An Introduction to Financial Management and Reporting

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Here you can learn all about Financial Statements, Audit Reports, Cash vs. Accrual and Budgets.

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An Introduction to Financial Management and Reporting

  1. 1. An Introduction to Financial Management and Reporting DC Department of Small & Local Business Development John Pace, CPA, CVA Senior Manager, Client Services Steven Lyons, CPA Supervisor, Client Services December 12, 2013
  2. 2. Financial Management and Reporting John Pace, CPA, CVA Senior Manager, Gelman, Rosenberg & Freedman CPAs  15 years of accounting and finance experience  Provides assistance to GRF clients in the capacity of temporary controller/chief financial officer, with duties such as cash flow planning and analysis, financial statement preparation, financial performance analysis, budgeting and bookkeeping. 2
  3. 3. Financial Management and Reporting Steven Lyons, CPA Supervisor, Gelman, Rosenberg & Freedman CPAs  12 years of accounting and finance experience  Provides assistance to GRF clients in the capacity of temporary controller/chief financial officer, with duties such as cash financial statement preparation, budgeting, bookkeeping, financial performance analysis . 3
  4. 4. Financial Management and Reporting Firm Bio  Gelman, Rosenberg & Freedman CPAs, located in the Washington, DC metropolitan region since 1981, is a professional services firm that provides clients with financial, tax and consulting solutions. For more than 30 years, our business has supported the financial and operational success of nonprofits locally, nationally and around the world. Our professionals also offer accounting and consulting services to government contractors, businesses, individuals and attorneys in need of advisory support.  Our mission, vision, values and philosophy provide a foundation upon which we strive to succeed. We want our clients to perceive Gelman, Rosenberg & Freedman as more than just accountants who deliver a once-a-year engagement. We seek to become trusted financial advisors who work throughout the year to provide clients with insights and expert advice. 4
  5. 5. Financial Management and Reporting Agenda  Questions  Types of Financial Statements  Overview of Financial Statements  Common Reports  Cash vs. Accrual  Budgets 5
  6. 6. Financial Management and Reporting Types of Financial Statements  Audit  Review  Compilation 6
  7. 7. Financial Management and Sample Audit Report Reporting 7
  8. 8. Financial Management and Report Sample Reviewed Reporting 8
  9. 9. Financial Management and Sample Compiled Report Reporting 9
  10. 10. Financial Management and Reporting Overview of Financial Statements  Financial statements offer a insight into the company’s financial health.  User of Financial Statements are potential investors, bankers, insurance agents, bond companies etc. 10
  11. 11. Financial Management and Reporting December 31st Snapshot January 1st Take a photo and capture the image (Balance Sheet or Statement of Financial Position) Measure the activity showing how we got from one image to another (Income Statement or Statement of Activities) Take a photo and capture the image (Balance Sheet or Statement of Financial Position) 11
  12. 12. Financial Management and Reporting Balance Sheet - Basic Smith Consulting, Inc.  Nothing here about salary or living expenses  Moment in time  Assets are what you have 8,250  Liabilities are what you owe 6,000  Equity is the difference. It’s also the sum result of your whole history Balance Sheet September 30, 2013 Assets Checking account $ 1,000 Savings account 250 Total cash 1,250 Auto Total Assets 7,000 $ Liabilities Car Loan Equity Total Liabilities and Equity 2,250 $ 8,250 12
  13. 13. Financial Management and Reporting Balance Sheet - Advanced 13
  14. 14. Financial Management and Reporting Balance Sheet - Advanced 14
  15. 15. Financial Management and Reporting Smith Consulting, Inc. Income Statement For the Year Ended December 31, 2013 Revenue Fees Interest income Total Revenue Expenses Salary Travel Supplies Rent Total Expenses Net Income $ 10,000 100 10,100 7,000 1,000 300 200 8,500 Income Statement-Basic  Measures activity over time  How much cash do you have?  Who are the users of this report? Maybe bankers, owners, potential owners or management  What do they want to know? Profitability, ability to repay a loan, etc. $ 1,600 15
  16. 16. Financial Management and Reporting Income Statement-Advanced 16
  17. 17. Financial Management and Reporting Cash Flow Statement 17
  18. 18. Financial Management and Reporting Equity Statement 18
  19. 19. Financial Management and Reporting Questions? 19
  20. 20. Financial Management and Reporting Common Internal Reports: Budgets Cash Projections 20
  21. 21. Financial Management and Reporting Budgets 21
  22. 22. Financial Management and Reporting Budget Process  Developing a budget involves consideration of strategic priorities, gathering data, articulation of assumptions and lots of communication. And a little math.  Using a budget involves clear reporting aligning budget categories with accounting data, more discussions and then making decisions. 22
  23. 23. Financial Management and Reporting Budgets Are …  Budgets are based on FACTS and ASSUMPTIONS  More about priorities than numbers  A roadmap for implementing the strategic plan  Budgets should tell a story. Are there any new activities or changes to existing activities? 23
  24. 24. Financial Management and Reporting Budgets Are Not …  Budgets are not law –budgeting is a totally different concept than a government’s budget.  “Budgeted” doesn’t necessarily mean that the money is there  Budgets are not meant to be final – reality tends to get in the way 24
  25. 25. Financial Management and Reporting Internal Reports: Comparisons to Budget  What do you do when you get a budget report?  What should you do with budget reports? – Format can really vary so make sure you understand what the numbers represent (esp. terms, dates and signs) – Help discover errors by making sure the numbers make sense -do they agree with your recollection of what actually happened? – Use them to keep program on track or identify things that will go over/under budget – Ask questions! 25
  26. 26. Financial Management and Reporting Sample Budget vs. Actual Report Smith Consulting, Inc. RBI Program January to August 2013 YTD YTD YTD 2013 2013 Actual Budget Variance Budget Remaining 2,300 800 300 - 3,000 800 150 100 700 (150) 100 6,300 1,600 250 200 4,000 800 (50) 200 3,400 4,050 650 8,350 4,950 Expenses Salary Travel Supplies Consulting Total Expenses  Let’s look through the terms and information presented 26
  27. 27. Financial Management and Reporting A Different Budget vs. Actual Report  Content will vary Smith Consulting, Inc. RBI Program January to August 2013 August Total Expenses YTD 2013 Actual Expenses Salary Travel Supplies Consulting YTD Actual Budget Budget Variance 1,000 200 - 2,300 800 300 - 3,000 800 150 100 6,300 1,600 250 200 700 (150) 100 1,200 3,400 4,050 8,350 650  Variance between what?  Is a positive budget variance good or bad? 27
  28. 28. Financial Management and Reporting Another Budget Report Format…  Percent of what? Smith Consulting, Inc. RBI Program January to August 2013 August Total Expenses 2013 Budget % of Actual Expenses Salary Travel Supplies Consulting YTD Actual Budget Variance Budget 1,000 200 - 2,300 800 265 - 6,300 1,600 250 200 4,000 800 (15) 200 37% 50% 106% 0% 1,200 3,365 8,350 4,985 40%  Why is salary less than 50%  Do other percentages make sense? 28
  29. 29. Financial Management and Reporting Other Internal Reports: Projections Smith Consulting, Inc. RBI Program January to August 2013 YTD Total Expenses Projected 2013 2013 Actual Expenses Salary Travel Supplies Consulting Remaining Projected 2013 Budget Variance 2,300 800 300 - 3,000 800 150 100 5,300 1,600 450 100 6,300 1,600 250 200 (1,000) 200 (100) 3,400 4,050 7,450 8,350 (900)  What time period is projected?  How were the projections done? 29
  30. 30. Financial Management and Reporting Smith Consulting, Inc. 3 Month Projected Cash Flow as of 8/31/13 2013 September Beginning Cash $ 68,300 $ 2013 October 62,500 2013 November $ (13,000) Cash In Contributions Ticket Sales 86,500 5,000 6,300 4,500 127,000 6,900 Total Cash In 91,500 10,800 (80,000) (4,000) (2,300) (80,000) (20,000) (2,300) (97,300) (86,300) (102,300) (5,800) (75,500) 31,600 62,500 $ (13,000)  Starts with actual cash balance and typically goes out 6 months 133,900 (80,000) (15,000) (2,300) Cash Projections Cash Out Regular monthly Project costs Loan payment Total Cash Out Change during the Month Ending Cash $ $ 18,600  Often called “cash flow report” but that is not what accountants mean when they use that title 30
  31. 31. Financial Management and Reporting Cash Projections Smith Consulting, Inc. 3 Month Projected Cash Flow as of 8/31/12 2013 September Beginning Cash $ 68,300 $ 2013 October 62,500 2013 November $ (13,000) Cash In Contributions Ticket Sales 86,500 5,000 6,300 4,500 127,000 6,900 Total Cash In 91,500 10,800 (80,000) (4,000) (2,300) (80,000) (20,000) (2,300) (97,300) (86,300) (102,300) (5,800) (75,500) 31,600 62,500 $ (13,000)  Note that “cash in” and “cash out” are not the same as revenue and expense 133,900 (80,000) (15,000) (2,300) (cont.) Cash Out Regular monthly Project costs Loan payment Total Cash Out Change during the Month Ending Cash $ $ 18,600  The purpose is to identify times that the cash balance might be a problem -- such as during October in this example 31
  32. 32. Financial Management and Reporting Cash vs. Accrual Accounting 32
  33. 33. Financial Management and Reporting Cash vs. Accrual Accounting  Ex: In October 2010 a customer is invoiced for $1,000. The check is sent to us in March 2011 What is the 2011 Revenue  Ex: In Dec 2010 you rented a meeting room to host a seminar. In Jan you got a bill from the facility for $800 and you paid it in Feb 2011. What is the 2011 expense?  Pay particular attention to this issue when trying to project revenue or when comparing budget to actual expenses 33
  34. 34. Questions & Answers John Pace, Senior Manager, Client Services Email: jpace@grfcpa.com Steven Lyons, Supervisor, Client Services Email: slyons@grfcpa.com Telephone: (301) 951 – 9090 Website: www.grfcpa.com

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