8715_300_uko4_ppt_3
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.