BSBFIN501 Assessment 1

docx

School

Western Sydney University *

*We aren’t endorsed by this school

Course

400160.4

Subject

Finance

Date

Nov 24, 2024

Type

docx

Pages

Uploaded by MinisterRockHedgehog35

BSBFIN501 Assessment 1 V1 Page 1 of 19 Assessment method-based instructions and guidelines: Knowledge Test Assessment type  Written Questions Instructions provided to the student: Please refer to the Student Assessment Information Pack for full details on instructions and the pre- assessment checklist that you should check before attempting any assessment task. Assessment task description:  This is the first (1) assessment task you must successfully complete to be deemed competent in this unit of competency.  The Knowledge Test is comprised of nineteen (19) written questions  You must respond to all questions and submit them to your Trainer/Assessor.  You must answer all questions to the required level, e.g. provide an answer within the required word limit, to be deemed satisfactory in this task  You will receive your feedback within one (1) week, and you will be notified by your Trainer/Assessor when your results are available. Applicable conditions:  All knowledge tests are untimed and are conducted as open book assessment (this means you can refer to your textbook during the test).  You must read and respond to all questions.  You may handwrite/use a computer to answer the questions.  You must complete the task independently.  No marks or grades are allocated for this assessment task. The outcome of the task will be Satisfactory or Not Satisfactory.  As you complete this assessment task, you are predominately demonstrating your written skills and knowledge to your trainer/assessor. Resubmissions and reattempts:  Where a student’s answers are deemed not satisfactory after the first attempt, a resubmission attempt will be allowed.  The student may speak to their trainer/assessor if they have any difficulty in completing this task and require reasonable adjustments.  For more information, please refer to the Training Organisation’s Student Handbook. Location:  This assessment task may be completed in: ☐a classroom ☒ learning management system (i.e. Moodle),

☐workplace, ☐or an independent learning environment.  Your trainer/assessor will provide you with further information regarding the location for completing this assessment task. Instructions for answering the written questions:  Complete a written assessment consisting of a series of questions.  You will be required to answer all the questions correctly.  Do not start answering questions without understanding what is required. Read the questions carefully and critically analyse them for a few seconds; this will help you to identify what information is needed in the answer.  Your answers must demonstrate an understanding and application of the relevant concepts and critical thinking.  Be concise, to the point and write answers within the word-limit given to each question. Do not provide irrelevant information. Remember, quantity is not quality.  You must write your responses in your own words.  Use non-discriminatory language. The language used should not devalue, demean, or exclude individuals or groups based on attributes such as gender, disability, culture, race, religion, sexual preference or age. Gender-inclusive language should be used.  When you quote, paraphrase, summarise or copy information from other sources to write your answers or research your work, always acknowledge the source. Purpose of the assessment This assessment task is designed to evaluate student’s knowledge essential to undertake financial management in an organisation in a range of contexts and industry settings and knowledge regarding the following:  Knowledge to identify the purpose of the financial plan  Knowledge to implement the budget/financial plans and to measure the outcomes are achievable, accurate and comprehensible.  Knowledge to plan and execute the financial contingency plan  Knowledge to prepare a list of methods/techniques to disseminate the budget/financial plan  Knowledge to recognise the resources required to manage the financial management processes  Knowledge to identify factors that contribute to cost variations and expenditure overruns in a project  Knowledge to implement the Cost Monitoring and Controlling Techniques  Knowledge to describe the importance of the Quarterly Budget Report  Knowledge to explain the significance of the different type of information presented in the Quarterly Budget Report to the management  Knowledge to identify the types of data and information to be analysed to evaluate the effectiveness of financial management systems  Knowledge to identify the basic records that a business needs to keep for tax purposes  Knowledge to identify and recognise the financial reporting obligations of a company for auditing purpose  Knowledge to identify and document the fundamental principles of budgetary control

Task instructions  This is an individual assessment.  To ensure your responses are satisfactory, consult a range of learning resources and other information such as handouts, textbooks, learner resources etc.  To be assessed as Satisfactory in this assessment task, all questions must be answered correctly. Assessment Task 1: Knowledge Test Provide your response to each question in the box below. Q1: Answer the following questions: a. Explain the purpose of following types of budgets in 50-100 words each: a. Master budget b. Cash flow budget b. Explain the purpose of a financial plan. What are the key elements of a financial plan? Write your answer in 50-100 words. c. What are the four main (4) types of financial planning? A A. the aggregation of all lower-level budgets produced by a company's various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan. B an estimate of all cash receipts and all cash expenditures that are expected to occur during a certain time period. Estimates can be made monthly, bimonthly, or quarterly, and can include nonfarm income and expenditures as well as farm items. B It establishes important short- and long-term financial goals. It clarifies the actions required of you to achieve your various financial goals. A financial plan can focus your attention on important immediate steps, such as reducing debt and building your savings for emergencies Financial goals. Net worth statement. Budget and cash flow planning. Debt management plan. Retirement plan. Emergency funds. Insurance coverage. Estate plan C

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Cash flow planning: This type of financial model is used to predict a company's future cash flow. It takes into account factors such as expected revenue, expenses, and investment income. Cash flow planning is important for companies to ensure they have enough cash on hand to meet their obligations. Insurance planning: Insurance planning can help assess the impact of different events on a company's insurance coverage. For example, it can be used to predict the cost of future claims and determine the optimal level of coverage for a company. Retirement planning: Retirement planning centers around assessing a company's ability to fund retirement benefits and looks at factors such as the expected retirement age, life expectancy, and investment returns. Retirement planning is important for companies to ensure they can provide their employees with adequate retirement benefits. Tax planning: Tax planning plays a critical role in financial modeling, as it can have a major impact on a company's bottom line. Tax planning can be used to minimize a company's tax liability and maximize its cash flow.

Q2: What steps would you implement to ensure the clarification of budget/financial plans and to measure if the documented outcomes are achievable, accurate and comprehensible? Explain in 150-200 words. Step 1 – Establish Actual Position All organisations have some form of an accounting system which records their income and expenditure. Depending on the system, budgets will be identified by some form of budget code. Income and expenditure is then recorded against the budget code. This enables budget holders to identify their actual budget position at any point in time. This information is normally provided in the financial management report. The style and content of the report will vary from one organisation to another and will be dependent on the financial system used. To establish the actual position, the budget holder will need to examine and understand the financial information available. They will need to know how current the

information is and adjust it for any outstanding transactions. These may include debtors and creditors. The budget holder will also need to know if any part of their budget has been “committed” – i.e. if goods and services have been ordered but not yet received. Therefore, depending on the organisation, establishing the actual position may require information from several different sources. Step 2 – Compare Actual with Budget After completing Step 1, the information gathered needs be compared to the budgeted figures set at the beginning of the financial year. This comparison should be simple if the actual income and expenditure headings match those that were originally set. The difference between the actual income and expenditure and the budgeted income and expenditure is called a “variance”. Variance analysis is an important technique in the budgetary control process. Variance analysis is discussed in detail in some of our other resources, such as our book “ Managing the Devolved Budget ”. We also have a very good online course on the UDEMY platform called “ Managing Budgets in the Public and Non Profit Sector ” which explains variances clearly. Step 3 – Calculating Variances In the context of budgetary control, the term variance refers to the difference between actual and budget (planned) income and expenditure. An example of a variance is shown as follows: Month 6 Budget heading Budget to date (Expected spend) Actual to date (Actual spend) Varia nce +/(-) Salaries £120,000 £132,000 (£12,0 00) The above example shows that by month six the budgeted expenditure on salaries was

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

set at £120,000. However, the actual spending on salaries in those six months totalled £132,000. The difference between these two figures is £12,000. This represents the variance from the budget. In this case the variance is negative. The brackets represent over spending. The “budget to date” column shows the amount of budget that should have been spent by month 6. Ideally, the budget would be “profiled” to reflect the pattern of expenditure over the year. Therefore, when the actual expenditure for that period is compared with the budget, the true variance can be calculated. There are other variance calculations methods that can be used in assisting the budget holder to control the budget. As mentioned in Step 2, we have other resources that discuss this topic in further detail. Step 4 – Establish Reasons for Variances There are several reasons that can account for differences found between the budgeted and actual expenditure. The reasons for all variances needs to be identified. This process is critical to effective budgetary control, as the budget holder needs to know when it is appropriate to take corrective action. Variances can be both positive and negative, reflecting excess spending or under spending, or over/under performance on income. All require investigation. The reasons for variances may include: Error Incorrect figures entered on the accounting system Delays Delays in entering information on the accounting system Profiling Often incorrect budget profiles are entered, which bear no relevance to the pattern of actual expenditure and income (e.g. no account taken of seasonal fluctuations) Poor budgeting Little consideration given to initial budget preparation Unplanned changes For example, increases and decreases in demand for services, or introduction of new legislation

Step 5 – Take Action Budgets can only be controlled if corrective action is taken in response to the variances. Sometimes the explanation for the variance results in no action being required. For example, timing differences. This is where the variance will diminish over time as the actual income and expenditure figures naturally match up with the budget. Variances that arise because of fundamental changes, such as an increase in demand for a service, require action. This is necessary to regain budgetary control. Examples of the type of action that can be implemented are given below: Reduce or halt expenditure in areas where expenditure is controllable Increase income Make virements (moving money from one budget to another) Use contingency funds Delay activities Redefine objectives Redefine eligibility criteria Change the nature of the service and how it is delivered Cease or reduce services

Q3: Answer the following:  In a project, why is it sometimes required to vary the initial budgets and financial plans? Explain in 50-100 words.  Prepare a list of six (6) steps to help you plan and execute your financial contingency plan. The reason to vary the initial budget and financial plans is the project can be run although there us unexpected factors affecting negatively. Moreover, the variation helps project team members running project with care. 1. Create a list of your priority resources Not all your business’s resources are crucial to its operation. Although they may be few and far between in the early days, what resources you can operate without if it means the difference between keeping your doors open and folding? For example, do you own a business vehicle that is nice to have but is not critical to the business’s core activity? Or perhaps you own a brick and mortar location you could sell if the survival of your business depended on it? Equally, there may be less essential members of staff you could let go if the business was struggling financially. Remember, it will almost certainly be easier to think through your bottom-line essentials now, rather than in the heat of a crisis. 2. Consider the potential risks There are a limited number of risks that could lead to failure. In fact, the risks are usually relatively easy to foresee, even if you’ve yet to launch. For example, what would happen if a key customer went elsewhere, or if an important team member left the business? With the right planning, as long as there’s demand for the products or services you offer, it is possible for a business to survive any kind of risk. Make a list of possible risks and give some thought to how likely each of the threats is to occur and when they are most likely to occur (conducting a SWOT analysis can be helpful here, too). For each of the threats, you should: List the strategies and techniques you will use to minimize the risks Detail the techniques you will use to mitigate the financial impact of the risk if it should occur 3. Determine how to execute the plan, and who will be responsible for what Take the information above and determine who will be responsible for executing the financial contingency plan. As a startup business, this responsibility will likely fall on the business owner. You should also map out who will have access to the documents needed to act upon the plan before and during the process, and include a list of the team members who will know about the plans before they are put in place. 4. Review regularly—make sure your plans are up to date The type of risks businesses face change at different stages of their development. The threat of late or non-payments is one of the leading causes of business insolvency, as is the insolvency of a company within the supply chain. However, before launch, your biggest threat is more likely to be whether you can secure funding. There can also be changes to market conditions that expose the business to new and previously unidentified threats. To make sure the financial contingency plan is relevant and up-to-date, it’s essential you revisit and revise the plan on a quarterly basis as the business grows. 5. Identify alternative sources of credit These days, it is not uncommon for lenders to remove lines of credit or for trade suppliers to reduce the credit they offer your business if they are concerned about its financial stability. Proactively identifying alternative sources of credit that can be secured

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

and assessing their financial feasibility will help the business continue operating if credit lines are reduced. This should be a process that is revisited on a quarterly basis as the range of finance options available to your business will change. Don’t wait until your credit line is removed to start thinking about this risk—it can take a long time for startup businesses to find alternative funding sources. 6. Consider the capital requirements first The typical approach to contingency planning is to decide what’s best for the business first and then think about where the money to implement the plan will come from. However, when creating a financial contingency plan for a startup, the probability of accessing the capital you need is relatively low. For that reason, it makes sense to explore the capital markets first and then adjust your strategic plan accordingly based on the money that’s likely to be available. Keep an eye on your financials on a weekly or even daily basis—you can do this with an Excel spreadsheet or a dashboard that pulls in your data automatically from your accounting software. Make sure you’re comparing your cash flow projections with actuals on a regular basis so that you can head off a crisis before it has a chance to grow into something that threatens the existence of your business. Creating a financial contingency plan may not be the number one priority for startup businesses. However, with 4 out of 10 UK businesses failing in their first five years, this is something those that are serious about their survival should give serious thought. The truth is, there’s no substitute for proper preparation, and putting plans in place if the worst should happen can provide reassurance and respite during a financial storm. Q4: Answer the following: a. List any four (4) changes that can impact the budget/financial plan in a project. b. What processes would you use to negotiate these changes in budget/financial plan? Explain in 50-100 words.

Many factors outside of your control can impact your budget, including the pricing of supplies, resources, labor, financing, product/service shortages, currency exchanges, and so on. Today’s price for many essential products or services is much higher than at the start of most projects prior to COVID-19. Make sure vendors can deliver on their promises and prepare a backup plan. Getting input from other stakeholders and vetting suppliers and vendors can go a long way to setting a more realistic budget that can be met, even when there are unforeseen circumstances that impact costs. I’ve seen many project managers get caught off guard with escalating costs, suppliers that couldn’t meet quoted obligations, or other issues. Plan for surprises, so you aren’t blindsided 1. Superiors set targets The process starts with management preparing the targets for the next financial period. Usually, the top management uses historical performance data as a benchmark for setting the targets to be achieved. Sometimes, the top-level executives may seek suggestions from lower-level managers on the targets for the next financial period. The prepared targets are then passed on to the lower-level managers for consideration. 2. Targets sent to subordinates The department-level managers receive the targets from the top-level managers and are required to prepare action plans based on the given targets. Unlike top-down budgeting that limits the subordinates’ action plans to the budget allocation, negotiated budgeting gives employees the flexibility to negotiate the projected revenue and costs. The departmental projections can be higher or lower than the management targets. Such flexibility creates an incentive for employees to make suggestions. 3. Parties meet to discuss the subordinates’ action plan After the creation of the action plans, both the superiors and subordinates meet to discuss the budget. The meeting acts as an open forum where subordinates can educate their superiors on the realities of the budget since they are the people tasked with implementing it. The forum allows each party to present its views and negotiate the differing points until they come to a consensus. The goal is to reduce the difference in the cost estimates presented by each party until they agree on a budget that is acceptable to both sides. Subordinates are often encouraged by their superior’s positive response in their suggestions, and they may surrender some of their demands to the superior’s advantage. However, the management retains the upper hand in the negotiations, and they can adjust the figures arrived at through the bottom-up budgeting process. 4. Budget approval Once both parties have discussed and made suggestions on the budget, the changes should be incorporated into the budget. Usually, the departmental managers will be required to revise their budgets and projections to reflect what was agreed on. Once the budget has been finalized, it is presented to the management for approval. The budget is then sent to the finance department for funding, based on the projections agreed upon by management and subordinates. Q5: What are the key principles for effective team management? Write your answer in 150-200 words.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Q6: Prepare a list of any six (6) methods/techniques to disseminate the budget/financial plan details to team members. Publishing program or policy briefs Publishing project findings in national journals and statewide publications Presenting at national conferences and meetings of professional associations Presenting program results to local community groups and other local stakeholders Creating and distributing program materials, such as flyers, guides, pamphlets and DVDs Creating toolkits of training materials and curricula for other communities Q7: Answer the following questions: a. Explain the role of financial management process in 30-50 words. b. What resources are required to manage the financial management processes? Write your answer in 100-150 words.

A Financial management helps organisations to plan, organise, and govern financial activities to keep business moving and maintain healthy profits. A key role of financial managers is decision-making, which takes into account the business' short-term and long- term goals B 1. Budgeting A budget is simply a “plan in numbers”. Budgets enable the organisation to allocate resources according to strategic areas of priority. As goes the saying “A budget tells your money where to go; otherwise you wonder where it went”. An organisation should develop budgets for each department or project, based on the plans for the year. These are then consolidated into a master budget and approved by the Board. During the year, to implement the approved annual budget, mini-budgets should also be prepared based on the events that are set to be conducted. As a rule of thumb, a good budget is one that a person who did not prepare it can implement it without referring to the preparer for clarity. In other words: it should be easy to read and understand, the calculations should be clear, the costs should be justified, and explanatory notes made for assumptions. Good practice in budget preparation requires involvement of staff from various departments to enhance ownership and ease implementation. 2. Accounting Also referred to as bookkeeping, this relates to the process of organizing transactions in a manner that enables the organisation make sense of the financial transactions taking place. The transactions should be captured in standard accounting documents (payment vouchers, goods received notes, stock issue vouchers, receipts, etc) and categorized using various meaningful criteria (such as by transaction type, department, location, etc). The organisation should have an accounting software suitable for its financial reporting needs. The documents supporting the transactions should be adequately filed, both physically and electronically, in an orderly manner that enhances easy retrieval. 3. Reporting Periodically, it is important for the finance department to prepare and share (and explain in lay terms) financial reports with the relevant users to guide their decision-making. The Board of Directors, Management, Banks (or Donors), Clients (or Beneficiaries), Government, among others, all have differing financial information needs. These may include: to ascertain the performance of the organisation against the budget; to keep tabs with whether or not it has adequate funds to meet liabilities as and when they fall due; to find out whether it is using various resources effectively and efficiently for the achievement of objectives; to confirm that the organisation is meeting its statutory obligations, etc. The finance department should bear the various users of reports in mind as it determines the depth, simplicity, frequency and format of the financial reports. Q8: Answer the following questions: a. Prepare a list of any eight (8) factors that contribute to cost variations and expenditure overruns in a project. b. How can you measure these variations? Write your answer in 30-50 words. A Time management Labor shortages Inaccurate project estimates Project design errors Administrative mistakes Ineffective on-site management Unplanned costs Lack of communication B Standard deviation

Standard deviation is the average or standard distance between each point of data and the mean. It's the standard amount of variability in your data set. If you know the variance of your data set, then you can take the square root of that value to find the standard deviation. However, you can also calculate the standard deviation by using equations. This equation is if you have the data for a total population: σ = √ ∑ (X − µ)2 ÷ N

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Q9: Explain the following cost monitoring in 200-250 words: a. Earned Value Management or Analysis b. Variance Analysis A Earned Value Analysis (EVA) is a method that allows the project manager to measure the amount of work actually performed on a project beyond the basic review of cost and schedule reports. EVA provides a method that permits the project to be measured by progress achieved. The project manager is then able, using the progress measured, to forecast a project’s total cost and date of completion, based on trend analysis or application of the project’s “burn rate”. This method relies on a key measure known as the project’s earned value. Oftentimes the term “earned value” is defined as the “budgeted cost of worked performed” or BCWP. This budgeted cost of work performed measure enables the project manager to compute performance indices or burn rates for cost and schedule performance, which provides information on how well the project is doing or performing relative to its original plans. These indices, when applied to future work, allow for to project manager to forecast how the project will do in the future, assuming the burn rates will not fluctuate, which oftentimes is a large assumption. B Variance analysis is the study of deviations of actual behaviour versus forecasted or planned behaviour in budgeting or management accounting. This is essentially concerned with how the difference of actual and planned behaviours indicates how business performance is being impacted.

Q10: Explain the following basic accounting principles: a. Full Disclosure Principle b. Going Concern Principle c. Materiality Write 50-100 words for each. The full disclosure principle states that all information should be included in an entity's financial statements that would affect a reader's understanding of those statements Going concern concept is one of the accounting principles that states that a business entity will continue running its operations in the foreseeable future and will not be liquidated or forced to discontinue operations for any reason. Materiality concept in accounting refers to the concept that all the material items should be reported properly in the financial statements. Material items are considered as those items whose inclusion or exclusion results in significant changes in the decision making for the users of business information.

Q11: What is the importance of the Quarterly Budget Report? What information does the Quarterly Budget Report provide to the management? Write your answer in 200-250 words. A quarterly report is a summary or collection of unaudited financial statements, such as balance sheets, income statements, and cash flow statements, issued by companies every quarter (three months). In addition to reporting quarterly figures, these statements may also provide year-to-date and comparative (e.g., last year's quarter to this year's quarter) results. Publicly-traded companies must file their reports with the Securities Exchange Committee (SEC). Quarterly reports include key accounting and financial data for a company, including gross revenue, net profit, operational expenses, and cash flow. The Securities and Exchange Commission (SEC) requires issuers of publicly traded shares to file annual reports on Form 10-K and quarterly reports on Form 10-Q within 60 days of the end of the applicable period. These forms may include more detail than quarterly and annual reports. Quarterly reports are usually accompanied by presentations from a company's management where key performance indicator data are presented to investors and analysts. Management of firms often provides guidance for future financial results, as well. These presentations are routinely followed by question and answer periods. Analysts following companies often publish estimates of key metrics for future reporting periods. Financial publications average these estimates to arrive at street consensus estimates. Companies that exceed these estimates are said to have beaten expectations. Companies whose performances are in-line with estimates are said to have met expectations. Companies whose results are below estimates are said to have missed expectations.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Q12: What types of data and information should be analysed to evaluate the effectiveness of financial management systems? Prepare a list of at least ten (10). Gross Profit Margin Net Profit Margin Working Capital Current Ratio Quick Ratio Leverage Debt-to-Equity Ratio Inventory Turnover Total Asset Turnover Return on Equity Q13: Answer the following: a. What are the basic records that a business needs to keep for tax purposes? Write your answer in 100-150 words. b. As per ASIC, what are the financial reporting obligations of a company for auditing purpose? Write your answer in 80-120 words.

A Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents. Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries in your books and on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense. B Your company must keep written financial records that: correctly record and explain the company’s transactions and its financial position and performance enable true and fair financial statements to be prepared and audited. Your obligation extends to ensuring that your company’s records are complete and accurate by adopting appropriate accounting policies and designing and implementing appropriate controls and processes. This obligation exists regardless of whether books and records are maintained in-house or outsourced to a third party, or whether they are electronic or in hard copy. Q14: Answer the following: a. According to A New Tax System (Goods and Services Tax) Act 1999, who must give GST returns? Write your answer in 50-100 words. b. When can a GST credit be claimed? Write your answer in 100-150 words. c. What are the four (4) exceptions where you can claim the GST credit you paid on a purchase you use to make your financial supply? Write your answer in 50-100 words.

A If you are * registered or * required to be registered, you must give to the Commissioner a * GST return for each tax period. (b) you are liable for the GST on any * taxable supplies that are attributable to the tax period. B you intend to use your purchase solely or partly for your business, and the purchase does not relate to making input-taxed supplies. the purchase price included GST. you provide or are liable to provide payment for the item you purchased C you use the purchase to make a financial supply through a business or a part of a business that you carry on outside Australia you do not exceed the financial acquisitions threshold your purchase relates to a borrowing you make, if certain conditions are met your purchase is a reduced credit acquisition that you use to make a financial supply. Q15: Explain the following methods/techniques of reporting GST: a. Cash basis b. Non-cash basis (accruals). Write your answer in 250-300 words.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

A This is definitely the simpler of the two methods for small businesses, as transactions are recorded when cash actually changes hands. Your business income and expenses are recorded when they are paid, not when you issue or receive an invoice. This method gives a good idea of actual cash flow, but when it comes to matching revenue generated with expenses, cash accounting does not give an accurate picture. For example, if you buy products during one month and sell them during the next months, you do not get the correct financial picture through cash accounting. B Here, income and expenses are recorded when you receive or issue an invoice, not when the bill is actually paid. You get a better picture of your credit and debt and thus, better insight into the financial state of your business. Monitoring your debts is very important in today's economic environment to avoid being in a bad financial position. Accrual accounting also allows you to analyse the current financial trends so that you can estimate the future sales revenue and expenses. Accrual accounting has the drawback that revenue is being tracked and not actual cash. For small businesses with less cash flow, this can prove difficult if your customers are a bit slow to pay. You might end up with a great income statement, but little actual cash. To avoid this situation, you can additionally monitor the weekly cash flow to ensure that you have enough cash to run the business..

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Q16: Answer the following: a. Explain the following methods/techniques of recording cash flow: i. The direct method ii. The indirect method Write your answer in 150-200 words. b. Identify and document the fundamental principles of budgetary control. A I The direct method is one of two accounting treatments used to generate a cash flow statement. The statement of cash flows direct method uses actual cash inflows and outflows from the company's operations, instead of modifying the operating section from accrual accounting to a cash basis. Accrual accounting recognizes revenue when it is earned versus when the payment is received from a customer. Conversely, the cash flow direct method measures only the cash that's been received, which is typically from customers and the cash payments or outflows, such as to suppliers. The inflows and outflows are netted to arrive at the cash flow. The direct method is also known as the income statement method. Ii The indirect method is one of two accounting treatments used to generate a cash flow statement. The indirect method uses increases and decreases in balance sheet line items to modify the operating section of the cash flow statement from the accrual method to the cash method of accounting. The other option for completing a cash flow statement is the direct method, which lists actual cash inflows and outflows made during the reporting period. The indirect method is more commonly used in practice, especially among larger firms. B 1. Setting Clear Financial Goals and Targets The first principle involves creating a realistic and achievable budget based on your organization's income, expenses, and financial goals. Setting realistic goals helps ensure that the budget will be followed and met. It also helps to prevent overspending and keep the budget on track. 2. Creating a Realistic Budget The second principle of budget control is creating a realistic budget appropriate for your needs. Analyze the business's current spending and identify areas where you could save money. Establish a budget based on your income and expenses, and ensure a cushion for unexpected expenses. Track your spending monthly to make sure you stay within your budget. Finally, remember to adjust your budget as needed if your income or expenses change. 3. Monitoring Actual Results Against The Budget Monitor actual results and regularly revise the budget as needed. To do this, you should track expenses and revenue and compare them to the budget. Variances should be highlighted when goals are not met (or are forecasted to be off track). For example, when actual expenditures do not match budgeted figures. This, too, can be automated and should give warning in advance. If variances occur, it is essential to identify the root cause and take corrective action. 4. Taking Corrective Action When Necessary Corrective action is integral to budget control and should be taken when necessary to manage the budget effectively. This may involve making adjustments to the budget or taking more drastic measures, such as dismissing staff or cutting certain services.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Q17: Answer the following: a. Explain the following methods/techniques of Profit and loss statements/financial statement analysis: i. Vertical analysis ii. Horizontal Analysis Write your answer in 100-150 words. b. Explain the significance of “Notes to Financial Statements”. Write your answer in 50- 70 words. A I Vertical Analysis of the income statement shows the revenue or sales number as 100% and all other line items as a percentage of sales. All the line items in a vertical analysis are compared with another line item on the same statement; in the case of an income statement, it is revenue/net sales Ii Horizontal analysis is an approach used to analyze financial statements by comparing specific financial information for a certain accounting period with information from other periods. Analysts use such an approach to analyze historical trends. B Notes to the financial statements disclose the detailed assumptions made by accountants when preparing a company’s: income statement, balance sheet, statement of changes of financial position or statement of retained earnings. The notes are essential to fully understanding these documents. Usually, the first notes in the series explain the “basis for accounting”—if cash or accrual rules were used to prepare the documents—and the methods used to report amortization/depreciation expenses. The rest of the notes explain, in greater detail, how the figures have been calculated. This gives the reader the information needed to do deeper analysis. Q18: Answer the following questions: a. What are the three (3) different types of ledgers? b. Explain the principles of the general ledger in 50-100 words. c. Explain the techniques for managing general ledgers in 150-200 words.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

A General ledger Sales ledger or debtor’s ledger Purchase ledger or creditor’s ledger. B A general ledger keeps a detailed record of every transaction in the life of a company. Financial statements such as income statements, balance sheets, and cash flow statements all build upon the transaction detail in the general ledger to provide a high-level view of the company's financial health. C For each account title shown on your sales and cash receipts journal columns and your cash disbursements journal columns, there is a general ledger account. There are also separate general ledger accounts for miscellaneous items that don't have their own column in the journals, but are entered in a "miscellaneous" column. For example, Cash, Accounts Receivable, Accounts Payable, Sales, Purchases, Telephone Expense and Owner's Equity are all examples of general ledger accounts. Your accounting software will reserve space in the general ledger for each general ledger account. The individual entries in the general ledger are always from the total columns of your supporting journals. When all journal entries are posted, you can arrive at the ending balance for each account. The sum of all general ledger debit balances should always equal the sum of all general ledger credit balances.

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

Q19: Answer the following: d. What is an accounting spreadsheet? Write your answer in 30-50 words. e. How can we use MS Excel to Track Supplies, Purchases and Expenses? Write your answer in 50-100 words. D An accounting worksheet is a document used within the accounting department to analyze and model account balances. A worksheet is useful for ensuring that accounting entries are derived correctly. It can also be helpful for tracking the changes to an account from one period to the next. E Excel is a Microsoft Office program that's designed to help calculate, tabulate, store, chart, and compare data for current and future reference. Its features are robust. Using Excel for accounting can provide an excellent tool for performing these tasks for small businesses. Excel can be used with as little or as much complexity as you prefer. Small business owners can do all their bookkeeping in Excel. Reference: https://www.thebalancemoney.com/excel-spreadsheets-for-small-business-accounting-4163594 https://www.accountingtools.com/articles/accounting-worksheet https://www.wolterskluwer.com/en/expert-insights/maintaining-a-general-ledger https://www.legalzoom.com/articles/what-is-a-general-ledger-and-how-does-it-work https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business- guides/glossary/notes-to-financial-statements

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help

BSBFIN501 Assessment 1

Related Documents