Beruflich Dokumente
Kultur Dokumente
Manager of
Sam Gellar Name of Manager Poonam Date 10/1/2018
sales name
Identify areas of
the budget that
are not Consequences of Strategies to
Proposed changes of Rational for Authorized by
achievable, Identified issues not making achieve new
the budget proposed change
inaccurate or relevant changes target
unclear
Motivate the
sales team;
Stress for sales
team, false promotional
campaigns; John BIack
Sales volume due to Modify the target in To keep the target expectations for
Financial target Increase the Chief financial
current economic climate 10% less achievable stakeholders; fail
marketing in Officer
on project due to
Incorrect budget social media
BSBFIM501 - DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 1 –Plan Financial Management Approaches
To keep the
Economic downturn Using the budget
To reduce the budget for budget within the Stuart LaRoux –
Advertising for non-effective Alternative
expensive media and to proposed and Operations
result and make it advertisement
explore cheaper media save money for General manger
out of planned
other areas
BSBFIM501 - DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 1 –Plan Financial Management Approaches
Principles of accounting can also meangenerally accepted accounting principles(GAAP). Generally accepted accounting principles (GAAP) are a
common set ofaccounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a
combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information.
GAAP improves the clarity of the communication of financial information.GAAP attempts to standardize and regulate the definitions, assumptions
and methods used in accounting. This helps companies prepare consistent financial statements from year to year.
cost principles :The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle. The cost
principle also means that valuable brand names and logos that were developed through effective advertising will not be reported as assets on the
balance sheet. This could result in a company's most valuable assets not being included in the company's asset amounts. (On the other hand, a brand
name that is acquired through a transaction with another company will be reported on the balance sheet at its cost.)
materiality principles:In accounting, the concept of materiality allows you to violate another accounting principle if the amount is so small that the
reader of the financial statements will not be misled.
A classic example of the materiality concept or the materiality principle is the immediate expensing of a $10 wastebasket that has a useful life of 10
years. The matching principle directs you to record the wastebasket as an asset and then depreciate its cost over its useful life of 10 years. The
materiality principle allows you to expense the entire $10 in the year it is acquired instead of recording depreciation expense of $1 per year for 10
years. The reason is that no investor,creditor, or other interested party would be misled by not depreciating the wastebasket over a 10-year period.
Determining what is a material or significant amount can require professional judgment. For example, $5,000 might be immaterial for a large,
profitable corporation, but it will be material or significant for a small company that has very little profit.
time period assumption:It is also known as the periodicity assumption. The accounting guideline that allows the accountant to divide up the
complex, ongoing activities of a business into periods of a year, quarter, month, week, etc. The precise time period covered is included in the heading
of the income statement, statement of cash flows, and the statement of stockholders' equity.
BSBFIM501 - DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 1 –Plan Financial Management Approaches
This Act may be cited as the A New Tax System (Goods and Services Tax) Act 1999.The goods and services tax[1](GST) in Australia is a value added
tax of 10% on most goods and services sales. GST is levied on most transactions in the production process, but is refunded to all parties in the chain of
production other than the final consumer.
The tax was introduced by the Howard Government and commenced on 1 July 2000, replacing the previous federal wholesale sales tax system and
designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes andstamp duty.
An increase of the GST to 15% has been put forward, but is generally lacking in bi-partisan support.
The Corporations Act 2001 (Cth) (the Corporations Act, or informally as the 'Corps' Act) is an act of the Commonwealth of Australia that sets out
the laws dealing with business entities in Australia at federal and interstate level. It focuses primarily on companies, although it also covers some laws
relating to other entities such as partnerships and managed investment schemes.
The Corporations Act is the principal legislation regulating companies in Australia. It regulates matters such as the formation and operation of
companies (in conjunction with a constitution that may be adopted by a company), duties of officers, takeovers and fundraising.
The Act is published in five volumes covering a total of ten chapters. The chapters have multiple parts, and within each part there may be multiple
divisions. Each chapter contains a collection of sections.
(d) to establish a Takeovers Panel, a Companies Auditors Disciplinary Board, a Financial Reporting Council, an Australian Accounting
Standards Board, an Auditing and Assurance Standards Board and a Parliamentary Joint Committee on Corporations and Financial Service.
(2) In performing its functions and exercising its powers, ASIC must strive to:
(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial
certainty, reducing business costs, and the efficiency and development of the economy
(b) promote the confident and informed participation of investors and consumers in the financial system.
(d) administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and
(e) receive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it;
and
(f) ensure that information is available as soon as practicable for access by the public; and
(g) take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer
functions and powers on it.
(3) This Act has effect, and is to be interpreted, accordingly.
Australian Securities and Investments Commission(ASIC) is a body corporate
(1) ASIC:
(a) is a body corporate, with perpetual succession; and
(b) has a common seal; and
(c) may, subject to subsection (5), acquire, hold and dispose of real and personal property; and
(ca) may enter into contracts; and
(d) may sue and be sued in its corporate name.
Note:ASIC was established by section 7 of the Australian Securities and Investments Commission Act 1989 and is continued in existence by section 261
of this Act.
BSBFIM501 - DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 1 –Plan Financial Management Approaches
ATO Requirement
Record keeping : Generally, for tax purposes, you must keep your records in an accessible form (either printed or electronic) for five years.
Capital budgeting has five principles that play a crucial role in the allocation of money and the process of capital budgeting.
The five principles are;
(1) decisions are based on cash flows, not accounting income, (2) cash flows are based on opportunity cost, (3) The timing of cash flows are important, (4)
cash flows are analyzed on an after tax basis, (5) financing costs are reflected on project’s required rate of return.
(1) Relevant cash flows are based on incremental cash flows. This represents the changes in cash flow if the project is undertaken. Aspects of cash flow
that affect capital budgeting are sunk costs and externalities. These are both costs that cannot be avoided. Sunk costs are costs that are unavoidable, even if
the project is undertaken. Externalities are side effects of a project that affect other firm cash flows.
(2) Cash flows are based on opportunity cost. In other words, it is the cash flow that will be lost due to the financing of a project. These are cash flows that
are accumulated by assets the firm already owns and would be sunk if the project under consideration is undertaken.
(3) The timing of cash flow is crucial because it is dependent on the time value of money. Cash flow that is received now will be worth more in the future
if it were to be received later.
(4) Cash flows are measured on an after tax basis. It is useless to measure cash flow before taxes because it is not its present value. Firm’s value is based
on cash flow that a firm gets to keep, not the money that is sent to the government.
(5) Financing costs are reflected on project’s required rate of return. Rate of return is an aspect of financing that has potential risks. Project’s that are
expected to have a higher rate of return than their cost of capital will increase the value of the firm.
Budgeting Techniques
A budget is basically a plan of action for the forthcoming business period and budget planning should involve the whole organisation. The ability to
budget effectively is crucial both in terms of performance and profitability as without having an awareness of costs it is all too easy to spiral down
into losses over a period of time.
BSBFIM501 - DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 1 –Plan Financial Management Approaches
Incremental Budgeting
The incremental approach to budgeting combines the costs identified from the previous accounting period with percentage additions. These percentage
additions are utilised to cover two key areas which include cost increases as a result of inflation or higher purchases costs and predictions associated with
increases in costs and income as a result of business volume predictions.
A key limitation of the incremental budgeting system is the manner in which percentages are added in a blanket fashion resulting in the likelihood of
higher overall costs in the long-term. This may then also result in a business having to increase its sale prices to a level that is no longer competitive.
Zero-Based Budgeting
The clue is is in the title here as the zero-based budgeting system requires budgeting to commence with the assumption that every cost has a zero base.
Next, each item relating to expenditure is worked through and decisions are made as to whether the purchase is completely essential. Then different
purchasing options associated with the specific item are explored as a means of ensuring the item is obtained as cost-effectively as possible.
One of the main limitations of the zero-budgeting system is that it can take an awful lot of time to work through each individual cost in this manner.
However, it is fair to add that utilising this approach will then provide an extremely useful database containing valuable, time-saving information for the
years to come.
Flexed Budgeting
As with zero-based budgeting, the flexed budgeting system gives its name away in the title as it involves ‘flexing’ the normal budget. The benefits of
flexed budgeting are that it is likely to be considerably more accurate as the budget is adapted to suit various external changes. Within this approach
managers are able to provide key information resulting in an achievable budget, pessimistic budget and optimistic budget.
Through undertaking the process of flexed budgeting, managers are better able to make important decision relating to risk and expenditure, having gained
a wider perspective on best and worst outcomes.
As highlighted above, there are three main categories associated with budgeting which include incremental, zero-based and flexed budgeting. Each of
these approaches has various strengths and limitations with the latter approach being able to provide more accurate information.
BSBFIM501 - DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 1 –Plan Financial Management Approaches
5. Contingency Plan
CONTINGENCY PLAN
Developer of the
Company name Poonam Position Manager of Sales Centre
plan
Risk
Risk Risk
Likeline Time Line in
Risk identified Impact Score Contingency Responsibility Budget
ss days
Sam Gellar -
Profit for FY more than 5 5 25 Develo strate ies to increase sales and
Sales General 30 days $8,000
10% less than budgeted training of staff m sales techniques
Manager
Currently no enforcement
of credit terms (customers 4 5 20 Creates policies and procedures and John Black - CFO 24 days $1,500
take too long to pay back
impacting on cash flow)
Minimize the rust using sprays anti-
Charles Pierce -
Many bikes need to be 4 5 20 rust,in case of bikes damaged, fix and
Production 20 days $10,000
thrown out in parts rust sell it
Manager
cheaper
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 2- Implement financial management approaches
How do we test
Topic to be taught Training Method Resource Required Outcome/Competency
participants
At the end of the training, participants will
Booklet, online Booklet, documents online,
Internal audition be able to use and apply policies and
Policies and procedures information auditor, computer
procedures
Advanced Excel skills Excel workbook, computer, participants will have advanced excel skills
Course with Online
(formulas and excel, trainer, room, tables, being able to use formulas and
trainer demonstration
functions) chairs, board functions
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 2- Implement financial management approaches
Make the
employee to
At the end of the coaching program work on
Work on a real
Senior staff member, a real participants will have advanced
Coaching case being
Advanced accounting Skllls computer accounting skills, being able to deal with
program monitored by
different problems and prolects, finding
senior staff
solutions
member
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
TOTAL EXPENSES 1,401,500 1,422,500 362,875 362,825 362,875 374,925 337,875 342,375 337,875 342,375
NET PROFIT (BEFORE 1,021,000 825,000 169,625 77,175 462,125 357,575 194,625 297,625 194,625 97,625
INTEREST & TAX)
Income Tax Expense 255,250 206,250 42,406 19,294 115,531 89,394 48,656 74,406 48,656 24,406
(25%Net)
NET PROFIT AFTER 765,750 618,750 127,219 57,881 346,594 268,181 145,969 223,219 145,969 73,219
TAX
1. Graphs for Gross Profit, total Expenses and net profit after Tax for each quater.
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
GROSS PROFIT
Variance Actual Planned
532500
Q4 440000
-92500
532500
Q3 640000
107500
825000
Q2 732500
-92500
532500
Q1 440000
-92500
TOTAL EXPENSES
Variance Actual Planned
337875
Q4 342375
4500
337875
Q3 342375
4500
374925
Q2 362875
12050
362875
Q1 362825
-50
145968.75
Q4
-72750
145968.75
Q3
77250
346593.75
Q2
-78412
127218.75
Q1
-69337.5
-100000 -50000 0 50000 100000 150000 200000 250000 300000 350000 400000
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
REVENUE
Sales 600,00 100,0 1000,0 900,00 100,0 700,00 800,00 100,00 700,00 600,00 100,0
700,000 14% 10% 14% 14%
0 00 00 0 00 0 0 0 0 0 00
Cost of Goods (5,000 (5% 100,00 (5,00 (5% 100,00 100,00 (5,000
Sold 100,000 95,000 95,000 95,000 (5,000) (5%) 95,000 5%
) ) 0 0) ) 0 0 )
Gross Profit 444,00 (92,50 825,00 735,00 (92,5 532,00 640,00 107,50 535,00 444,00 (92,50
535,000 17% 11% 20% 17%
0 0 0 0 00 0 0 0 0 0 0
EXPENSES
General &
Administrative
Expenses
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
Travel 5,000 4,000 1,000 20% 5,000 6,000 1,000 20% 5,000 6,000 1,000 20% 5,000 6,000 1,000 20%
Legal Fees (8%
1,250 1,050 (200) 16% 1,250 1,150 (100) 1,250 1,150 (100) (8%) 1,250 1,150 (100) (8%
)
Bank Charges 150 200 50,00 33% 150 200 50,00 33% 150 150 0.00 0% 150 150 0.00 0%
Office Supplies 1,250 1,000 (250) 20% 1,250 1,000 (250) 20% 1,250 1,000 (250) 20% 1,250 1,000 (250) 20%
Postage &
100 125 25,00 25% 100 125 25,00 25% 100 125 25,00 25% 100 125 25,00 25%
Printing
Dues &
125 125 125 25,00 125
subscriptions 150 25,00 20% 150 25,00 20% 150 20% 150 25,00 20%
0 0 0 0 0 0
Staff amenities 5,000 6,000 1,000 20% 5,000 6,000 0.00 0% 5,000 6,000 1,000 20% 5,000 6,000 1,000 20%
Occupancy
Costs
Electricity 10,000 8,000 2,000 20% 10,000 10,000 0.00 0% 10,000 10,000 0.00 0% 10,000 10,000 0.00 0%
Insurance 25,000 25,000 0.00 0% 25,000 25,000 0.00 0% 25,000 25,000 0.00 0% 25,000 25,000 0.00 0%
Rates
25,000 25,000 0.00 0% 25,000 25,000 0.00 0% 0.00 0% 25,000 0.00 0%
25,000 25,000 25,000
Rent
50,000 50,000 0.00 0% 50,000 50,000 0.00 0% 50,000 50,000 0.00 0% 50,000 50,000 0.00 0%
Water 7,500 10,000 2,500 33% 7,500 10,000 2,500 33% 7,500 7,500 0.00 0% 7,500 7,500 0.00 0%
Waste removal 12,500 15,000 2,500 20% 12,500 15,000 2,500 20% 12,500 15,000 2,500 20% 12,500 15,000 2,500 20%
NET PROFIT
(BEFORE 92,45 462,12 357,57 104,5 194,62 297,62 103,00 194,62 97,00
169,625 77,175 55% 23% 97,625
INTEREST & 0 5 5 50 5 5 0 53% 5 0 50%
TAX)
Income Tax
23,11 115,53 26,13 24,25
Expense 42,406 19,294 55% 89,394 23% 48,656 74,406 25,750 48,656 24,406
3 1 8 53% 0 50%
(25%Net)
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
NET PROFIT 69,33 346,59 268,18 78,41 145,96 223,21 145,96 72,75
127,219 57,881 55% 23% 77,250 73,219
AFTER TAX 8 4 1 3 9 9 53% 9 0 50%
Variance
FY Actual
$ %
REVENUE
Commissions 60,000 52,000 (5,000) (6%)
Sales — 6% less Impact negatively on the Create promotional campaigns, discounts Sam Gellar 3 weeks Monthly
profit for cash payments, training sales team in Sales General Manager
sales techniques
Bank Charges 17% To avoid paying Negotiate with the back better charges, Pat Roberts Senior 1 week FY
unnecessary bank charges if not possible, find a bank with better Accountant
rates
Dues & To reduce the percentage For subscriptions, to find free Stuart LaRoux 1 week Monthly
Subscriptions 20% on dues and subscriptions subscriptions or even cut them off, when Operations General
in 20% to keep within the i is not possible to negotiate a cheaper Manager
budget price
Travel 10% To reduce the percentage Create a policy and procedure to Charles Pierce 2 weeks Monthly
and keep within the budget evaluate when is extremely necessary to Production Manager
travel, otherwise, video chats
Postage & Printing To reduce the percentage, Create a policy and procedure for Charles Pierce 2 weeks Monthly
25% finding out what is waste printing. For postage, to find out the Production Manager
and keep it within the reason and share the expense with the
budget recipient.
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
Telephone 12% To be more objective To create a limit of minutes for calls, Stuart LaRoux 1 week Fortnight
when using telephone when is possible, to use other Operations General
reducing the time spent on communication ways (email, message, Manager
it etc)
Staff Amenities To reduce the money To find out what is necessary for staff Holly Burke HR 2 weeks Monthly
15% spent on staff amenities and reduce what is not so necessary Manager
keeping within the budget
Advertising 4% To keep the budget within To find cheaper alternative Stuart LaRoux 2 weeks Monthly
the proposed and save advertisement (social media, for Operations General
money for other areas example) Manager
Water 17% To use the right amount of Create policies and procedures for water Stuart LaRoux 3 weeks Monthly
water avoiding waste and usage Operations General
to keep it within budgeted Manager
Waste Removal To reduce the cost of To find out the reason of waste, keep Stuart LaRoux 3 weeks Monthly
20% waste removal and keep it track of production process, find better Operations General
within budgeted solutions for it, to create policies and Manager
procedures for wasting
4. Create a 3 step procedure based on 1 Variance identified, to eliminate or reduce the likeliness of a variance occurring in the future.
Purpose : the purpose of this procedure is to reduce or even eliminate the likeliness of variance in budgets of Big Red Bicycle. This is a part of a
continuous improvement on budget and financial plans.
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment Task 3- Monitor and finances
Area: Sales
1. Planning
2. Monitor
As you are aware, one risk to the strategic plans of Big Red Bicycle (BRB) is bad debt and poor
cash flow due to large trade debtor balances. Consider the following:
The following information from the Statement of Financial Position and current ledger accounts in
the electronic accounting system (MYOB AccountRight).
Account $
Purchases 1,000,000
tradedebtors
Average debtor days =
( sales ) x365
362,500
( )
= 2,900,000 x365
= 45.63
trade creditors
Average creditor days = ( ) x365
cost of sales
80,000
= ( ) x365
380,000
= 76,84
openingstock+closingstock
Average stock turnover =
( 2 )
100,000+20,000
=
( 2 )
= 60,000
Firstly, we should improve the average debtor days by trying to collect from our
debtor within 30 days. From our record, it is shown that there is 15% of our
debtors pay their debts later than 60 days.
Secondly, we should try to negotiate with our creditors to let us have 45-60 days
period of credit days. Therefore, we have more time to manage our cash flow.
To improve the existing financial management process in a matter of improving cash flow is
necessary to reduce the payment period and also create a discount for payment in cash. To slow
down payables is another good technique regarding to cash flow.
As was calculated before, the average debtors days is 46 days, which is a higher and critical number
for a company. On basic recommendation would be to make it easy for people to pay, giving them
many systems to pay. It is very important to have a reliable monthly statement of financial
performance, ate least until the percentage of debtors to reduce, and them keep track of it for each
quarter. The statements clarify the operations and the financial position of the company.
As BRB does not currently train sales staff on credit terms, it could be a recommendation to train
staff on this particular case. It is very important not just to sell but to negotiate in good terms for the
company.
1.Financial statements
Financial statements present the results of operations and the financial position of the company.
Financial statements for businesses usually include income statements, balance sheets,
statements of retained earnings and cash flows. It is standard practice for businesses to present
financial statements that adhere to generally accepted accounting principles (GAAP) to maintain
continuity of information and presentation across international borders. Financial statements are
often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax,
financing or investing purposes.In short, it is a view of the company’s financial positions as of the
date it is prepared.
The balance sheet tells you whether the company can pay its bills on time, its financial flexibility to
acquire capital and its ability to distribute cash in the form of dividends to the company's owners. In
short, it is a view of the company’s financial positions as of the date it is prepared.
The balance sheet shows the company's assets, liabilities and shareholders' equity. Each is defined
in Statement of Financial Accounting Concepts No. 6, but to summarize:
realized in full within one year. They typically include long-term investments: property, plant and
equipment; intangible assets and other assets.
Liabilities are listed in order of expected payment. Obligations expected to be satisfied within one
year are current liabilities. They include accounts payable, trade notes payable, advances and
deposits, current portion of long-term debt and accrued expenses. Noncurrent liabilities include
bonds payable and the portion of long-term debt such as loans maturing in period longer than a year.
The structure of the owners' equity section depends on whether the entity is an individual, a
partnership or a corporation. Assuming it's a corporation, the section will include capital stock,
additional paid-in capital, retained earnings, accumulated other comprehensive income and treasury
stock.
Balance sheet data can be used to compute key indicators that reveal the company's financial
structure and its ability to meet its obligations. These include working capital, current ratio, quick
ratio, debt-equity ratio and debt-to-capital ratio. (To learn more read, Testing Balance Sheet
Strength.)
Analysts, potential creditors and investors can learn a lot from reviewing a company’s balance
sheet. For example:
How risky is the firm’s capital structure? How does it compare to other companies in the
same industry? Too much debt in the capital structure can pose a risk during rough periods
in the economy, too little debt might be a sign that too little leverage is being used possibly
limiting the company’s ability to grow as quickly as their competitors.
How liquid is the company? This can be assessed by looking at the firm’s current assets
relative to their current liabilities.
The balance sheet in combination with other financial statements is a key tool in reviewing
a company’s financial picture and its financial viability.
Income Statement
The income statement (also known as the profit and loss statement or P&L) tells you both the
earnings and profitability of a business. The P&L is always for a specific period of time, such as a
month, a quarter or a year. The periodic nature of the income statement is essential as this allows
users to compare results for the company over similar periods of time, and to the results of other
firms for the same period. Depending on the industry, year over year comparisons that eliminate
seasonal variables can be especially useful.
The format of the income statement has been determined by a series of accounting pronouncements;
some of these are decades old, others released in the past few years. Like the balance sheet, the
income statement is broken into several parts:
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
2. Cash flow
Cash flow is the life blood of all businesses and is the primary indicator of business health. It is
generally acknowledged as the single most pressing concern of most small and medium-sized
enterprises (SMEs), although even finance directors of the largest organisations emphasise the
importance of cash, and cash flow modelling is a fundamental part of any private equity buy-out. In
a credit crunch environment, where access to liquidity is restricted, cash management becomes
critical to survival.Cash flow can also be described as a cycle. Your business uses cash to acquire
resources. The resources are put to work and goods and services produced. These are then sold to
customers. You collect their payments and make those funds available for investment in new
resources, and so the cycle repeats.
It is crucially important that you actively manage and control these cash inflows and outflows. So
what do these look like?
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
Inflows Cash
inflow is money coming into your business:
• money from the sale of your goods or services to customers
• money on customer accounts outstanding
• bank loans
• interest received on investments
• investment by shareholders in the company.
Outflows Cash
outflow is, naturally, what you pay out:
• purchasing finished goods for re-sale
• purchasing raw materials to manufacture a final product
• paying wages
• paying operating expenses (such as rent, advertising and R&D)
• purchasing fixed assets
• paying the interest and principal on loans
• taxes.
Cash flow management
Cash flow management is all about balancing the cash coming into the business with the cash going
out. The danger is that demands for cash, from the landlord, employees or the tax man, arrive before
cash you’re owed is collected. More often than not, cash inflows seem to lag behind your cash
outflows, leaving your business short. This money shortage is your cash flow gap. If a company is
trading profitably, each time the cycle turns, a little more money is put back into the business than
flows out. But not necessarily. If you don’t carefully monitor your cash flow and take corrective
action when necessary, your business may find itself in trouble. If cash flow is carefully monitored,
you should be able to forecast how much cash will be available on hand at any given time, and plan
your business activities to ensure there is always cash to meet upcoming payments
3. Chart of accounts
Chart of accounts is constructed with its digitization numbering system. It is not necessary to
include an entire dictionary of accounting terms in any general accounting manual, but it is useful to
include those that are commonly used within the company’s transactions, as well as those that
appear in its accounting software. Of particular importance are those terms that are unique to the
industry within which the company operates. For example, the oil and gas, software, and movie
industries have special terminology that cannot be learned through regular accounting classes.
Developing chart of accounts and its procedure for the first time, the definitions provided, on the
manual book, should be concise and meaningful. One or two sentences of definition are usually
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
sufficient. Because the definitions are references sources, they should be developed for quick and
easy look-up. For example, the definition for “fixed asset” may be listed under “A,” using the
header “Asset, fixed.” If a user goes to the “F” section of the definitions, there should be a referral
statement, such as “Fixed asset, see Asset, fixed. This standard indexing method should make it as
easy as possible to find a specific definition.
A different approach to the inclusion of accounting term definitions in the manual is to define every
account listed in the chart of accounts. By doing so, any accounting personnel who are responsible
for entering transactions into either the general ledger or its supporting journals will have a better
idea of which accounts should be used. This can save a great deal of time later on, when incorrectly
applied transactions must be researched and corrected.
The following sample definitions are used for the three-digit sample chart of accounts that was
described in my previous post (Chart Of Accounts):
010 – Cash – Money deposited at the bank. If there are restrictions on deposited cash, then it is
accounted for as a long-term asset.
020 – Petty cash – Money retained in the petty cash box.
030 – Accounts receivable – Money due from customers for services received or products shipped,
but not yet received. If there are amounts due from officers or employees, these moneys are listed
under “other accounts receivable.”
040 – Reserve for bad debts – A reserve fund that is held as a contingency against the Non-
payment of outstanding accounts receivable. This account should always have a credit balance.
050 – Marketable securities – Cash that is invested in easily traded equity or debt securities. The
cost of acquiring these securities is included in the account.
060 – Raw materials inventory – The amount of materials kept on hand for eventual inclusion in
finished goods. All freight costs associated with the acquisition of raw materials are included in this
account.
070 – Work-in-process inventory – The cost of partially completed units of production. Costs
stored in this account include raw materials, and any raw materials or overhead used to date.
080 – Finished goods inventory – The cost of completed products that have not yet been shipped
to customers. Costs stored in this account include all raw materials, direct labor, and overhead used
during the production process.
090 – Reserve for obsolete inventory – A reserve fund that is held as a contingency against the
eventual write-off of any types of inventory that no longer have a resale value.
100 – Fixed assets—Computer equipment – Purchased computer equipment exceeding the
corporate capitalization limit that has an expected life of greater than one year.
110 – Fixed assets—Computer software – Purchased computer software exceeding the corporate
capitalization limit that has an expected life of greater than one year.
120 – Fixed assets—Furniture and fixtures – Purchased furniture exceeding the corporate
capitalization limit that has an expected life of greater than one year.
130 – Fixed assets—Leasehold improvements – Improvements made by the company to its leased
properties, exceeding the corporate capitalization limit, that has an expected life of greater than one
year.
140 – Fixed assets—Machinery – Purchased production equipment exceeding the corporate
capitalization limit that has an expected life of greater than one year.
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
730 – Cost of goods sold—Applied overhead – The cost of manufacturing, excluding materials,
direct labor, and supplies. Includes depreciation on manufacturing equipment and facilities, as well
as factory administration, indirect labor, maintenance, production
Employee’s benefits, quality control and inspection, production facility rent, repair expenses,
rework labor, and spoilage.
800 – Bank charges – The expense associated with credit card fees, bank service charges, and the
cost of printing checks.
805 – Benefits – The expense associated with medical insurance, dental insurance, long-term and
short-term disability insurance, and health club reimbursement fees. All employee payroll
deductions to co-pay benefits should be credited against this account.
810 – Depreciation – The expense associated with the periodic reduction of the value of fixed
assets, in accordance with a standard value-reduction methodology.
815 – Insurance – The expense associated with key-man life insurance, business insurance, and
workers’ compensation insurance.
825 – Office supplies – The expense associated with miscellaneous tangible office purchases, such
as paper products, printer cartridges, and diskettes.
830 – Salaries and wages – The expense associated with employee pay, which includes salaries,
wages, severance payments, signing bonuses, and accrued wages.
835 – Telephones – The expense associated with “800” phone service, incoming phone lines, and
cell phones. The cost of phone equipment is charged either to office supplies or to fixed assets,
depending upon the dollar-value purchased.
840 – Training – The expense associated with outsourced training suppliers, tests, and purchased
training materials. It does not include travel costs associated with employee travel to training
classes, nor the salary cost of in-house training personnel.
845 – Travel and entertainment – The expense associated with the travel of either employees or
reimbursed contractors. Includes air fare, lodging, parking, and meals.
850 – Utilities – The expense associated with water, heat, waste removal, and electricity fees
charged by utilities.
855 – Other expenses – Includes all incidental expenses under $500 that do not readily fall into any
other category. Consult with the assistant controller before making entries into this account.
860 – Interest expense – The expense associated with the interest cost of revolving debt, interest on
late payments to suppliers, and outstanding company bonds. Also includes accrued interest on
unpaid interest expenses.
900 – Extraordinary items – Any expense that is both unusual and infrequent, such as a gain on a
troubled debt restructuring or the loss of foreign assets due to governmental expropriation. No
entries to this account are allowed without the controller’s approval.
Travel in motor pool vehicles: Includes charges for the use of company-owned vehicles at the
approved rates. Costs of air travel for the company-owned air plane are included here.
Other travel costs: Includes such incidental expenses as tips, telephone calls, taxis, tolls, and
parking while on a company-authorized trip. Tips on meals are included in meal costs.
Conference and registration fees: Includes registration fees for seminars, work shops, conferences,
and similar meetings. Tuition for schools and workshops is included here. If meals and lodging fees
included in registration fees cannot be separated, then they are included here.
2. Communications
Postage: Includes postage charges for mailing, as well as service and rental fees for postage
machines, and periodic service fees charged by online postage providers.
Express postage: Includes all freight costs for express delivery services, including
pickup fees.
Cell phones: Includes the basic monthly fees, as well as roaming charges, for all issued cell phones.
Telephone local service: Includes the basic monthly charges for all phones.
Telephone long distance: Includes the charges for all long distance services, including the WATS
line, line rentals, and telegraph charges.
Telephone installation and maintenance: Includes all charges for the installation of phones and
subsequent maintenance of the phone system.
3. Marketing
Advertising: Includes the cost of classified advertising for employee hiring, as well as required
advertising for published purchasing bids.
Publicity and public information: Includes the cost of radio, television, and live shows promoting
the company, as well as related layout and copy costs.
4. Rents
Rental of buildings and floor space: Includes payments to others for buildings, rooms for events,
and floor space in buildings for special events. Rental of housing facilities and meeting rooms is
included here.
Rental of computer equipment: Includes the rental or lease cost of computer software and
equipment, such as payments on operating leases.
Other rentals: Includes any rental that cannot be recorded in other rental accounts.
6. Fees, Professional
Engineering fees: Includes out-of-pocket fees for professional engineering services.
Auditing fees: Includes the costs of auditing fees to outside independent auditors. Other incidental
costs of the audit, such as supplies, telephone, postage and printing charges related to the audit, are
included here.
Medical fees: Includes direct payments to others for medical services, including pre-employment
physicals and lab tests.
Legal fees: Includes all fees paid to attorneys, appraisers, notaries, and witnesses, in addition to
court costs and legal document recording fees.
Laboratory and testing fees: Includes outside laboratory fees and fees paid to outside agencies for
testing services other than medical services.
Consultant expense reimbursements: Includes travel costs paid to consultants and other non-
employees.
8. Maintenance Supplies
Land improvement supplies: Includes asphalt, cement, joint fillers, curbing, and so forth used in
repairing or replacing roads, sidewalks, and parking lots on company property.
Building construction supplies: Includes lumber, caulking, steel, fabricated metal parts, flooring,
ceiling tiles, plaster, lime, and other materials used in repairing or renovating buildings.
Paints and preservatives: Includes interior and exterior paints, wood preservatives, and road striping
materials used for remodeling or maintenance.
Hardware, plumbing, and electrical supplies: Includes all hardware, plumbing parts and accessories,
and electrical wire or parts, including lights used in maintaining or renovating buildings.
Custodial supplies and cleaning agents: Includes all custodial supplies of an expendable nature,
such as cloths, brooms, cleaning compounds, mops, or pails.
9. Office Supplies
Printing, binding, and padding: Includes the cost of printing, binding, and padding paid to outside
contractors.
Duplication and reproduction: Includes the paper, toner, and other supplies used in the company
copy machines.
Office supplies: Includes all office supplies and materials, such as pens, paper, pencils, staples,
paper clips, and so forth.
Lubricating oils and greases: Includes lubricating oils and greases used for all vehicles and
machinery.
Tires and tubes: Includes the purchase of tires and tubes for all vehicles in the company motor pool.
Repair and replacement parts: Includes the purchase of vehicle and machinery repair and
replacement parts and supplies.
Shop supplies: Includes the cost of shop supplies, such as shop rags, windshield cleaner, glues and
cements, brushes, degreasers, solvents, and so forth, used in equipment repair and maintenance
operations.
Small tools: Includes small tools used in manufacturing operations that are below the corporate
capitalization limit.
TASK B
In addition to its Australian business, Big Red Bicycle is considering manufacturing a new
range of cheaper bicycles in Indonesia. The following information is available:
• Big Red Bicycle's strategic goal is to generate a pre-tax profit of $1,000,000 for the next financial
year for Indonesian operations.
• Clients will pay a maximum of $500 per bicycle
• Possibility exists for move to Indian plant with capacity for 10,000 units.
• Market for bicycles is growing rapidly and BRB will be able to sell all units produced.
• Limited ability to renegotiate costs with suppliers.
• Pricing and cost information is as follows.
a. How many units at current variable cost would need to be produced to achieve profit target (show
calculations).
1,280,000+1,000,000
( )
500 — 250
= 9,120 units
b. What the variable costs per unit would need to be to achieve profit target at current
manufacturing capacity (show calculations).
= 500 — 250
= 250 dollars
1,280,000+1,000,000
= ( )
8,000
= 285 dollars
Based on calculations above and on the Indonesian scenario, BRB should produce 9,120 bicycles to
achieve the profit target. As the Indonesian plant has the capacity of producing 8,000 bicycles, the
profit will not be achieved. Then, the variable cost of should decrease in 14%. To decrease the
variable cost we could look at fixed costs: suppliers. Even though it has a limited ability to negotiate
with suppliers, it should be reviewed: material, cost of manufacturing, and also offering an extended
contract with suppliers if they reduce their costs.
TASK C
Soon you will need to prepare a Business Activity Statement (BAS) for the first quarter on
2012/13.
1. State how many years you will need to keep GST records in order to satisfy ATO
requirements.
It is necessary to keep GST records to accomplish ATO requirements for five years.
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
2. Complete the GST budget on the following page to anticipate GST liability.
Task D:
An action plan to implement and monitor the recommendation. Ensure you include appropriate activities, monitoring, timelines and
accountabilities.
To reduce the % of debtors for longer than 30
Recommendation Training of staff in credit terms Rational Rational days and ensure that company's
policies are followed
Person
Action Budget Time Monitor
responsible
To find out reason why debtors are going longer $800 Stuart LaRoux 1 weeks Analyse report and create a spreadsheet with
than 30 days Op. Gn. Manager the common reasons
To train staff in credits policies and procedures $2,000 Holly Burke 1 weeks Evaluate them with an internal audition
HR manager
To track that staff members who struggle with $1,000 Holly Burke 2 weeks To audit staff members on credit information
credit terms information and the topics HR manager
To create a training based on team needs and to $4,500 Sam Gellar 4 weeks: Control their performance and create a
train the team Sales G. Manager 2 to create + fortnight report with their sales and payments
2 training conditions
To evaluate team member after training $2000 Sam Gellar 2 weeks Monthly evaluation to keep track of those who
Sales G. Manager still struggle
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
Task E
Reflecting on the tasks you have undertaken and on your knowledge of financial management
and planning principles:
Capital budgeting has five principles that play a crucial role in the allocation of money and the
process of capital budgeting. The five principles are; (1) decisions are based on cash flows, not
accounting income, (2) cash flows are based on opportunity cost, (3) The timing of cash flows are
important, (4) cash flows are analyzed on an after tax basis, (5) financing costs are reflected on
project’s required rate of return.
(1) Relevant cash flows are based on incremental cash flows. This represents the changes in
cash flow if the project is undertaken. Aspects of cash flow that affect capital budgeting are
sunk costs and externalities. These are both costs that cannot be avoided. Sunk costs are
costs that are unavoidable, even if the project is undertaken. Externalities are side effects of
a project that affect other firm cash flows.
(2) Cash flows are based on opportunity cost. In other words, it is the cash flow that will be lost
due to the financing of a project. These are cash flows that are accumulated by assets the
firm already owns and would be sunk if the project under consideration is undertaken.
(3) The timing of cash flow is crucial because it is dependent on the time value of money. Cash
flow that is received now will be worth more in the future if it were to be received later.
(4) Cash flows are measured on an after tax basis. It is useless to measure cash flow before
taxes because it is not its present value. Firm's value is based on cash flow that a firm gets to
keep, not the money that is sent to the government.
(5) Financing costs are reflected on project's required rate of return. Rate of return is an aspect
of financing that has potential risks. Project's that are expected to have a higher rate of return
than their cost of capital will increase the value of the firm.
Cash flow is the net amount of cash and cash-equivalents moving into and out of a business.
Positive cash flow indicates that a company's liquid assets are increasing, enabling it to settle debts,
reinvest in its business, return money to shareholders, pay expenses and provide a buffer against
future financial challenges. Negative cash flow indicates that a company's liquid assets are
decreasing. Net cash flow is distinguished from net income, which includes accounts receivable and
other items for which payment has not actually been received. Cash flow is used to assess the
quality of a company's income, that is, how liquid it is, which can indicate whether the company is
positioned to remain solvent.
Ledger is a book (or record) for collecting chronological transaction data from a journal, and
organizing entries by account. The ledger provides information on the transaction history and
current balance in each account, throughout the accounting period. At the end of the period, ledgers
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
become the authoritative source of data for building a firm's financial accounting reports, including
the income statement and balance sheet.
Financial statements for businesses usually include income statements, balance sheets, statements of
retained earnings and cash flows. It is standard practice for businesses to present financial
statements that adhere to generally accepted accounting principles (GAAP) to maintain continuity
of information and presentation across international borders. Financial statements are often audited
by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing or
investing purposes.
A profit and loss statement (P&L) is a financial statement that summarizes the revenues, costs and
expenses incurred during a specific period of time, usually a fiscal quarter or year. These records
provide information about a company's ability—or lack thereof—to generate profit by increasing
revenue, reducing costs, or both. The P&L statement is also referred to as "statement of profit and
loss", "income statement," "statement of operations," "statement of financial results," and "income
and expense statement."
Summarise your reflections in a short, written statement and submit this to your assessor.
You may revisit the five fundamental principles of accounting. For example, the list is said to be
crucial to effective management decision-making:
For an effective management of budget and financial plans it is very important to look at the many
principles, techniques and information of accounting. A good management that sets plans and
policies which are, formally established and expressed in financial results, allows the managers
know the operating results of the company, and then perform the necessary controls to ensure that
these results are achieved and the possible variations are analyzed, evaluated and corrected.
BSBFIM501- DIPLOMA OF LEADERSHIP AND MANAGEMENT
ASSESSMENT BSBFIM501 — MANAGE BUDGETS AND FINANCIAL PLANS
Assessment task 4 - review and evaluate financial management processes
Reference List
Australian Securities and Investments Commission Act 2001— Federal Register of Legislation —
Viewed on 10/1/2018 (https://www.legislation.gov.au/Details/C2011C00004)
Budgeting Techniques— Fleming & Co. Certified Public Accountants— Viewed on 10/1/2018
(http://cparus.com/tax-information/business/budgeting-techniques/)
Improving cash flow using credit management —Chartered Institute of Management Accountants
—Viewed on 11/1/2018
(http://esyne.gr/wp-content/uploads/2016/01/CIMA_improving_cashflow_using_credit_mgm.pdf)
Accounting term and definitions for chart of accounts — Accounting Financial and Tax— Viewed
on 11/1/2018
(http://accounting-financial-tax.com/2008/08/accounting-term-and-definitions-for-chart-of-
accounts/)