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T-Level Technical Qualification in Management and Administration

Overview

• Qualification: T-Level Technical Qualification in Management and Administration (Level 3)

• Content Focus: Financial Reporting

Page 1: Introduction to Financial Reporting

• Title: The role and purpose of different types of financial reporting

• Content presented by City and Guilds of London Institute.

Page 2: Learning Objectives

• By the end of the session, learners should be able to:

  • Discuss the role and purpose of financial reporting within organizations.

  • Explain different areas of financial reporting and their distinctions.

  • Identify various types of financial reports used by organizations.

  • Calculate basic profit and loss figures and determine break-even points.

  • Discuss the methods of generating financial reports, both manually and digitally.

Page 3: The Role of Financial Reporting

• Main Role: Communicate essential financial information to necessary users.

• Functions of Financial Reporting:

  • Track, analyze, and report on business income.

  • Evaluate resource usage and efficiency.

  • Review cash flows.

  • Report business performance.

  • Enable informed managerial decisions based on accurate financial assessments.

Page 4: The Purpose of Financial Reporting

• Purpose: To provide insights into the integrity and creditworthiness of a business.

• Core Objectives:

  • Address essential financial questions.

  • Present accurate financial snapshots.

  • Deliver comprehensive financial statistics demonstrating profit generation capabilities.

  • Support business objectives and missions.

Page 5: The Importance of Financial Reporting

• Significance: Critical activity for informed decision-making among stakeholders (owners, managers, investors).

• Key Considerations in Financial Reporting:

  • Assess available financial resources.

  • Identify sources of income.

  • Allocate necessary expenses.

• Ensuring factual accuracy in reports strengthens credibility and attracts talent and investment.

Page 6: The Importance of Accuracy in Financial Reporting

• Importance: Provides a true reflection of business health.

• Focus on Accuracy:

  • Assess funding for business expansion.

  • Detect discrepancies indicating errors or fraud.

  • Facilitate reconciliation and adjustments.

• Role of Administration Management: Ensure accurate collection and maintenance of financial records.

Page 7: Different Areas of Financial Reporting

• Despite functional independence, all departments are financially accountable.

• Key Areas to Address:

  • Financial statements creation.

  • Identifying stakeholder information needs.

  • Implementing internal controls and accountability measures.

  • Compliance with regulatory requirements and accounting standards.

Page 8: Financial Statements

• Definition: Financial statements are the final outcome of accounting practices, reflecting specific accounting periods.

• Types of Financial Statements:

  • Balance Sheet

  • Income Statement

  • Cash Flow Statement

  • Owner/Shareholder Equity

  • Quarterly/Annual Reports (Public Limited Companies)

  • Management Analytics and Notes

  • Stakeholder Analysis: Internal and external reviews of these statements.

Page 9: Stakeholders in Financial Reporting

• Who are the stakeholders?

  • Owners/Shareholders

  • Investors/Creditors

  • Management

  • Customers

  • Suppliers

  • Public

  • Government

• Each stakeholder group has specific interests in financial reporting, leading to diverse information needs.

Page 10: Stakeholder Analysis of Financial Reporting

• Relevance of Financial Information for Stakeholders:

  • Owners/shareholders focus on strategic planning;

  • Investors/creditors examine cash positions;

  • Management emphasizes resource efficiency;

  • Suppliers are interested in financial stability and payment capabilities;

  • Customers consider company reputation;

  • Employees are concerned with job security and pay;

  • Government looks into employment levels and tax contributions.

Page 11: Internal Controls for Financial Reporting

• Purpose: Ensuring accuracy and reliability in preparing financial statements according to standards.

• Functions of Internal Controls and Audits:

  • Minimize financial risks.

  • Prevent fraud and errors.

  • Protect business assets.

  • Ensure accurate financial records.

Page 12: Management Accountability in Financial Reporting

• Definition: Responsibility in maintaining effective internal controls and adhering to policies.

• Management Duties Include:

  • Initiating transactions.

  • Recording exchanges.

  • Processing actions.

  • Reporting financial results.

Page 13: Regulations Guiding Financial Reporting

• Financial Reporting Council (FRC): The regulator for accounting, auditing, and actuarial professions in the UK.

• FRC Purpose:

  • Set high standards of corporate governance and reporting.

  • Ensure accountability among responsible parties.

Page 14: Accounting Standards

• Definition: Principles established by the FRC guiding financial report preparation.

• Importance of Accounting Standards:

  • Provide comparable information across industries.

  • Ensure credibility and consistent reporting among all companies.

• Goal: Promote transparency and integrity in financial reporting.

Page 15: Range of Financial Report Types

• Financial reporting encompasses several document types, including:

  • Balance Sheet

  • Profit and Loss Account

  • Cash Flow Statement

  • Management Accounts

  • Year-end Reporting

Page 16: Key Financial Reports: Balance Sheet, Income Statement, Cash Flow Statement

• Balance Sheet: Snapshot of all assets, liabilities, and capital at a specific accounting period.

• Profit and Loss Account: Summarizes income and expenses for the same period as the balance sheet.

• Cash Flow Statement: Records money transactions in and out over the accounting time frame.

Page 17: Management Accounts

• Purpose: Reports on financial performance for strategic decision-making by management.

• Components:

  • Planning

  • Budgeting

  • Risk Management

  • Company Investments

  • Key Performance Indicators

Page 18: Year-End Reporting

• Definition: Annual report detailing business activities and performance over the accounting period.

• Includes:

  • Financial information

  • Company performance metrics

  • Key performance indicators

• Requirements for Limited Companies: Submit tax returns and statutory accounts to HMRC and Companies House.

Page 19: Basic Profit and Loss Calculations

• Profit/Loss Calculation: Determined in the income statement based on income and expenditure figures.

• Components:

  • Total sales revenue

  • Expenses (cost of goods sold, other expenses)

  • Results in gross profit and net profit/loss.

Page 20: Cupcake Pi Income Statement

• Example of Income Statement:

  • Total Sales Revenue: £168,000

  • Less: Cost of Goods Sold: £86,000

  • Gross Profit: £82,000

  • Less Other Expenses: £65,400

  • Net Income: £13,280

Page 21: Understanding Profit Margins

• Definition: Profit margin measures the profitability of a business.

• Typical Ranges for Profit Margins:

  • 5%: Low

  • 10%: Average

  • 20%: Good

  • 50-70%: Healthy

Page 22: Gross Profit Margin Calculations

• Gross Profit Margin Formula: (Gross Profit / Revenue) × 100

• Example for Cupcake Pi:

  • Gross profit of £82,000 with total sales of £168,000 results in a gross profit margin of 49%.

Page 23: Net Profit Margin Overview

• Definition: Net profit margin is the percentage of net income derived from sales revenues.

• Cupcake Pi Example:

  • Net Profit: £13,280

  • Total Sales Revenue: £168,000

  • Net Profit Margin: 7.9%

  • Comparison with gross profit margin (49%) signifies the impact of actual costs on profitability.

Page 24: Break-even Point Calculations

• Definition: Break-even point is where total costs equal total revenues, resulting in neither profit nor loss.

• Calculating Break-even Units:

  • Formula: Fixed Costs / (Sales Price per Unit – Variable Cost per Unit)

Page 25: Break-even Point Units for Cupcake Pi

• Example Calculation:

  • Fixed Costs: £65,400

  • Selling Price: £1.50 per unit

  • Variable Costs: £0.70 per unit

  • Result: 81,750 units need to be sold to break even.

Page 26: Break-even Point in Sales Value

• Formula for Sales Revenue at Break-even Point:

  • Contribution Margin = (Sales Price per Unit – Variable Cost per Unit)

  • Displayed through calculations not presented directly in the slides.

Page 27: Generating Financial Reports

• Methods of Generation:

  • Manual creation of spreadsheets.Databases

  • Use of commercial software for automation.

• Preparation Steps:

  • Record transactions

  • Post to ledgers

  • Prepare trial balance

  • Adjust and prepare financial statements

Page 28: Advantages of Using Software for Reporting

• Benefits of financial reporting software include:

  • Automated data collection

  • Accurate tracking of trends

  • Forecasting impacts on business goals

  • Budget management efficiency

  • Enhanced prediction of profitability.

Page 29: Making Tax Digital Initiatives

• HMRC Requirements:

  • All VAT registered organisations must utilize approved commercial software for quarterly tax returns.

• Vision: Digitalization of the tax system; maintaining daily records, submitting quarterly accounts, and ensuring timely tax payments.

Page 30: Summary of Insights

• Reviewed roles and purposes of financial reporting.

• Discussed areas of financial reporting and their distinctions.

• Explored various financial report types.

• Considered key calculations for profit, loss, and break-even.

• Discussed methods of financial report generation, emphasizing the evolution towards digital processes.

Page 31: Final Thoughts

• Engaged in a discussion on financial reporting’s significance and answered any questions.