiness eventualitieseventualities PositivePositive CashCash FlowFlow andand NegativeNegative CashCash FlowFlow ComponentsComponents::
OperatingOperating CashCash FlowsFlows InvestingInvesting CashCash FlowsFlows
FinancingFinancing CashCash FlowsFlows
5858
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
59/74
GOOD CASH FLOW MANAGEMENTGOOD CASH FLOW MANAGEMENT
KnowingKnowing when,when, where,where, andand howhow youryour cashcashneedsneeds willwill occuroccur
KnowingKnowing thethe bestbest sourcessources forfor meetingmeetingadditionaladditional cashcash needsneeds
BeingBeing preparedprepared toto meetmeet thesethese needsneeds whenwhen
theythey occur,occur, byby keepingkeeping goodgood relationshipsrelationshipswithwith bankersbankers andand otherother creditorscreditors
DevelopDevelop cashcash flowflow projectionsprojections
5959
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
60/74
IMPROVING CASH FLOWSIMPROVING CASH FLOWS
ManageManage PayablesPayables ControlControl CostsCosts OrganizeOrganize BillingBilling ScheduleSchedule
CollectCollect DebtsDebts PromptlyPromptly TakeTake AdvantageAdvantage ofof EarlyEarly PaymentPayment IncentivesIncentives DontDont BuyBuy allall inin oneone PlacePlace TightenTighten youryour InventoryInventory
FormForm buyingbuying cooperativescooperatives CheckCheck youryour pricingpricing ConsiderConsider leasingleasing
6060
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
61/74
6161
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
62/74
FINANCIAL STATEMENTFINANCIAL STATEMENTANALYSISANALYSIS
6262
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
63/74
Importance of Financial StatementImportance of Financial Statement
AnalysisAnalysisTheThe figuresfigures inin thethe financialfinancial statementsstatements arearerarelyrarely significantsignificant oror importantimportant inin
themselvesthemselves.. ItIt isis theirtheir relationshipsrelationships totootherother quantities,quantities, amountsamounts andand directiondirection ofofchangechange fromfrom oneone pointpoint inin timetime toto anotheranother
thatthat isis importantimportant.. FinancialFinancial statementstatementanalysisanalysis thusthus involvesinvolves significantsignificantrelationshipsrelationships..
6363
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
64/74
BICsBICs cancan createcreate relationshipsrelationships toto helphelpbusinessesbusinesses runrun smoothly,smoothly, makingmaking suresure
theythey dodo whatwhat isis necessarynecessary toto increaseincreaseprofitsprofits.. ThisThis cancan bebe donedone byby helpinghelping themthemrecordrecord andand interpretinterpret financialfinancial datadata toto makemakebetterbetter decisionsdecisions
6464
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
65/74
COMMON ANALYTICALCOMMON ANALYTICAL
TECHNIQUESTECHNIQUES FinancialFinancial RatioRatio AnalysisAnalysis
TrendTrend AnalysisAnalysis
KeyKey PerformancePerformance IndicatorsIndicators ComparableComparable BenchmarkingBenchmarking
IndustryIndustry
LifecycleLifecycle stagestagePeerPeer firmsfirms
6565
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
66/74
EE
6666
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
67/74
WORKING CAPITAL MANAGEMENTWORKING CAPITAL MANAGEMENT
6767
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
68/74
IMPORTANCEIMPORTANCE
InvestmentInvestment inin currentcurrent assetsassets representsrepresents aa
substantialsubstantial portionportion ofof totaltotal assetsassets InvestmentsInvestments inin currentcurrent assetsassets andand thethe
levellevel ofof currentcurrent liabilitiesliabilities havehave toto bebe
gearedgeared quicklyquickly toto changeschanges inin salessales
6868
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
69/74
FACTORS INFLUENCING WORKING CAPITALFACTORS INFLUENCING WORKING CAPITALREQUIREMENTSREQUIREMENTS
NatureNature ofof businessbusiness
SeasonalitySeasonality ofof operationsoperations
MarketMarket conditionsconditions
ProductionProduction policypolicy
ConditionsConditions ofof supplysupply
6969
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
70/74
INVENTORY MANAGEMENTINVENTORY MANAGEMENT
As with other investments, the costs ofAs with other investments, the costs ofholding stock must be related to the benefitsholding stock must be related to the benefitsto be gained.to be gained.
Stock costs are inclusive of:Stock costs are inclusive of:Costs of Holding StockCosts of Holding Stock Interest on capital invested in stockInterest on capital invested in stock Storage chargesStorage charges
Handling costsHandling costs Insurance and securityInsurance and security Pilferage, vermin damage, etcPilferage, vermin damage, etc
7070
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
71/74
Costsof Obtaining StockCostsof Obtaining Stock Clerical and administrative costs associatedClerical and administrative costs associated
with purchasingwith purchasing
Transport costsTransport costs
Stock Out CostsStock Out Costs
Loss of customer goodwillLoss of customer goodwill Loss of future sales because customers goLoss of future sales because customers goelsewhereelsewhere
7171
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
72/74
InventoryManagementInventoryManagementT
echniq
uesT
echniq
ues
7272
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
73/74
REORDER LEVEL SYSTEMREORDER LEVEL SYSTEM
AlsoAlso knownknown asas thethe twotwo binbin systemsystem..
AA predeterminedpredetermined reorderreorder levellevel isis setset forforeacheach itemitem
WhenWhen stockstock levellevel fallsfalls toto thethe reorderreorder level,level,
aa replenishmentreplenishment orderorder isis issuedissued.. TheThe replenishmentreplenishment orderorder isis thethe EOQEOQ..
7373
8/3/2019 Copy of Accounting and Financial Management.actual Auto Saved]
74/74
PERIODIC REVIEW SYSTEMPERIODIC REVIEW SYSTEM
StockStock levelslevels areare reviewedreviewed atat fixedfixed
intervals,intervals, ee..gg.. everyevery fortnightfortnight.. TheThe quantityquantity ofof thethe replenishmentreplenishment orderorder isis
notnot aa previouslypreviously calculatedcalculated EOQEOQ butbut isis
basedbased onon thethe likelylikely demanddemand untiluntil thethe nextnextreviewreview..