Basic Finance & Accounts for Hr [Compatibility Mode]

8/4/2019 Basic Finance & Accounts for Hr [Compatibility Mode]

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OgunkunleOgunkunle NiyiNiyi acaaca

FOR HR ManagersFOR HR Managers


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Accounting involves:

the recognition, measurement, anddisclosure of financial information about

interested persons.


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Financial accounting is concerned with the

classification, recording, analysis, andinterpretation of the overall financialposition and operating results of an

organ zat on an prov ng sucinformation to owners, managers and thirdparties.

It includes the processes and decisions thatculminate in the preparation of financialstatements.


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Actually there are a number of accounting

concepts and principles based on which weprepare our accounts

These generally accepted accounting principles

ay own accepte assumpt ons an gu e nesand are commonly referred to as accounting

concepts

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Investors Need information about the profitability, dividend yield and

price earnings ratio in order to assess the quality and the priceof shares of a company

Lenders

Need information about the profitability and solvency of thebusiness in order to determine the risk and interest rate ofloans

Management

Need information for planning, policy making and evaluation Suppliers and trade creditors

Need information about the liquidity of business in order toaccess the ability to repay the amounts owed to them

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Government Need information about various businesses for statistics and

formulation of economic plan

Customers-

continuance of the supply of particular products Employees

Interested in the stability of the business to provideemployment, fringe benefits and promotion opportunities

Public Need information about the trends and recent development

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Companies may use different methodsof valuation, cost calculation andrecognizing profit

true worth of the company Financial statements can only show

partial information about the financialposition of an enterprise, instead of thewhole picture

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Business entity

Money Measurement/stable monetary unit Going Concern Historical Cost

Pru ence/conservat sm Materiality

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Objectivity

Consistency Accruals/matching

Realization

Uniformity Disclosure

Relevance

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Meaning

The business and its owner(s) are two separateexistence entity

of the owner(s) should not be treated as theincomes and expenses of the business

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Meaning All transactions of the business are recordedin terms of money

Examples Market conditions, technological changes

and the efficiency of management wouldnot be disclosed in the accounts

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Meaning The business will continue in operational existence

for the foreseeable future Financial statements should be prepared on a going

concern basis unless management either intends toli uidate the enter rise or to cease tradin or has

no realistic alternative but to do so Example Possible losses form the closure of business will not

be anticipated in the accounts

Prepayments, depreciation provisions may becarried forward in the expectation of propermatching against the revenues of future periods

Fixed assets are recorded at historical cost

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Meaning Revenues and profits are not anticipated.

Only realized profits with reasonable

loss account However, provision is made for all known

expenses and losses whether the amount is

known for certain or just an estimation This treatment minimizes the reported

profits and the valuation of assets

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Meaning Immaterial amounts may be aggregated

with the amounts of a similar nature or

function and need not be presentedseparately

Materiality depends on the size and nature

of the item

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Meaning

The accounting information should be free frombias and capable of independent verification

verifiable evidence such as invoices or contracts

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Meaning

Companies should choose the most suitableaccounting methods and treatments, andconsistently apply them in every period

anges are perm e on y w en e newmethod is considered better and can reflectthe true and fair view of the financialposition of the company

The change and its effect on profits shouldbe disclosed in the financial statements

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Meaning Revenues are recognized when they are

earned, but not when cash is received

Expenses are recognized as they areincurred, but not when cash is paid

The net income for the period is determined

by subtracting expenses incurred fromrevenues earned

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Meaning

Revenues should be recognized when themajor economic activities have beencompleted

Sa es are recogn ze w en t e goo s aresold and delivered to customers or servicesare rendered

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The realization concept develops rules for the

recognition of revenue The concept provides that revenues are

recognized when it is earned, and not when

A receipt in advance for the supply of goodsshould be treated as prepaid income undercurrent liabilities

Since revenue is a principal component in themeasurement of profit, the timing of itsrecognition has a direct effect on the profit

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The uncertain profits should not be

estimated, whereas reported profits must beverifiable

Revenue is recognized when1. e ma or earn ng process as su s an a y een

completed2. Further cost for the completion of the earning

process are very slight or can be accuratelyascertained, and

3. The buyer has admitted his liability to pay for thegoods or services provided and the ultimatecollection is relatively certain

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Meaning

Financial statements should be prepared toreflect a true and fair view of the financialposition and performance of the enterprise

A mater a an re evant n ormat on must edisclosed in the financial statements

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Meaning

Different companies within the same industryshould adopt the same accounting methods andtreatments for like transactions

The practice enables inter-companycomparisons of their financial positions

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Meaning Financial statements should be prepared to

meet the objectives of the users

Relevant information which can satisfy theneeds of most users is selected and recordedin the financial statement

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Four basic financial statements: Balance Sheet

Income Statement

tatement o as ows Statement of Retained Earnings

Published by public companies in their

annual reports (called 10K's) Remember to read notes/footnotes

Often contain important information


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Presents the financial position of a

company at a given point in time

Comprised of three parts: Assets,

Liabilities, and (Ownership/Stockholder's)Equity

Remember the important basic equation:

Assets = Liabilities + Equity


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Assets are the economic resources of the

company

Consists of Cash, Inventory, and

Equipment Examples: For a farm, Inventory might be

the farmer's crops; Equipment could

consist of things like a barn or a tractor


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Companies normally obtain resources by

incurring debt, getting new investors, or

through re-investing operating earnings

Equity is comprised of the claims that investors

have on the company's resources after all debtshave been paid off

net worth of the company


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When companies incur debt, they make apromise to pay over a certain time period

Payment schedule is independent of the

When companies make stock offerings(equity), they don't promise to payinvestors over a certain period

Offer a return on investment contingenton operating performance

No guarantee, so riskier but unlimited

upside


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Presents the results of operations over a

period of time

Composed of Revenues, Expenses, and

Net Income Revenue: source of income normally

arising from the sales of goods and

services and is recorded when it occurs


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Expenses: costs incurred over a period of time

to generate the revenues earned over thatsame period of time

Exam le: Wa es

When a company incurs an expense outside ofits normal operations, it is considered a loss

Example: Destruction of a building in a fire

A purchase is only considered an asset if italso provides future economic benefit outsideof the current period.

Paying for wages vs. Paying for equipment


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Net Income: Revenue, less Expenses

Positive Net Income indicates thecompany generated a profit (net profit)

Negative Net Income indicates thecompany suffered a net loss


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Retained earnings is the amount the

company reinvests in itself Remember that this is one of the ways to

purchase new assets (aside from incurring

debt and raising new equity) Reconciliation of the Retained Earningsaccount from beginning to the end ofyear

Net Income increases the RetainedEarnings account, while Net Losses anddividend payments decrease it


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Does not provide any new information not

already available But it does tell you what management is

doin with the com an 's earnin s

Is management more focused on reinvestingearnings within the company? Or is itdistributing profits to shareholders?

Investors can use this knowledge to align their

investment style with the strategy of acompany's management


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Provides a detailed summary of all the cash

in- and outflows during a time period Three sections-- Cash flows from:

O eratin activities- includes transactions

involved in calculating net income Investing Activities- activities outside of the

normal scope of business, such as sale orpurchase of assets

Financing Activities- Involves items classifiedas liabilities or equity on the balance sheet

Examples: Dividends or payment of debt


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Gets all its information from other 3

statements Net income from the Income Statement

shown in cash flows from o eratin activities

Dividends from Retained Earnings Statementshown in financing activities

Investments, Accounts Payable, and otherasset and liability accounts from the BalanceSheet are shown in all three sections


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Estimates of the income and expenditure of a bu

siness or a part of a business over a time period Used extensively in planning Helps establish efficient use

o resources Help monitor cash flow and identify departures

from plans Maintains a focus and discipline

for those involved

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Flexible Budgets budgets that take account of

changing business conditions Operating Budgets based on

the daily operations of a business ect ves Base Bu gets - Bu gets r ven y

objectives set by the firm Capital Budgets Plans of the relationship

between capital spending and liquidity (cash) in

the business

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Variance the difference between

planned values and actual values Positive variance actual figures less than

planned Negative variance actual figures above

planned

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Various budgeting models continue to

be commonly used and fallpredominantly into categories of L ne- tem, Or "Tra t ona ," Bu get ng;

Performance Budgeting;

Program And Planning ("Programming")

Budgeting (Ppb); Zero-based budgeting (ZBB);

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Line-item budgeting is still the most widely usedapproach in many organizations, including schools,

because of its simplicity and its control orientation. It is referred to as the "historical" approach because

administrators and chief executives often base theirexpenditure requests on historical expenditure andrevenue data.

One important aspect of line-item budgeting is that itoffers flexibility in the amount of control established

over the use of resources, depending on the level ofexpenditure detail (e.g., fund, function, object)incorporated into the document.

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A different focus is seen in performance budgetingmodels. In a strict performance budgetingenvironment, budgeted expenditures are based on astandard cost of inputs multiplied by the number of

.

The total budget for an organization is the sum of allthe standard unit costs multiplied by the unitsexpected to be provided.

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Program budgeting refers to a variety of differentbudgeting systems that base expenditures primarily

on programs of work and secondarily on objects. It is considered a transitional form between

traditional line-item and performance approaches,and it may be called modified program budgeting.

In contrast to other approaches, a full programbudget bases expenditures solely on programs ofwork regardless of objects or organizational units. As

these two variations attest, program budgeting isflexible enough to be applied in a variety of ways,depending on organizational needs andadministrative capabilities.

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The basic tenet of zero-based budgeting (ZBB) is that programactivities and services must be justified annually during thebudget development process.

The budget is prepared by dividing all of a government'soperations into decision units at relatively low levels of theorganization.

Individual decision units are then a re ated into decisionpackages on the basis of program activities, program goals,organizational units, and so forth.

Costs of goods or services are attached to each decisionpackage on the basis of the level of production or service to beprovided to produce defined outputs or outcomes.

Decision units are then ranked by their importance in reachingorganizational goals and objectives.

Therefore, when the proposed budget is presented, it containsa series of budget decisions that are tied to the attainment ofthe entity's goals and objectives.

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In accounting, reconciliation refers

to a process that compares twosets of records (usually thebalances of two accounts) to make

.

used to ensure that the moneyleaving an account matches theactual money spent, which isDEBIT and CREDIT; this is done by

making sure the balances match atthe end of a particular accountingperiod.


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The process of analyzing two related records and,

if differences exist between them, finding the cause and bringing the two records into agreement.

Balance sheets accounts reconciliations are one oft e o est an most mportant account ng

processes that helps ensure the accuracy,

completeness of transactions and propersegregation of duties.

A critical element of the reconciliation is toresolve differences; differences should be

identified, investigated, explained and a

corrective action must be taken. 50


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System Changeover: when banks changes theirsoftware, packages or upgrade such without proper

and adequate analysis, planning and effectivechangeover, there is no doubt the fallout of suchexercise will be serious reconciliation issues

Hi h downtime of link and s stem malfunctions Inadequate monitoring and supervision Fraudulent minds: When you have staff who have

criminal tendencies, the only way out is to takeproper references.

Lazy staff and dereliction of duty

Poor archiving system Inadequate manpower Lack of training/poorly trained staff


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1. Obtain the balance per the General Ledger2. Obtain the balance per department schedule.

If the balance per the General Ledger and the department schedule do not equal, go to step 3.3. Obtain detail activity per general ledger since account

was last reconciled.4. Obtain detail activity per department schedules since

account was last reconciled.5. Compare the two records and find the items which

cause the difference between them. These are calledreconciling items.

6. Research the adjusting items and take the necessaryaction (s).7. Have the reconciliation approved.

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r v ry

the companys operations, units and

departments and considering the risks and

grave implications of bad books, it is our

collective responsibility to ensure our books

are clean.


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Documents

Basic Finance & Accounts for Hr [Compatibility Mode]