ACCOUNTING AND FINANCIAL MANAGEMENT

PRESENTED BY WILFRED OWALLA

OVERALL OBJECTIVE

TO UPSCALE CAPACITY TO EFFECTIVELY AND EFFICIENTLY MANAGE BUSINESS INFORMATION CENTRES AND OFFER BUSINESS DEVELOPMENT SERVICES

MODULE OBJECTIVES
UPON SUCCESSFUL COMPLETION PARTICIPANTS SHOULD BE ABLE TO: TO: THE
IDENTIFY AND UNDERSTAND APPROPRIATE ACCOUNTING AND FINANCE INFORMATION NECESSARY FOR EFFECTIVE BUSINESS INFORMATION CENTRE OPERATIONS ENSURE THAT THE APPROPRIATE ACCOUNTING AND FINANCE INFORMATION IS AVAILABLE IN THE BUSINESS INFORMATION CENTRES COMMUNICATE MEANINGFULLY WITH MICRO AND SMALL ENTERPRISES IN THE LANGUAGE OF ACCOUNTING AND FINANCE

BUSINESS INFORMATION CENTRES

Access to accurate and up to date data and relevant financial information and commercial intelligence. intelligence.

Right financial information and intelligence at the right time. time.

Basing business decisions on sound financial commercial intelligence. intelligence.

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Possible objectives of Information Centers include: include:

Business

Research on key markets including worldwide market places Access company profiles worldwide Get basic guidance on setting up licensing, agencies, distributorship, and other agreements Resolve many other business problems and issues
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Role of Accounting and Finance in BIC s

BIC s are where small business owners can receive assistance and advice. advice. Those thinking of starting a business should find BIC s an excellent place to do research. If research. you have an existing business, BIC s have many resources to assist in that business to grow. grow. BIC s should then be constantly adding new resources to serve the needs of their local business community. community. The staff in the BIC should be trained staff who can suggest best resources and demonstrate how to use the relevant data bases and offer useful services. services.
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Division of BIC
Center for Business
All sorts of financial and business information, statistics, guides and tools

Center for Individuals

Information for decision making and advisory services
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CENTER FOR BUSINESS

Acts of Parliament
Bankruptcy Act Anti Corruption and Economic Crimes Act Companies Act Public Procurement and Disposal Act

Market Information and Statistics Legal Notices Taxes

Income Tax Act, VAT Act, Customs and Excise Act Tax Returns Tax Documentation and Forms Taxpayers Charter

Any other information relevant to business units

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CENTER FOR INDIVIDUALS

Financial Templates E-Commerce Business Skills Financial Advisory Services
Operating Activities Financial Planning and Forecasting Cost Cutting and Reorganizations Licensing and Business Agreements Risk Management

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NATURE AND ENVIRONMENT OF FINANCIAL ACCOUNTING

What is Accounting?

Accounting is a service activity, activity, descriptive/analytical discipline and an information system. system.

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As a service activity, accounting activity, provides interested parties with quantitative financial information that helps them make decisions about the deployment and use of resources in business and the economy. economy.

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As a descriptive/analytical discipline, it identifies the great mass of events and transactions that characterize the economic activity of an entity and, through measurement, classification, and measurement, classification, summarization, summarization, reduces those data to relatively small highly significant, and interrelated items that when appropriately assembled and reported, describe an reported, entity s financial condition and the results of operations. operations.
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As an information system, it collects economic information about an entity and communicates this information to a wide variety of persons whose decisions and actions are related to the entity. entity.

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Environmental Factors that influence Accounting

Accounting recognizes that people live in a world of scarce resources. Because resources. resources exist in limited supply, people try to conserve them, to use them effectively and efficiently. For example, by measuring efficiently. and communicating the net income of and assets employed by a company, information that is helpful in determining the company s efficiency becomes available. available.
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Nature Of Financial Accounting

The discipline of accounting is commonly divided into financial accounting, managerial (cost) accounting, tax accounting, and public sector accounting. accounting.

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Financial accounting has been characterized as that branch of accounting concerned with the recording, classification, analysis, and interpretation of the overall financial position and operating results of an organization. It organization. encompasses the process and the decisions that culminate in the preparation of financial statements relative to the business as a whole for the use by parties internal and external to the business. business.
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Financial statements are a principal means through which financial information is communicated to those outside the entity. entity. The financial statements normally include: include:

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Statement of Financial Position Statement of Comprehensive Income Statement of Cash Flows Statement of Changes in Equity

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FINANCIAL STATEMENTS

Qualitative Characteristics of Financial Statements

Qualitative characteristics are attributes that make the information provided in the financial statements useful to users. users.

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Four principal qualitative characteristics are Understandability Relevance Reliability Comparability

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User Needs
Assessment of overall performance -In absolute terms -Compared to goals -Compared to other entities Assessment of Management Quality -Profits, overall performance, efficiency -Stewardship -Estimating future prospects for profits, investment and capital needs, etc
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Assessing financial strength and stability, Assessing solvency Assessing liquidity Assessing risk and uncertainty As an aid to resource allocation by -Owners -Creditors -Governments

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In making comparisons -With past performance -With other entities -With industry and economy as a whole Determining compliance with laws or regulations

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Statement of Financial Position

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Importance of Statement of Financial Position

Provides information about the nature and amounts of investments in enterprise resources Evaluating the capital structure of the enterprise Assessing the liquidity and financial flexibility of the entity
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Format For Statement of Financial Position

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FORMAT FOR PREPARATION OF STATEMENT OF FINANCIAL POSITION XYZ GROUP STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010 2010 Kes'000 ASSETS NonNon-current assets Property, plant and equipment Goodwill Other intangible assets Investments in associates Current assets Inventories Trade receivables Other current assets Cash and cash equivalents TOTAL ASSETS 2009 Kes'000

XXX XXX XXX XXX XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX XXX XXX XXX XXX

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Equity and Liabilities Equity attributable to owners of the parent Share capital Retained earnings Other components of equity Non controlling interest Total equity NonNon-current liabilities LongLong-term borrowings Deferred tax LongLong-term provisions Total non-current liabilities nonCurrent liabilities Trade and other payables ShortShort-term borrowings Current tax payable ShortShort-term provisions Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES

XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX

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Statement of Comprehensive Income

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Importance of Statement of Income

Helps to evaluate past performance Helps to determine the risk associated with the enterprise Calculating tax due Obtaining loans from banks or other sources
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Format for Statement of Comprehensive Income

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FORMAT FOR PREPARATION OF STATEMENT OF COMPREHENSIVEINCOME XYZ GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2010 2010 2009 Kes 000 Kes 000 Revenue XXX XXX XXX Cost of sales XXX Gross profit XXX XXX Other incomes XXX XXX Distribution costs XXX XXX Administrative expenses XXX XXX Other expenses XXX XXX Finance costs XXX XXX Profit before tax XXX XXX Tax XXX XXX XXX XXX Profit for the year XXX XXX
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Other Comprehensive Income: Exchange differences on translating foreign operations XXX Cash flow hedges XXX Gains on property revaluation XXX Share of other comprehensive income from associate XXX Actuarial gains/ (losses) on defined benefit fund XXX Available for sale financial assets XXX Other comprehensive income for the year XXX TOTAL COMPREHENSIVE INCOME FOR THE YEAR XXX Attributable to: Owners of the parent XXX Non controlling interest XXX XXX Earnings per share XXX

XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
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Statement of Cash Flows

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Purpose of the Statement of Cash Flows

The primary purpose of the statement of cash flows is to provide information about cash receipts and cash payments of an entity during a period. period. The secondary objective is to provide information about operating, investing and financing activities of the entity during the period. period.
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These statements should enable users to: Evaluate the liquidity and solvency of an enterprise Assess the enterprise s ability to generate cash from internal sources, to repay debt, to make investments, and to make distributions to owners. owners.

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AUDIT
Internal Audit External Audit Final Audit Performance Audit [Value for Money Audit] Management Audit Fraud Investigations Audit Forensic audit
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GROUP WORK
Kimani Yego, a rural farmer, has Yego, come to you that he invested Kes 1m last year in fish farming and does not seem to be doing well. well. He desperately needs financial advice. advice. Required: Required: Advise Kimani Yego
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BOOKKEEPING
Good record keeping Keeping track of all expenses and revenues Keep proof of all expenses Information about assets Keep all bank statements Records of all purchase and sales information
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REASONS FOR BOOKKEEPING

Monitoring the success or failure of a business Providing information needed to make decisions Obtaining bank finance Obtaining other sources of capital Budgeting Preparing tax returns Distributing profits
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CONTROLS
General Controls
Internal Check Segregation of Duties Documentation Physical Controls Authorization

Financial Controls
Budgeting Reconciliations Cash Management
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IMPROVEMENT OF BOOKKEEPING PROCESS

Hire Part-Time Accountant PartInvest in Accounting Software Accounting Classes for Employee Employ an Accountant
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FINANCIAL MANAGEMENT

SCOPE OF FINANCIAL MANAGEMENT

Financial Management involves the application of general management principles to particular financial operation

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OBJECTIVES OF FINANCIAL MANAGEMENT

Accountability to stakeholders Proper resource management Internal decision making

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RELATIONSHIP OF FINANCE TO ACCOUNTING

The primary objective of accounting is to measure the performance of the enterprise, assess its financial condition, and determine the base of tax payments. payments. The principal goal of financial management is to create owner value by investing in positive present value projects and minimizing the cost of financing
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The accounting role is to provide consistently developed and easily interpreted data about an enterprise s past, present, and future operations The finance role is to use these data as an important input to the decision making process

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FINANCIAL PLANNING

Financial planning works from the strategic and business plans to identify what financial resources are needed to obtain and develop the resources to achieve the goals in the two types of plans. plans. Typically, financial planning results in very relevant and realistic budgets

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BUDGET MANAGEMENT
Depicts what you spend and what you earn Useful for Planning Finances Tracking Finances Budgetary Control
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TYPES OF CONTROL SYSTEMS

FEEDBACK CONTROL SYSTEM
Negative Feedback Positive Feedback

FEEDFOWARD CONTROL SYSTEM

Cash Budget

VARIANCE ANALYSIS
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BUDGETING TECHNIQUES
Incremental Budgeting Zero Based Budgeting Activity Based Budgeting

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Cash Budgeting
Advantages Estimating Cash Requirements Planning Short Term Financing Scheduling Payments in connection with Capital Expenditure Projects Checking The Accuracy of Long Term Forecasts
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CASH MANAGEMENT
Cash flow statement is the most important statement Poor cash management is the cause of most business failures Helps plan against unforeseen business eventualities Positive Cash Flow and Negative Cash Flow Components: Components:
Operating Cash Flows Investing Cash Flows Financing Cash Flows

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GOOD CASH FLOW MANAGEMENT

Knowing when, where, and how your cash needs will occur Knowing the best sources for meeting additional cash needs Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors Develop cash flow projections
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IMPROVING CASH FLOWS

Manage Payables Control Costs Organize Billing Schedule Collect Debts Promptly Take Advantage of Early Payment Incentives Don t Buy all in one Place Tighten your Inventory Form buying cooperatives Check your pricing Consider leasing

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FINANCIAL STATEMENT ANALYSIS

Importance of Financial Statement Analysis

The figures in the financial statements are rarely significant or important in themselves. themselves. It is their relationships to other quantities, amounts and direction of change from one point in time to another that is important. Financial statement important. analysis thus involves significant relationships. relationships.
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BIC s can create relationships to help businesses run smoothly, making sure they do what is necessary to increase profits. profits. This can be done by helping them record and interpret financial data to make better decisions

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COMMON ANALYTICAL TECHNIQUES

    Financial Ratio Analysis Trend Analysis Key Performance Indicators Comparable Benchmarking  Industry  Lifecycle stage  Peer firms

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WORKING CAPITAL MANAGEMENT

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IMPORTANCE
Investment in current assets represents a substantial portion of total assets Investments in current assets and the level of current liabilities have to be geared quickly to changes in sales

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FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTS

Nature of business Seasonality of operations Market conditions Production policy Conditions of supply

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INVENTORY MANAGEMENT
As with other investments, the costs of holding stock must be related to the benefits to be gained. Stock costs are inclusive of: Costs of Holding Stock
Interest on capital invested in stock Storage charges Handling costs Insurance and security Pilferage, vermin damage, etc
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Costs of Obtaining Stock Clerical and administrative costs associated with purchasing Transport costs Stock Out Costs Loss of customer goodwill Loss of future sales because customers go elsewhere
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Inventory Management Techniques

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REORDER LEVEL SYSTEM

Also known as the two bin system. system. A predetermined reorder level is set for each item When stock level falls to the reorder level, a replenishment order is issued. issued.
The replenishment order is the EOQ. EOQ.

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PERIODIC REVIEW SYSTEM

Stock levels are reviewed at fixed intervals, e.g. every fortnight. fortnight. The quantity of the replenishment order is not a previously calculated EOQ but is based on the likely demand until the next review. review.

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