Certificate 4 commercial cookery

SITXFIN002 Interpret financial information

nstructions to students;

This online activity of 6 hrs will help you to:

• Identify and interprete the range of financial information and reports required to monitor business performance

You must read and watch the videos provided to you to assimilate the financial knowledge and terminology required for this subject

After reading and watching the video link provoded, you will be required to answer few questions which will be checked by your trainer.

Although it is not part of your assessment tool, answering these questions are mandatory as your answer will provide to the trainer that you have understood the subject.

This whole activity of reading, watching and answering questions will count towards your six hours of attendance.

1.1 - Identify and interpret the range of financial information and reports required to monitor business performance

Identifying financial information for monitoring purposes

The first step in monitoring financial performance in any organisation is to identify the types of financial information that need to be tracked and reviewed over time. It is important to identify all financial performance indicators which point to the overall financial health of your organisation, so that they can be monitored effectively.

Identifying the range of financial information that needs to be monitored will require you to look at each part of your organisation to identify all physical and non-physical assets leaving and coming in to the business.

In most organisations, the most important financial elements to monitor are:

• Profits/losses
• can be worked out when all costs and all revenue have been calculated
• the higher the profitability of the business, the more successful and secure the business is usually considered
• Liquidity
• this concerns the value of assets, compared to the liability of the business
• Cash flow
• money that passes through a business, in terms of income and expenditure
• Income and revenue
• money that comes into the business from sales
• Credit and debit
• money that is owed or expected
• Expenditure
• money that is directed out of the business, including wages, salaries, tax and stock purchase
• Wages/salaries
• the moneythat the organisation is required to pay staff
• Tax
• tax that is due on aspects of the business, including workers' income, business profits and the costs of applicable products and services.

Where to find data

Depending on the type of organisation that you work for, and the type of financial information you are looking for, you may find important information in a number of places. Data may be stored in electronic format (recommended), paper format, or both.

You may find records and data in:

• Electronic format on computer systems
• spreadsheets such as Excel, for example
• Raw data formats(paper)
• Graphs, charts, and other organised formats (electronic or paper)
• Formal reports (electronic or paper).

Interpreting financial information for monitoring purposes

You will need to interpret financial information in reports, documentation, and electronic data to properly assess the financial health of your organisation. Remember: raw data is almost useless if you don't try to understand the reasons behind it, so you should try to examine all information as closely as possible.

Interpreting financial information will require you to:

• Read information closely
• Identify trends
• Identify strengths and weaknesses in departments or specific tasks
• Understand the meaning or consequences of information
• Understand the contributing factors for financial data trends.

What are the different types of financial information?

Journals

Purchase summary reports

Transaction reports

Stock reports

Account summaries/balances

Variance reports

Profit and loss statements

Wastage reports

Invoices

Sales report

Budget reports

Business Activity Statements (BAS)

Expenditure reports (labour/non-labour) Labour/wages reports

Balance sheets

Cash flow statements

Trial balance

Bank statements

Receivables reports

Merchant statements

Stocktaking sheets

Credit card statements

Cheque book

Five steps to preparing financial reports

Step 1: Collate source documents

Source documents are the supporting documentation for every financial transaction made by the business. They include employee time sheets, invoices, receipts, statements, etc. They are the documents used for completing accounting records and for proving to a financial auditor or the tax department that the transactions recorded are valid. Supporting documents are typically filed in a secure location by the manager or finance staff.

Step 2: Post information to journals

Journals record the day-to-day transactions of a business. Different journals are kept for different groups of transactions. Examples include sales journal, purchase journal and cash receipts journal. At the end of thefinancial reporting period, totals from the journals are 'posted' (copied) to a general ledger.

Step 3: Post journal entries to ledger

There are two types of ledgers: the general ledger and the subsidiary ledger.

General ledger

The general ledger is essentially where all the accounts are kept. In a manual accounting system, there's a sheet of paper for each account number and name listed in thechart of accounts.

At the end of a period, the totals from the general ledger are used to complete the balance sheet and profit and loss report. Thankfully, with the introduction of accounting software packages, this process is a lot simpler.

Subsidiary ledgers

In a manual accounting system, the general ledger can quickly get out of control as the business grows. With numerous transactions taking place with many customers and suppliers, it becomes a challenge trying to ascertain who owes money, how much and to whom. For this reason businesses set up secondary ledgers known as subsidiary ledgers.

Fortunately, these days computers do most of the work for you!

Step 4: Prepare trial balance

A trial balance is a list of all the ledger accounts showing their debit or credit amount. In a manual accounting system it's used to double-check that for every debit amount there's an equal credit amount.

Step 5: Complete financial reports

Financial reports are used to show how a business is performing. The three you need to be familiar with are: 1. Income Statement

How to read an income statement/Financial statement analysis 1/3

This is a modal window.

Unable to find the video

2. Balance Sheet

How to read a balance sheet/ Financial statement analysis

Pause

Mute

Loaded:59.38%

Remaining Time

-6:47

Picture-in-Picture

Fullscreen

3. Cash flow statement

Cash flow for beginners / Financial statement Analysis

Play Video

Interpreting reports

Interpreting a report, such as a profit and loss report, will not only require you to look at the levels of profit and loss, but also at the reasons for any changes to profit/loss. In this example, you should be aware of the common contributors to overall profitability or loss and look to monitor these closely.

For example, increased profitability can be caused by:

• An increase in sales prices
• Less wastage
• A more efficient production and distribution system

Cheaper raw materials.

For example, losses can be caused by:

• A reduction in sales prices
• Increased costs and/or expenditure
• Loss, such as theft or obsolete stock
• Wastage, such as deterioration or damage.

You will need to be aware of the particular financial activities that your organisation require you to work on, these may include activities on average customer spend analysis to determine how customers buy from you; for example, if a predominance of repeat sales or on-off sales.

This may also include:

• Daily, weekly and monthly organisational transactions
• Department or organisation expenditure on areas such as labour, stock purchased and wastage
• Departmental income, such as covers and gross income, commission earnings and occupancy and gross income
• Outstanding accounts (payable and receivable)
• Quotations realised to sales or purchases
• Sales performance (over certain periods, such as a quarter-period, six months or a year)
• Stock levels (how much stock your organisation has)
• Variance from budgets (the difference in amount of the budget and expenditure).

The chart of accounts

This is the list of all the accounts in the general ledger for an organisation's financial operation. This list (or chart) separates information into appropriate fields; an organisation may also assign a number code to these accounts to help identify areas and for data manipulation in accounting software.

For example, under long-term liabilities, the following accounts may exist:

• Mortgage on premises
• Bonds payable.

Accounting categories

These are breakdowns in areas used in accounting, such as with costs and income. This is so you can further categorise accounts into appropriate parts. For example, when paying for building work, you may have account categories such as labour, materials, work hours. As a further categorisation, you may want to break down labour costs as regular and overtime.

Further reading

Interpreting financial statements

By Daniel Richards 1/9/2019

https://www.thebalancesmb.com/interpreting-the-cash-flow-statement-1200760

Please answer the following questions

:

List 5 types of financial information?

Briefly explain the five steps of preparing financial reports

3. Briefly describe the following financial statements:

a. Income statement

b. Balance Sheet

c. Cashflow statement

nstructions to students;

This online activity of 6 hrs will help you to:

• Identify and interprete the range of financial information and reports required to monitor business performance

You must read and watch the videos provided to you to assimilate the financial knowledge and terminology required for this subject

After reading and watching the video link provoded, you will be required to answer few questions which will be checked by your trainer.

Although it is not part of your assessment tool, answering these questions are mandatory as your answer will provide to the trainer that you have understood the subject.

This whole activity of reading, watching and answering questions will count towards your six hours of attendance.

1.1 - Identify and interpret the range of financial information and reports required to monitor business performance

Identifying financial information for monitoring purposes

The first step in monitoring financial performance in any organisation is to identify the types of financial information that need to be tracked and reviewed over time. It is important to identify all financial performance indicators which point to the overall financial health of your organisation, so that they can be monitored effectively.

Identifying the range of financial information that needs to be monitored will require you to look at each part of your organisation to identify all physical and non-physical assets leaving and coming in to the business.

In most organisations, the most important financial elements to monitor are:

• Profits/losses
• can be worked out when all costs and all revenue have been calculated
• the higher the profitability of the business, the more successful and secure the business is usually considered
• Liquidity
• this concerns the value of assets, compared to the liability of the business
• Cash flow
• money that passes through a business, in terms of income and expenditure
• Income and revenue
• money that comes into the business from sales
• Credit and debit
• money that is owed or expected
• Expenditure
• money that is directed out of the business, including wages, salaries, tax and stock purchase
• Wages/salaries
• the moneythat the organisation is required to pay staff
• Tax
• tax that is due on aspects of the business, including workers' income, business profits and the costs of applicable products and services.

Where to find data

Depending on the type of organisation that you work for, and the type of financial information you are looking for, you may find important information in a number of places. Data may be stored in electronic format (recommended), paper format, or both.

You may find records and data in:

• Electronic format on computer systems
• spreadsheets such as Excel, for example
• Raw data formats(paper)
• Graphs, charts, and other organised formats (electronic or paper)
• Formal reports (electronic or paper).

Interpreting financial information for monitoring purposes

You will need to interpret financial information in reports, documentation, and electronic data to properly assess the financial health of your organisation. Remember: raw data is almost useless if you don't try to understand the reasons behind it, so you should try to examine all information as closely as possible.

Interpreting financial information will require you to:

• Read information closely
• Identify trends
• Identify strengths and weaknesses in departments or specific tasks
• Understand the meaning or consequences of information
• Understand the contributing factors for financial data trends.

What are the different types of financial information?

Journals

Purchase summary reports

Transaction reports

Stock reports

Account summaries/balances

Variance reports

Profit and loss statements

Wastage reports

Invoices

Sales report

Budget reports

Business Activity Statements (BAS)

Expenditure reports (labour/non-labour) Labour/wages reports

Balance sheets

Cash flow statements

Trial balance

Bank statements

Receivables reports

Merchant statements

Stocktaking sheets

Credit card statements

Cheque book

Five steps to preparing financial reports

Step 1: Collate source documents

Source documents are the supporting documentation for every financial transaction made by the business. They include employee time sheets, invoices, receipts, statements, etc. They are the documents used for completing accounting records and for proving to a financial auditor or the tax department that the transactions recorded are valid. Supporting documents are typically filed in a secure location by the manager or finance staff.

Step 2: Post information to journals

Journals record the day-to-day transactions of a business. Different journals are kept for different groups of transactions. Examples include sales journal, purchase journal and cash receipts journal. At the end of thefinancial reporting period, totals from the journals are 'posted' (copied) to a general ledger.

Step 3: Post journal entries to ledger

There are two types of ledgers: the general ledger and the subsidiary ledger.

General ledger

The general ledger is essentially where all the accounts are kept. In a manual accounting system, there's a sheet of paper for each account number and name listed in thechart of accounts.

At the end of a period, the totals from the general ledger are used to complete the balance sheet and profit and loss report. Thankfully, with the introduction of accounting software packages, this process is a lot simpler.

Subsidiary ledgers

In a manual accounting system, the general ledger can quickly get out of control as the business grows. With numerous transactions taking place with many customers and suppliers, it becomes a challenge trying to ascertain who owes money, how much and to whom. For this reason businesses set up secondary ledgers known as subsidiary ledgers.

Fortunately, these days computers do most of the work for you!

Step 4: Prepare trial balance

A trial balance is a list of all the ledger accounts showing their debit or credit amount. In a manual accounting system it's used to double-check that for every debit amount there's an equal credit amount.

Step 5: Complete financial reports

Financial reports are used to show how a business is performing. The three you need to be familiar with are: 1. Income Statement

How to read an income statement/Financial statement analysis 1/3

This is a modal window.

Unable to find the video

2. Balance Sheet

How to read a balance sheet/ Financial statement analysis

Pause

Mute

Loaded:59.38%

Remaining Time

-6:47

Picture-in-Picture

Fullscreen

3. Cash flow statement

Cash flow for beginners / Financial statement Analysis

Play Video

Interpreting reports

Interpreting a report, such as a profit and loss report, will not only require you to look at the levels of profit and loss, but also at the reasons for any changes to profit/loss. In this example, you should be aware of the common contributors to overall profitability or loss and look to monitor these closely.

For example, increased profitability can be caused by:

• An increase in sales prices
• Less wastage
• A more efficient production and distribution system

Cheaper raw materials.

For example, losses can be caused by:

• A reduction in sales prices
• Increased costs and/or expenditure
• Loss, such as theft or obsolete stock
• Wastage, such as deterioration or damage.

You will need to be aware of the particular financial activities that your organisation require you to work on, these may include activities on average customer spend analysis to determine how customers buy from you; for example, if a predominance of repeat sales or on-off sales.

This may also include:

• Daily, weekly and monthly organisational transactions
• Department or organisation expenditure on areas such as labour, stock purchased and wastage
• Departmental income, such as covers and gross income, commission earnings and occupancy and gross income
• Outstanding accounts (payable and receivable)
• Quotations realised to sales or purchases
• Sales performance (over certain periods, such as a quarter-period, six months or a year)
• Stock levels (how much stock your organisation has)
• Variance from budgets (the difference in amount of the budget and expenditure).

The chart of accounts

This is the list of all the accounts in the general ledger for an organisation's financial operation. This list (or chart) separates information into appropriate fields; an organisation may also assign a number code to these accounts to help identify areas and for data manipulation in accounting software.

For example, under long-term liabilities, the following accounts may exist:

• Mortgage on premises
• Bonds payable.

Accounting categories

These are breakdowns in areas used in accounting, such as with costs and income. This is so you can further categorise accounts into appropriate parts. For example, when paying for building work, you may have account categories such as labour, materials, work hours. As a further categorisation, you may want to break down labour costs as regular and overtime.

Further reading

Interpreting financial statements

By Daniel Richards 1/9/2019

https://www.thebalancesmb.com/interpreting-the-cash-flow-statement-1200760

Please answer the following questions

:

List 5 types of financial information?

Briefly explain the five steps of preparing financial reports

3. Briefly describe the following financial statements:

a. Income statement

b. Balance Sheet

c. Cashflow statement