Financial ReportsUnderstanding and interpreting monthly financial reports

Session Objectives By the end of this session, you will:

Understand how a budget is formulated and allocated across the year to the profit and loss statement (P&L)

Understand what information the P&L and balance sheet provide Understand how the P&L relates to the Balance sheet Understand how accruals, prepayments and GST are applied to the P&L and

balance sheet Understand how the following are presented in the financial reports:

• current income and expenditure • long-service leave and annual leave • income and expenditure relevant to a different year • Income and expenditure variances (negative and positive variances to budget)

Be able to identify the key areas/numbers to look for in a P&L and balance sheet and know what questions to ask

Understand various possible reasons for ‘errors’ in the P&L and balance sheet Identify any outstanding questions that need answering by Catherine/Libby

Introduction… Accounting 101

• GST• Accruals• Prepayments• Brackets around numbers (xx)• The ‘matching’ principle

Budgeting• What is a budget?• What can go wrong?• What can go right?

Introduction (cont)… The Profit and Loss Report

• What does it tell us?• Revenue• Expenditure• Budget• Period to date and Year to date• Variances

Balance Sheet• What does it tell us?• Assets• Liabilities• Equity (also known as Capital Reserves)

Summary• How do the reports fit together• What to look for in the reports• The flow on effect and how it’s represented in the reports• Optometry South Australia Reports

Accounting 101… Accounting 101

• GST• What is it?• Role of Optometry Australia (a tax collector)• Where do we see GST in the financial reports and budgets

• Accruals• What does ‘accrual’ mean?• Why do we use accruals?

• Prepayments• What does ‘prepayments’ mean?• Why do we use prepayments?

– Prepaid Revenue (revenue in advance)– Prepaid Expenses (payments in advance)

• Brackets around numbers eg. (100)• What does it mean and why is it in red?

• The ‘matching’ principle• What does it mean? Why do we do it?

Budgeting… Budgeting

• What is a budget?• Why do we have them?• How do we work them out?• Do they include GST?

• What can go wrong?• Unforeseen circumstances• Incorrect timing of events

• What can go right ?• Things ‘go to plan’• Unforeseen circumstances• Windfall gains

The Profit and Loss Report… The Profit and Loss Report

• What does it tell us?• How much we’ve made or lost during the financial year• How we’re tracking to budget• Areas of concern

• Revenue• Membership income• Conference income• Funding income• Interest and other income

• Expenditure• Conference expenditure• Travel expenditure• Payroll expenditure• Member activity expenditure• General office expenditure

The Profit and Loss Report (cont)… The Profit and Loss Report

• Budget• Current period • Year to date• Full year budget

• Period and Year to date results• Actual result for the period • Actual result for the year to date

• Variances• Variance between the budget for the period and the actual period

result• Variance between the budget for the year to date and the actual

year to date result

The Balance Sheet… The Balance Sheet

• What does it tell us?• What we own (Assets)• What we owe (Liabilities)• Our investment (Equity, also known as Capital and Reserves)

• Assets• Cash• Accounts Receivable (entities that owe us money)• Prepayments• Suspense• Rental Security Bond • Fixed Assets

The Balance Sheet (cont)… The Balance Sheet

• Liabilities• Accounts Payable (entities that we owe money to)• Sundry Creditors• Superannuation and PAYG payable• Provision for annual leave and long service leave• GST• Accruals• Revenue in advance• Charles Wright Prize

• Equity (also known as Capital and Reserves)• Recent & Prior Year profit• Profit Period

Summary… Summary

• How do the reports fit together• The profit and loss only tells us about the current financial year. • The balance sheet tells us about the past years as well as the current financial

year. • What to look for in the reports

• Large variances to budget (either positive or negative variances)• Negative numbers (numbers in red with brackets)• Large suspense account in the balance sheet

• The flow on effect and how it’s represented in the reports• For example, a decline in Exhibitors willing to spend their advertising dollar at

Blue Sky lead to a decrease in overall conference income. Fixed conference costs remain the same regardless of exhibitor income which leads to less cash in the bank. With less cash in the bank, other projects can’t be explored or implemented.

Summary (cont)… Summary…

• Optometry South Australia Reports

• The story behind the numbers in the:

– Profit and Loss Report

– Balance Sheet Report

Optometry South AustraliaPeriodic Profit and Loss Statement to Budget Report at February 2015

Date Printed: 22/03/2015Bud. Scenario: Budget 2014-15

Actual Budget Act/Bud Actual Budget Act/Bud Budget

Account Description February 2015 February 2015 Variance % YTD YTD Variance % Full Year

Revenue410000 05 00 Conference - Registration Fee Income 0 0 0 0.0 % 108,251 100,000 8,251 8.3 % 100,000

412000 05 00 Conference - Exhibitor Registration 0 0 0 0.0 % 55,786 147,000 (91,214) -62.1 % 147,000

Total Conference Revenue 0 0 0 0.0 % 164,037 247,000 (82,963) -33.6% 247,000

421000 05 00 Member Activities - contributions income 0 0 0 0.0 % 368 17,600 (17,232) -97.9 % 17,600

423000 05 00 Miscellaneous Income 0 0 0 0.0 % 0 0 0 0.0 % 800

441000 05 00 Interest Income 563 0 563 0.0 % 4,440 6,000 (1,560) -26.0 % 12,000

450000 05 00 Membership Income 0 0 0 0.0 % 358,324 350,000 8,324 2.4 % 390,831

491000 05 00 Rental Income 0 0 0 0.0 % 600 1,750 (1,150) -65.7 % 3,500

498000 05 00 National Offiice Funding (SA, SA ) 0 0 0 0.0 % 87,945 87,945 0 0.0 % 87,945

Total Revenue 563 0 563 0.0 % 615,714 710,295 (94,581) -13.3 % 759,676

Total Cost Of Goods Sold 0 0 0 0.0 % 0 0 0 0.0 % -

Gross Profit 563 0 563 615,714 710,295 (94,581) 759,676

Operating Costs610100 05 00 Conference Products 2,748 0 2,748 0.0 % 220,354 241,178 (20,824) -8.6 % 241,178

610103 05 00 Conference - Wages 0 0 0 0.0 % 9,599 0 9,599 0.0 % -

610106 05 00 Conference - Food & Drinks 0 0 0 0.0 % 3,936 0 3,936 0.0 % -

610108 05 00 Conference - Venue 0 0 0 0.0 % 49,765 0 49,765 0.0 % -

Total Conference Expenditure 2,748 0 2,748 0.0% 283,654 241,178 42,476 17.6% 241,178

611000 05 00 Travel Expense - Accommodation 0 125 (125) -100.0 % 113 1,000 (887) -88.7 % 1,500

611100 05 00 Travel Expense - Meals 0 50 (50) -100.0 % 17 400 (383) -95.9 % 500

611300 05 00 Travel Expense - Transport 0 250 (250) -100.0 % 5 2,000 (1,995) -99.7 % 3,000

611400 05 00 Travel Expense - Miscellaneous 0 0 0 0.0 % 692 0 692 0.0 % -

Total Travel Expenditure 0 425 (425) -100.0% 826 3,400 (2,574) -75.7% 5,000

612100 05 00 Payroll Expense - Salaries & Superannuation 11,875 15,830 (3,955) -25.0 % 123,549 126,640 (3,091) -2.4 % 191,262

613200 05 00 Member Activity Costs 0 100 (100) -100.0 % 5,578 13,300 (7,722) -58.1 % 16,500

614000 05 00 Capitation 0 0 0 0.0 % 234,725 231,650 3,075 1.3 % 231,650

623000 05 00 Miscellaneous Expense 0 0 0 0.0 % 184 0 184 0.0 % -

631000 05 00 Office and Building Rent 3,167 3,167 0 0.0 % 23,517 25,333 (1,817) -7.2 % 38,000

632100 05 00 Electricity 726 317 409 129.0 % 2,624 2,536 88 3.5 % 3,804

633000 05 00 Telephone 564 442 122 27.7 % 2,187 3,533 (1,346) -38.1 % 5,300

636000 05 00 Insurance 0 208 (208) -100.0 % 0 1,667 (1,667) -100.0 % 2,500

637000 05 00 Maintenance General 0 125 (125) -100.0 % 502 1,000 (498) -49.8 % 1,500

637400 05 00 Maintenance Cleaning 86 0 86 0.0 % 1,343 0 1,343 0.0 % -

641400 05 00 Depreciation - Leasehold Improvements 150 150 0 0.0 % 1,200 1,200 0 0.0 % 1,800

641800 05 00 Depreciation - Computer Hardware 150 150 0 0.0 % 1,200 1,200 0 0.0 % 1,800

651000 05 00 Postage 15 25 (10) -38.5 % 362 200 162 81.0 % 300

653000 05 00 Printing 0 29 (29) -100.0 % 0 233 (233) -100.0 % 350

654000 05 00 Computer Software 0 0 0 0.0 % 259 0 259 0.0 % -

660000 05 00 Sundry Office Supplies 406 292 114 39.1 % 3,045 2,333 711 30.5 % 3,500

661000 05 00 Bank Charges 84 300 (216) -72.1 % 6,671 5,300 1,371 25.9 % 7,700

662100 05 00 Accounting Fees (29) 500 (529) -105.8 % 5,667 4,000 1,667 41.7 % 6,000

662300 05 00 Audit Fees 0 0 0 0.0 % 2,500 2,500 0 0.0 % 2,500

662400 05 00 Consulting Fees 95 100 (5) -4.6 % 407 800 (393) -49.1 % 1,200

672000 05 00 Meetings 0 160 (160) -100.0 % 3,131 3,360 (229) -6.8 % 4,000

672100 05 00 Board - Food & Beverages 0 0 0 0.0 % 1,962 0 1,962 0.0 % -

672300 05 00 President's Honorarium 114 0 114 0.0 % 1,250 1,250 0 0.0 % 2,500

675000 05 00 Workcover 0 0 0 0.0 % 2,179 1,580 599 37.9 % 1,580

691000 05 00 Projects 1,406 2,575 (1,169) -45.4 % 4,938 5,150 (212) -4.1 % 5,800

694000 05 00 Training 65 0 65 0.0 % 6,465 6,000 465 7.8 % 7,500

Total Operating Costs 21,621 24,895 (3,273) -13.1 % 719,925 685,344 34,581 5.0 % 783,224

Operating Profit / (Loss) (21,058) (24,895) 3,837 -15.4% (104,211) 24,951 (129,162) -517.7% (23,548)Operating Profit / (Loss) % -17% 4% -3 %

Total Financial Items 0 0 0 0.0 % 0 0 0 0.0 % -

Net Income/(Loss) (21,058) (24,895) 3,837 -15.4 % (104,211) 24,951 (129,162) -517.7 % (23,548)

Optometry South AustraliaBalance Sheet February 2015

Account Description Balance

AssetsCurrent Assets110110-05-00 Bank SA Trading Account 10,048110111-05-00 Cash Deposit Account 48,303110112-05-00 Term Deposits 90,312

Total Cash and Cash Equivalents 148,663

110210-05-00 Accounts Receivable 33,004

Other Current Assets110411-05-00 Prepayments 5,273110412-05-00 Suspense 641110414-05-00 Rental Security Bond 5,603

Total Other Current Assets 11,517

Total Current Assets 193,184

Fixed Assets120113-05-00 Office Equipment 24,310120114-05-00 Building Improvements 1,980

Total Cost 26,290

120512-05-00 Acc Depn - Office Equipment (19,810)120513-05-00 Acc Depn - Building Improvements (1,200)120517-05-00 Acc Depn - Computer Hardware (1,200)

Accumulated Depreciation (22,210)

Total Fixed Assets 4,080

Total Assets 197,264

LiabilitiesCurrent Liabilities210110-05-00 Accounts Payable 182210111-05-00 Sundry Creditors 56,003

Total Accounts Payable 56,185

Payroll Liabilities210220-05-00 Superannuation Payable 7,471210240-05-00 PAYG Witholding Payable 7,265210260-05-00 Provision for Annual Leave 3,849210270-05-00 Provision for Long Service Leave 25,966

Total Payroll Liabilities 44,551

GST Liabilities210310-05-00 GST Collected 21,458210311-05-00 GST Paid (49,293)210320-05-00 GST Adjustment (644)

Total GST Liabilities (28,478)

Other Current Liabilities210410-05-00 Accruals 6,917210417-05-00 Revenue in Advance 2,500210418-05-00 Charles Wright Prize Fund 21,598

Total Other Current Liabilities 31,015

Total Current Liabilities 103,272

Total Liabilities 103,272

Capital and ReservesEquity310010-05-00 Recent Year Profit/Loss (33,240)310011-05-00 Prior Years Profit/Loss 231,444

Equity 198,204

AppropriationsProfit Period (104,211)

Total Capital and Reserves 93,992

Total Liabilities and Capital and Reserves 197,264

Questions…