BSBFIM501 Manage Budgets and Financial Plans: Learner Guide
BSBFIM501 Manage Budgets and Financial Plans: Learner Guide
BSBFIM501 Manage Budgets and Financial Plans: Learner Guide
Table of Contents
Unit of Competency 4
Application 4
Performance Criteria 5
Foundation Skills 6
Assessment Requirements 7
1. Plan financial management approaches 9
1.1 – Access budget/financial plans for the work team 10
1.2 – Clarify budget/financial plans with relevant personnel within the organisation to ensure that
documented outcomes are achievable, accurate and comprehensible 10
1.3 – Negotiate any changes required to be made to budget/financial plans with relevant personnel
within the organisation 10
Introduction 10
Basic accounting principles 10
Budget/financial plans 11
Long-term planning 13
Medium-term planning 13
Budgeting 14
Budget structure 16
Computer-based budget management 16
Closing accounts 17
Activity 1A 18
1.4 – Prepare contingency plans in the event that initial plans need to be varied 19
Contingency plans 19
Activity 1B 21
2. Implement financial management approaches 22
2.1 – Disseminate relevant details of the agreed budget/financial plans to team members 23
Communication 23
Activity 2A 25
2.2 – Provide support to ensure that team members can competently perform required roles
associated with the management of finances 26
Support for team members 26
Activity 2B 28
Page |3
2.3 – Determine and access resources and systems to manage financial management processes within
the work team 29
Resources and systems 29
Electronic spreadsheets 30
Human, physical or financial resources 30
Record keeping systems (electronic and paper-based) 32
Specialist advice or support 33
Activity 2C 34
3. Monitor and control finances 35
3.1 – Implement processes to monitor actual expenditure and to control costs across the work team
36
Monitoring expenditure 36
Controlling cost 37
Activity 3A 38
3.2 – Monitor expenditure and costs on an agreed cyclical basis to identify cost variations and
expenditure overruns 39
Expenditures and costs 39
Activity 3B 41
3.3 – Implement, monitor and modify contingency plans as required to maintain financial objectives
42
Contingency plans 42
Activity 3C 44
3.4 – Report on budget and expenditure in accordance with organisational protocols 45
Reporting on budgets 45
Australian Taxation Office 48
Activity 3D 50
4. Review and evaluate financial management processes 51
4.1 – Collect and collate for analysis, data and information on the effectiveness of financial
management processes within the work team 52
Effectiveness of financial management 52
Cash flows 52
Profit and loss statements 53
Petty cash 53
Activity 4A 55
Page |4
4.2 – Analyse data and information on the effectiveness of financial management processes within
the work team and identify, document and recommend any improvements to existing processes 56
Recommending improvements 56
Identify, document and recommend improvements 56
Activity 4B 58
4.3 – Implement and monitor agreed improvements in line with financial objectives of the work team
and the organisation 59
Agreed improvements 59
Monitoring and reporting budgets 59
Forecasting expenditure trends 60
Activity 4C 61
Summative Assessments 62
Appendices 63
Key processes – Do you have the skills? 63
Interpreting budgets 63
Ageing summaries 63
Cash flow 64
Petty cash 66
Good and Services Tax (GST) 66
Profit and loss statements 67
Financial Procedures Manual / Financial policies and procedures 68
References 69
Page |5
Unit of Competency
Application
This unit describes the skills and knowledge required to undertake financial management within a work
team in an organisation. It includes planning and implementing financial management approaches,
supporting team members whose role involves aspects of financial operations, monitoring and
controlling finances and reviewing and evaluating effectiveness of financial management processes.
It applies to managers in a wide range of organisations and sectors who have responsibility for ensuring
that work team financial resources are used effectively and are managed in line with financial objectives
of the team and organisation.
No licensing, legislative or certification requirements apply to this unit at the time of publication.
Unit Sector
Performance Criteria
Element Performance Criteria
Elements describe the Performance criteria describe the performance needed to
essential outcomes. demonstrate achievement of the element.
1. Plan financial 1.1 Access budget/financial plans for the work team
management 1.2 Clarify budget/financial plans with relevant personnel within
approaches the organisation to ensure that documented outcomes are
achievable, accurate and comprehensible
1.3 Negotiate any changes required to be made to
budget/financial plans with relevant personnel within the
organisation
1.4 Prepare contingency plans in the event that initial plans
need to be varied
3. Monitor and control 3.1 Implement processes to monitor actual expenditure and to
finances control costs across the work team
3.2 Monitor expenditure and costs on an agreed cyclical basis to
identify cost variations and expenditure overruns
3.3 Implement, monitor and modify contingency plans as
required to maintain financial objectives
3.4 Report on budget and expenditure in accordance with
organisational protocols
4. Review and evaluate 4.1 Collect and collate for analysis, data and information on the
financial management effectiveness of financial management processes within the
processes work team
4.2 Analyse data and information on the effectiveness of
financial management processes within the work team and
identify, document and recommend any improvements to
existing processes
4.3 Implement and monitor agreed improvements in line with
financial objectives of the work team and the organisation
Page |7
Foundation Skills
This section describes language, literacy, numeracy and employment skills incorporated in the
performance criteria that are required for competent performance.
Reading
Writing
Records information in correct forms and prepares materials which convey detailed
and factual content in accordance with internal procedures.
Oral communication
Numeracy
Uses a range of strategies to connect, collaborate and cooperate with other work
colleagues in activities requiring collective effort and diverse skills and knowledge.
Uses logical processes in planning, implementing and evaluating complex tasks and
developing alternative strategies in achieving goals and timelines
Uses a range of digital technologies to access, filter, compile, integrate and logically
present complex information from multiple sources.
Page |8
Assessment Requirements
Performance Evidence
Use financial skills to work with and interpret budgets, ageing summaries, cash flow,
petty cash, Goods and Services Tax (GST), and profit and loss statements
Meet record keeping requirements for the Australian Taxation Office (ATO) and for
auditing purposes.
Note: If a specific volume or frequency is not stated, then evidence must be provided at least once.
Knowledge Evidence
To complete the unit requirements safely and effectively, the individual must:
Identify and explain the relevant legislation and current requirements of the Australian
Taxation Office, including the Goods and Services Tax (GST)
Explain the key requirements for financial record keeping and auditing
o budgeting
o cash flows
o electronic spreadsheets
o GST
Assessment Conditions
Business technology
Links
1.2. Clarify budget/financial plans with relevant personnel within the organisation to ensure that
documented outcomes are achievable, accurate and comprehensible
1.3. Negotiate any changes required to be made to budget/financial plans with relevant personnel
within the organisation
1.4. Prepare contingency plans in the event that initial plans need to be varied
P a g e | 11
Introduction
This unit describes the skills and knowledge required to undertake financial management within a work
team in an organisation. It includes planning and implementing financial management approaches,
supporting team members whose role involves aspects of financial operations, monitoring and
controlling finances and reviewing and evaluating effectiveness of financial management processes.
It applies to managers in a wide range of organisations and sectors who have responsibility for ensuring
that work team financial resources are used effectively and are managed in line with financial objectives
of the team and organisation.
No licensing, legislative or certification requirements apply to this unit at the time of publication.
Expense: This is when a business uses goods or services i.e. the opposite of revenue.
Expenses become active as soon as you receive the goods or services, not when you
actually pay for them
Cost: Costs of items will only be measured at their value for the time you initially
bought them – you should not adjust them in the accounting system to reflect current
market values
P a g e | 12
Objectivity: All data in the accounting system should be objective, factual and verifiable
Continuity assumption: Accounts should assume that the business will continue to
operate in the future; otherwise, none of the assets have any definite value
Separate entity assumption: The business is a separate thing from its owner; a
partnership is also a separate entity to the partners who own the business. Therefore,
the financial records of the business and those of the owners/partnership are entirely
separate.
Retention: Records shall be kept retained for the required amount of time and
disposed when not needed.
(Source: http://searchcompliance.techtarget.com/definition/Generally-Accepted-Recordkeeping-
Principles)
Budget/financial plans
Budget/ financial plans are an essential part of any business – without them, it is impossible to plan and
monitor income and expenditure.
Long-term budgets/plans
Operational plans
Short-term budgets/plans
The types of people that budget/financial plans must be clarified with include the following
personnel:
Financial managers, accountants or financial controllers
o compare the financial performance against the performance indicators set at the
start of the financial year
o examine existing staff and their skill levels – determine whether goals can be
achieved at their current level
Long-term planning
Looking long-term is essential with financial planning and it should be integrated into the overall
strategy of the organisation. While short-term planning is also required, doing only this will result in a
lack of security and financial problems in the future.
You can forecast how the market is likely to change and account for this
Medium-term planning
This is the go-between for short and long-term planning. For this stage, you need to:
Identify likely sources of cash flow
Create a cash flow forecast statement, identifying the major changes of income sources
Think what things may occur based on what you know will happen
Consult with stakeholders for their opinions on what the major changes could be
Allow changes to be more easily planned rather than being impulsive reactions
Helps managers plan for the future – if they know their budget and budget forecasts,
they can assess whether change is viable.
Option appraisal
The idea of this is to make decisions based on the advantages and disadvantages of the options
available. It is a useful tool for allocating limited resources; for example, if budget is limited, you can
decide the most effective part of the organisation for it to be invested in.
Budgeting
When budgeting, there are various people who play a role in managing them.
Management
They are accountable for their own budgets. However, their accountability depends on their level in the
organisation.
Budgets must be built upon current pricing levels, with price changes and inflation allowed and
accounted for.
This involves:
Anticipating the type and extent of possible price changes, allowing for if they become
a reality
Decisions are only made by the top-level people in the budgeting process
P a g e | 16
Budget holders
These people contribute to setting budgets and provide the information that is used to calculating exact
figures.
budgets
reporting processes
reporting procedures
Be accountable for the quality and relevance of financial data used for budget
monitoring.
P a g e | 17
Budget structure
The overall budget of an organisation, as previously discussed, should be divided into separate budget
for different departments. However, these should be grouped together so that related budgets are
under the responsibility of one person. It should also be clear who is responsible and accountable for
each budget, to avoid confusion.
Budgets
Organisational income
Payment processing
Budget management
Contract management
Financial analysis.
Closing accounts
This involves having a set point where all data into accounts is frozen and recorded, so it can be
analysed accurately over a set time period. It allows decisions and performance measurement to be
made from a set point.
Activity 1A
P a g e | 20
1.4 – Prepare contingency plans in the event that initial plans need to be varied
Contingency plans
Contingency plans need to be present in budgets and budget forecasts, in the event that things do not
go to plan and the initial plan needs to be altered. There can be any number of unexpected variances,
such as your main supplier going bankrupt, power cuts, data corruption, etc.
Diversification of outcomes
Succession planning
Every organisation will have contingency plans in place for various situations. If a workplace event
doesn’t go according to plan – or if another solution is required – then a contingency plan will be
required. There should be risk management plans and contingency plans in place for almost anything
that can go wrong.
A contingency plan does not mean that you expect things to go wrong but rather are planning ahead for
all eventualities, which is incredibly sensible in the business world. Contingency plans can help to save
time, money and a great deal of stress. A contingency plan may be put in place from day one, or it may
be something that needs to be implemented following a situation that did not go according to plan first
time around.
A contingency plan doesn’t necessarily have to focus on risk management or health and safety issues
(although both are very important); it can include finding alternative resources or gaining further
funding, for example. A contingency plan does not necessarily mean your current plan has not worked;
it just might need certain alterations.
Contingency plans should be part of the organisational policies and procedures and be seen as flexible
and adaptable as every situation will be different.
P a g e | 21
Contingency plans should be flexible enough that last minute changes can be implemented. They should
provide an opportunity for action to take place so that an immediate solution can be found and utilised.
Personnel to be involved
A deadline.
P a g e | 22
Activity 1B
P a g e | 23
2.2. Provide support to ensure that team members can competently perform required roles
associated with the management of finances
2.3. Determine and access resources and systems to manage financial management processes
within the work team
P a g e | 24
Communication
It is important that all relevant personnel receive relevant details about the agreed budget/financial
plans.
It is vital that price changes and pricing policies are communicated to staff members to ensure they are
all on the same page and can work cohesively.
Most of this communication will be verbal; however written communication can be useful for the
purposes of:
Ensuring everyone gets the same message
People can refer to the contents of the communication later (if need be).
Pricing policies and changes are likely to be communicated in stores on a vertical level – the manager
should hold a staff meeting to inform employees of this information.
Who is informed?
After the budget/financial plans have been agreed, you will now need to divulge the relevant details to
team members.
The accounts department – so that they can enter the figures into appropriate
software and create the necessary budget lines, etc
Budget committee – where the (usually large) establishment has a budget committee,
they will be responsible for ongoing monitoring of income and revenue against
projections. Their role may also extend beyond this overseeing role, into proposals for
increasing revenue streams and limiting/reducing expenditures, as appropriate
P a g e | 25
Establishment staff – the head of department usually explains the latest budget
allocations to departmental staff. This news is traditionally passed on verbally in a
formal departmental meeting – as well as written information being distributed. The
head of department commonly sets the scene by explaining the general budgetary
context and the trading situation the establishment finds itself in – general statements
are normally used to describe the current situation as it compares to the last period.
Next, further general statements are made about what management expects from the department (and
by association, the staff); it is not common to pass on exact dollar figures to the staff as this is seen as
material that is 'commercial in confidence'.
Staff may be told that there is an expectation that, for example, they are expected to increase revenue
in the upcoming 12-month period by an average of 10% over the previous year: this indicates
management requirements without disclosing the actual figures involved.
Staff may be informed, for example, that there is an expectation for expenses to be reduced by five per
cent.
It is always important to convey this sort of news within a positive context, wherever possible, to reduce
the possibility of staff disillusionment and the likelihood that staff may misinterpret 'economic
imperatives' as signals that their job is in jeopardy. When staff pick up this sort of message they
commonly start looking for employment elsewhere because they can 'see the writing on the wall'.
Certainly, where staff are informed and involved (wherever that is possible), it creates a situation that
will lead to greater work satisfaction, higher levels of productivity and enhanced staff commitment to
organisational goals.
P a g e | 26
Activity 2A
P a g e | 27
2.2 – Provide support to ensure that team members can competently perform
required roles associated with the management of finances
Banking
Debt collection
(Source: http://smallbusiness.chron.com/important-roles-within-financial-management-system-
31146.html)
Help desk or identified experts within the organisation – having specific personnel to
use as a first port of call for any queries will save time and make the problem-solving
process more efficient
When arranging for support to team members, you should identify what their position with the
company is and what duties they perform. Support needs may vary according to whether they are
relatively new or experienced.
To identify them further, you could review their performance for areas that require improvement. You
can then determine which of the options that are open to you would be most suitable. One-on-one
interviews can also perform the same function as long as the workers are open and honest about their
needs; emphasise that they won’t get into trouble for requesting support.
When you have provided support, it is usually prudent to follow-up several weeks or months later.
Activity 2B
P a g e | 30
You will need to determine the type of hardware – such as computers and necessary accessories – that
will fulfil the minimum requirements of financial management software.
The types of software you will need for financial management will include:
A universal ledger – covering your general ledger, accounts payable, accounts
receivable, fixed assets, project accounting and other financial reporting requirements
End to end spend management program – to allow the control of purchasing activity
and to organise it in one document
Process and control automation program – to allow all operations to be managed and
organised into an auditable format.
P a g e | 31
Electronic spreadsheets
Electronic spreadsheets are digital versions of hard-copy accounts with added benefits such as auto-
sum, and the ability to easily change and update information. By changing select values within an
electronic spreadsheet, it is also possible to analyse cause-and-effect, or other aspects of actual or
potential financial change.
Google sheets
Zoho Sheet
WPS Spreadsheet.
Functions you may be expected to perform using spreadsheet software could include:
Autosum or other calculations
Projections
Physical resources
These include the following facilities:
Production facilities – location, maintenance requirements, production processes,
efficiency of facilities for meeting business requirements
Financial resources
This refers to the ability of a business to fund its chosen
strategies – it includes the existing funds, and the ability
to source new funds.
Loans
Bank overdraft
Shareholders' capital
The attractiveness of the market your business deals with (is it appealing to investors)
Payments
Bank reconciliation
Inventory.
This system requires a cash accounting approach, where you record revenue and expenses when
transactions actually occur – so, for example, when you receive the money as opposed to when you
send the invoice.
Invoices
Financial statements
Inventory reports.
Orders to suppliers
Others can also produce financial forecasts and allow you to monitor business performance.
Whichever system you use, you need to make sure it is compatible with the systems of your book-
keeper and accountant. Also, consider the costs of keeping the software up-to-date and any training
costs for staff to use it.
Examples include:
Accountants
Book-keepers
Finance seminars
Mentors.
The areas they advise on are those which require specialist and technical knowledge. Trying to manage
finances of a business without the proper information is a huge risk and can lead to many problems
down the line. While it may seem like a high initial cost for advice, in the long-term it should save you
far more than it costs you.
P a g e | 35
Activity 2C
P a g e | 36
3.2. Monitor expenditure and costs on an agreed cyclical basis to identify cost variations and
expenditure overruns
3.3. Implement, monitor and modify contingency plans as required to maintain financial objectives
Monitoring expenditure
The processes to monitor actual expenditure and to control costs across the work team include the
reporting of:
Assets
Consumables
Equipment
Expenditure
Income
Stock
Wastage.
Liabilities
Owners' equity
Revenues
Expenses.
For example, a receivable ledger account may look something like this:
Receivable account
Debit $ Credit $
1000 1000
Debit $ Credit $
500 500
Controlling cost
Investopedia defines ‘cost control’ in the following terms:
“Cost control is the practice of identifying and reducing business expenses to increase profits, and it
starts with the budgeting process. A business owner compares actual results to the budget expectations,
and if actual costs are higher than planned, management takes action. As an example, a company can
obtain bids from other vendors that provide the same product or service, which can lower costs.”
Activity 3A
P a g e | 40
3.2 – Monitor expenditure and costs on an agreed cyclical basis to identify cost
variations and expenditure overruns
Cost variations occur when the estimated cost at time of planning differs from the actual cost at time of
purchase. For example, you may plan on paying a set amount for raw materials but the prices rise and
you have no choice but to purchase it at a higher cost.
Expenditure overruns are when the cost of a project, activity or department goes over its budget. This is
especially common on new projects when accurate estimates aren’t available, and also when costs
change.
Note that costs may go down as well as up. Your organisation should respond in appropriate ways.
It is important to monitor costs and expenditure regularly. Your organisation may have policies to
review it monthly or quarterly.
Different meetings could be undertaken with different individuals. For example, you may require an
overall meeting with a manager to analyse the organisation’s general costs, and then subsequent, more
detailed meetings with people responsible for different areas.
Forecast outturn, the projected balance at the end of the financial year.
P a g e | 41
If you identify and agree any actions to be taken regarding expenditure and costs, (e.g. ‘Identify cheaper
alternative suppliers) you should ensure they are documented. This way, they can be followed up at the
next meeting.
(Source: https://www.sheffield.ac.uk/finance/staff-
information/howfinanceworks/allocating_budgets#monitoring,
http://smallbusiness.chron.com/expenditure-overruns-32719.html)
P a g e | 42
Activity 3B
P a g e | 43
Contingency plans
As outlined in Chapter 1.4, examples of contingency plans include:
Contracting out or outsourcing human resources and other functions or tasks
Diversification of outcomes
Restructuring of organisation to
reduce labour costs
Succession planning.
Once you have developed the contingency plan, it needs to be implemented, monitored and modified
(where necessary). As a business changes, the plans will need to be reviewed and updated to make sure
that any new potential problems are accounted for.
Review the plan any time there are personnel, operational and technological changes
Distribute amended plans throughout the company (discard the old plan)
P a g e | 44
Make and store copies off-site that can be easily accessed if need be
Activity 3C
P a g e | 46
Reporting on budgets
In line with the requirements of the Australian Taxation Office, you must report on budget and
expenditure.
Financial reports
Logs
Spreadsheet-based records.
A historical database which builds into a useful management tool that can help future
predictions
Data to managers which can inform and assess operational performance against
budgets.
Report components
There is no such thing as a typical report does not exist as their format and content varies widely.
A conclusion: A plan of action formulated from the evidence provided in the report
Identification: Who generated the report, together with its intended target audience
(by individual names or positions/titles)
Date of the report: Reports can be regular in nature (every month), or they can be ad
hoc to respond to a particular issue.
The precise types of reports will vary from venue to venue (as will the names of the reports); also, how
venues calculate their version of them may differ (some may include certain aspects/figures that others
don't).
Photocopies of original source documents may accompany the report to validate the figures.
Accompanying explanatory notes may also be attached.
Marketing activities – this report will detail promotions and publicity campaigns,
identifying the response in terms of dollars to these activities
Accident reports – detailing accidents for the period under consideration and updating
the report recipients regarding post-accident events (possible legal action, out of court
settlements, action taken to address the cause, training proposed)
P a g e | 48
Sources of information
Typical sources of information used to develop financial reports are:
Internal sales analysis figures from each department and/or revenue source – this will
include dockets, cash register audit tapes, daily takings sheets, debtor accounts
Actual staff rosters for each revenue centre – these must be costed and, where a role
extends across a more than one revenue centre, there must be a breakdown of wage
allocation for each area/centre
Internal stock movement sheets on a revenue centre basis – this will require costed
requisitions, purchases records, goods received books, interdepartmental transfer
sheets
General and specific financial statistics and data – this embraces budgets in 'for the
period', and 'year-to-date' formats together with comparisons with performance, say,
last month, and 'same month last year'.
A reliable foundation for upcoming planning – by supplying data that shows trends.
Well-timed: They must be distributed as soon as possible after the data they contain is
captured
Truthful and precise: They must be double checked to ensure that the information
they contain is accurate in all respects
Sufficient data relevant to the issue(s) under consideration: The points made in
organisational statements should be covered by the reports so that there is a link from
planning through to actual operation. For example, if a statement was made that you
aimed to achieve 'X' percent increase in sales in the 'Y' department by the end of the
year, then this – and other similar figures and percentages – must be covered in the
report
Similar in layout and style to all other reports: So that where people are promoted or
transferred, they remain familiar with the format of the report.
P a g e | 49
Forward reports
Reports and recommendations may need to be forwarded to:
Senior management
Owners
Personnel manager
Sales manager
Finance manager
Heads of departments
Supervisors
General staff.
PAYG instalments
(Source: https://www.ato.gov.au/business/reports-and-returns/income-tax-return/#Companies)
A wide range of legislation applies to interactions with the Australian Taxation Office. A comprehensive
list which can be searched can be found here: https://www.ato.gov.au/A-Z-
index/AZItems.aspx?id=3674&category=Tax+legislation+and+regulations&sorttype=azindexdisplay&Dis
p=True
Businesses must fill in an activity statement to report and pay the GST the business has brought in and
claim GST credits. Reporting and payments can be made either monthly, quarterly or annually – most
businesses choose to pay GST quarterly.
P a g e | 50
For both methods, you need to keep valid tax invoices of transactions to support your claims.
If something happens that requires adjustment of a previous activity statement (e.g. returned
goods/cancellation of sale), you will need to lodge a revised activity statement with the Australian
Taxation Office.
Full details and a calculation worksheet for GST can be found at www.ato.gov.au.
(Source: https://www.ato.gov.au/Business/Business-activity-statements-(BAS)/Preparing-your-Business-
activity-statement-(BAS)/)
P a g e | 51
Activity 3D
P a g e | 52
4.2. Analyse data and information on the effectiveness of financial management processes within
the work team and identify, document and recommend any improvements to existing processes
4.3. Implement and monitor agreed improvements in line with financial objectives of the work team
and the organisation
P a g e | 53
4.1 – Collect and collate for analysis, data and information on the effectiveness
of financial management processes within the work team
Data and information on the effectiveness of financial management processes may include records
(paper-based and electronic) related to:
Bank account records
Contracts
Employee timesheets
Insurance reports
Invoices
Job costings
Quotations
Taxation records
Wages/salaries books.
The information should be collected and filed on an ongoing basis to make it easily accessible for when
the time comes that you need to use it.
It should be ordered chronologically and by department – this will make searching for specific data
much easier.
Much of the figures for the above information can be found in the general ledger, but original copies of
all the documents should still be filed as evidence and for clarification purposes.
Cash flows
Cash flow describes the movement of money in or out of a business – it is measured over a specified
time period, and is usually divided into three categories: operating, investing and financing activities. It
is calculated by adding non-cash charges (e.g. depreciation) to net income after taxes. The cash flow of a
P a g e | 54
company can indicate its financial strength and is essential for it to remain solvent e.g. having enough
available money to finance its operations.
If a company's statement of cash flow shows that the company is performing well, the available
remaining cash can be reinvested into the business to generate more profit.
A company’s statement of cash flow, which can be organised weekly, monthly, or annually, can help a
business to identified revenues of income and when and how money is being spent.
They will provide information to show a company's ability to make profit via increasing revenue and
reducing costs. It does this by subtracting the costs of running the business from the revenue to show
net income (profit).
Operational expenses
Tax expenses
Interest expenses.
Along with the balance sheet and income statement, it is the most important financial statement
produced by a business; together, they can be analysed to give a complete overview of a company's
finances.
Petty cash
This is a small amount of money which is kept on hand and used to pay
for small amounts owed, as opposed to writing cheques. It is usually
assigned to a petty cash custodian – employees must then refer to this
person if they need to use petty cash or be reimbursed for a company
expense they have paid for out of their own pocket. When the petty
cash fund gets low, the custodian can request the cashing of a cheque
to top it up.
The reason for petty cash is that is simpler than the writing, signing and cashing cheques for minor
transactions. For example, think about paying a delivery man costs due on delivery (these can be under
a dollar) – it is not worth recording this individual transaction individually – therefore, recording small
transactions collectively as petty cash makes the accounting process simpler.
The custodian must still keep a record of individual petty cash expenditure by issuing petty cash
vouchers for each transaction, complete with an invoice and receipt. These vouchers and the amount of
cash to hand must always equal the original fund. They should also keep a petty cash daybook to keep a
P a g e | 55
record of petty cash transactions over time. Because of the easiness with which petty cash can be
abused, it needs to be kept under close monitoring.
P a g e | 56
Activity 4A
P a g e | 57
Recommending improvements
Now the information has been gathered and collated; it now needs to be analysed to determine the
effectiveness of your financial management processes.
Profit statements
Electronic spreadsheets
Budgeting forecasts
Ageing summaries.
Earnings growth – over the previous year, quarter or month. You also want to strive for
growth to be above the market average.
The findings of your analysis should be documented and reported to the appropriate personnel in your
organisation. The specific nature and methods of this, as well who you report your findings to, will
depend on your organisational policies and procedures.
Supervisors
Managers
Financial advisors
P a g e | 58
Accountants
Industry experts
Departmental specialists.
One method of identifying areas for improvements is comparing where you are now with where you
would like to be. This could be as simple as: “Right now we’re slow to address the changing markets; we
need to be quicker.” It is important to be honest and open here; it may help to communicate with
others involved in financial management to gather their feedback.
Accuracy
Training standards
Practicality of policies
Budgeting process.
If you are unsure of which areas you need to improve upon, you could hire an independent consult to
assess your organisation. Self-assessment tools are also available free online to determine which of your
financial management processes may need improvement.
(Source: https://www.mango.org.uk/guide/improvingyourfinancialmanagement)
P a g e | 59
Activity 4B
P a g e | 60
Agreed improvements
The purpose of analysis is not only to see how the business is performing in relation to its targets, but to
identify areas for improvement. These improvements will need to be made and monitored in line with
the financial objectives and organisational requirements of the work team and organisation.
You should first find out who is responsible in your organisation for implementing any agreed
improvements.
Budget holders
You may need to conduct regular review meets to assess progress and look at any obstacles that are
occurring. A common problem is to begin improvements and never follow-up on them; staff can sense
the lack of drive and don’t put any effort into completing the task. To prevent this, try to get senior
management engaged and involved with the changes as they can help to drive change from above.
While implementing improvements, you should consider whether they are in line with the financial
objectives of your organisation. For example, if an objective is to improve profit margins, you may need
to identify ways to cut costs or raise revenue.
Data should be inputted into your records regularly, to allow for better budgetary
planning
o actual expenditure
o forecasted expenditure
o expected changes
Monitoring processes should be reviewed regularly (to check they are working).
Forecasts should:
Account for all expenses
Remember that budgets must be inherently flexible, as it's impossible to predict exactly what will
happen. Therefore, there needs to be in place a system for adjustment, should any changes occur.
P a g e | 62
Activity 4C
P a g e | 63
Summative Assessments
At the end of your Learner Workbook, you will find the Summative Assessments.
This includes:
Skills assessment
Knowledge assessment
Performance assessment.
This holistically assesses your understanding and application of the skills, knowledge and performance
requirements for this unit. Once this is completed, you will have finished this unit and be ready to move
onto the next one – well done!
P a g e | 64
Appendices
Key processes – Do you have the skills?
Interpreting budgets
Ask yourself:
Do I understand all key terms of the budget plan?
Ageing summaries
An ageing summary (also known as an ageing report) is a report that lists outstanding sums that your
organisation is owed by clients. The ageing summary can be used to identify clients that need to be
contacted to follow-up on invoices and to track how and when receivables are paid.
The ageing summary can also be used to determine the organisation’s payment policy. If most
customers do not pay their invoices within the currently specified timeframe, for example, the
organisation may consider a policy review.
Furthermore, the ageing summary can be used as an indicator of the financial health of its clients. If
most clients pay late, or have difficulty in paying their invoices, this can indicate that the organisation is
taking too much of a financial risk.
An ageing summary can be viewed as a table or report which is usually divided into 30-day
increments, and information will often be organised into the following categories:
Customer name and/or invoice number
Amounts outstanding
Amounts paid.
Source: How to Prepare and Use an Accounts Receivable Aging Report, The Balance,
https://www.thebalance.com/accounts-receivable-aging-report-397853 (07/03/17)
P a g e | 65
Amount
Client Current 31-60 61-90 90+
receivable
For example, in the above ageing summary, we can see that ‘Cars R Us’ are regularly behind on their
payments with $1,500 three months overdue. On the other hand, the Engine shed has an outstanding
payment that is due this month, but not yet overdue. ‘Cars R Us’ may be breaking the terms of the
payment policy by being overdue, whereas ‘Engine Shed’ is still within the allowable time-period for
payment.
‘Engine Shed’ may be sent a follow-up to their original invoice, whereas further action may be taken
against ‘Cars R Us’ to receive payment.
You should ensure that you are familiar with your organisation’s collection processes and how to
respond to outstanding or late amounts receivable.
Cash flow
Cash flow describes the movement of money in or out of a business – it is measured over a specified
time period, and is usually divided into three categories: operating, investing and financing activities. It
is calculated by adding non-cash charges (e.g. depreciation) to net income after taxes. The cash flow of a
company can indicate its financial strength and is essential for it to remain solvent e.g. having enough
available money to finance its operations.
If a company's statement of cash flow shows that the company is performing well, the available
remaining cash can be reinvested into the business to generate more profit.
A company’s statement of cash flow, which can be organised weekly, monthly, or annually, can help a
business to identified revenues of income and when and how money is being spent.
ABC PLC
Statement of Cash Flows for the year ended 31 December 2013
2013 2012
Notes
USD USD
Adjustments for:
Depreciation 4 10,000 8,000
Amortization 4 8,000 7,500
Impairment losses 5 12,000 3,000
Bad debts written off 14 500 -
Interest expense 16 800 1,000
Gain on revaluation of investments (21,000) -
Interest income 15 (11,000) (9,500)
Dividend income (3,000) (2,500)
Gain on disposal of fixed assets (1,200) (1,850)
35,100 40,650
Petty cash
This is a small amount of money which is kept on hand and used to pay for small amounts owed, as
opposed to writing cheques. It is usually assigned to a petty cash custodian – employees must then refer
to this person if they need to use petty cash or be reimbursed for a company expense they have paid for
out of their own pocket. When the petty cash fund gets low, the custodian can request the cashing of a
cheque to top it up.
The reason for petty cash is that is simpler than the writing, signing and cashing cheques for minor
transactions. For example, think about paying a delivery man costs due on delivery (these can be under
a dollar) – it is not worth recording this individual transaction individually – therefore, recording small
transactions collectively as petty cash makes the accounting process simpler.
The custodian must still keep a record of individual petty cash expenditure by issuing petty cash
vouchers for each transaction, complete with an invoice and receipt. These vouchers and the amount of
cash to hand must always equal the original fund. They should also keep a petty cash daybook to keep a
record of petty cash transactions over time. Because of the easiness with which petty cash can be
abused, it needs to be kept under close monitoring.
Businesses must fill in an activity statement to report and pay the GST the business has brought in and
claim GST credits. Reporting and payments can be made either monthly, quarterly or annually – most
businesses choose to pay GST quarterly.
P a g e | 69
Derived from accounts methods – using the GST amounts from business records. This
method is easier if you have recorded the GST amounts for sales and purchases
separately
For both methods, you need to keep valid tax invoices of transactions to support your claims.
If something happens that requires adjustment of a previous activity statement (e.g. returned
goods/cancellation of sale), you will need to lodge a revised activity statement with the Australian
Taxation Office.
Full details and a calculation worksheet for GST can be found at www.ato.gov.au.
They will provide information to show a company's ability to make profit via increasing revenue and
reducing costs. It does this by subtracting the costs of running the business from the revenue to show
net income (profit).
Operational expenses
Tax expenses
Interest expenses.
Along with the balance sheet and income statement, it is the most important financial statement
produced by a business; together, they can be analysed to give a complete overview of a company's
finances.
P a g e | 70
Each organisation will have its own framework for financial processes that is underpinned by
organisational policies and procedures. Your organisation may have a Financial Procedures Manual, set
of policies and procedures, or equivalent guidelines for how financial operations are conducted within
your organisation.
You must ensure that you are familiar with your own obligations in relation to these policies and
procedures.
P a g e | 71
References
These suggested references are for further reading and do not necessarily represent the contents of
this unit.
Websites
Financial management roles: http://smallbusiness.chron.com/important-roles-within-financial-
management-system-31146.html
All references accessed on and correct as of 9th September 2016, unless other otherwise stated.