Management Accounting

Reporting to the board

ABC's treasurer's monthly report for March 2004

We would have had a pleasing result for March if we hadn't had to buy a

new computer and a printer, costing $4000. This was an unpredicted,

but necessary expense, as the old computer died and wasn't worth

repairing. This unbudgeted expense will place considerable pressure on

our cash flow over the next few months.

However, we are planning to sell some of our paintings in June and they

should realise in excess of $4,000. This sale was not anticipated in our

budget.

If we hadn't had that unexpected expense, our net surplus of $200, on

an accrual basis of accounting, would've been $575 ahead of budget.

Our gala came out ahead of budget in spite of the bad weather on the

day.

Here’s an example of a typical report, which has been adapted from a case study in the Chartered Accountants of Australia Voluntary Treasurer’s Handbook. It consists of a summary, a statement of budget differences for the year, a cash report, personnel record, and capital expenditure and approvals.

1. Summary

The summary should provide a brief overview of the

accounts and your interpretation of the organisation’s

current financial position. You need to highlight any

significant matters to draw the board’s attention to these

issues.

2. Statement of budget differences of the year

ABC August Budget

Budget Actual Budget Budget Actual Budget Revised Official this this Variance YTD YTD Variance Budget Budget

month month this month YTD for year for year

Income

Sales $0 $0 $0 $0 $0 $0 $4,500 $0

Earned $2,100 $2,550 $450 $2,100 $2,550 $450 $5,450 $5,000

Donations $250 $375 $125 $750 $875 $125 $4,625 $4,500

Sponsorship $120 $120 $0 $360 $360 $0 $1,440 $1,440

Grants $0 $0 $0 $0 $0 $0 $0 $0

Total income $2,470 $3,045 $575 $3,210 $3,785 $575 $16,015 $10,940

Expenditure

Wages (inc. tax, super, etc) $0 $0 $0 $0 $0 $0 $0 $0

Equipment $0 $4,000 $4,000 $0 $4,000 $4,000 $4,000 $0

Other $2,845 $2,845 $0 $3,100 $3,100 $0 $9,940 $9,940

Total expenditure $2,845 $6,845 $4,000 $3,100 $7,100 $4,000 $13,940 $9,940

Net surplus -$375 -$3,800 -$3,425 $110 -$3,315 -$3,425 $2,075 $1,000

HELPSHEET 9

HELPSHEET 9: PAGE 1 OF 3

Profit and loss statement

The profit and loss statement (P&L) is a

financial measure of your organisation’s

performance over a given period (often a

year). It is a summary of the expenses

and income in that period and shows the

level of profit or loss from the activities of

your organisation during that period.

ABC's cash report

At the end of March, ABC had $4,500 in the bank – after the payment of $4,000 for the

new equipment. A bank reconciliation confirms this figure.

3. Cash report

Carry out a bank reconciliation each

month and look ahead to make sure there

are no cash flow problems likely to arise.

If you know in advance about cash–flow

shortfalls, you can act to counter them.

4. Personnel report

Where there are staff, the treasurer or

administrator should provide a staff

update.

5. Capital expenditure

Include a statement on capital

expenditure requiring board approval.

6. Name and date

Your report should always show your

name and the date the report was

prepared. The report should be circulated

to board members before the board

meeting and within 10 to 14 days after the

end of each month.

If you are receiving grants from state or

federal government, you will have to make

regular (milestone) reports to the granting

bodies – often quarterly – and an

end–of–project report.

The milestone reports will probably

include client statistics and a financial

statement. The end of term report will

include:

■ An audited financial statement

■ A copy of your annual report

■ A report on your performance against

each agreed measure

■ Client service statistics

The key reporting tool for annual meeting

time is a balance sheet of assets,

liabilities and equity. It is structured

around the accounting equation:

■ Assets = liabilities + equity, or

Equity = assets – liabilities

ABC's capital expenditure

As already reported, we have bought a new computer. We discussed this matter last meeting

and as directed, we sought advice from one of our members, Greg Jones, who runs an IT

department. His opinion confirmed our suspicion that it wasn't worth fixing the computer as

it was eight years old.

The board approved capital expenditure of up to $5,000, providing funds could be found

to meet the cash shortfall. To meet the shortfall, the board proposed that we sell some

paintings which were donated to us five years ago.

Board member Jo Prince has agreed to arrange for the sale of the paintings by placing them

into a local auction. The paintings should fetch in excess of $4,000.

Neither the purchase of the computers nor the sale of paintings was in our budget, which

we now need to amend.

ABC's report

Prepared by:

Fiona Day (Honorary treasurer) Date: 2

April 2004

Balance sheet (as at 30 June 2004)

Assets

Cash 5,000

Accounts receivable 1,000

Inventory 5,000

Property, plant and equipment 100,000

Total assets 111,000

Liabilities

Accounts payable 14,000

Wages payable 2,000

Provision for employee entitlements 3,000

Long-term debt 25,000

Total liabilities 44,000

Source: Our Community

HELPSHEET 9: PAGE 2 OF 3

The profit or loss figure is calculated by

offsetting income against expenses in this

period. The difference between the

income and expenses is the profit or loss.

Income/revenue – (costs of sales +

expenses) = profit or loss

Income includes sales, fees earned, rent

paid and interest earned.

Effective reports

■ Are comprehensive and concise

■ Are easy to understand

■ Are up-to-date

■ Are broken down into programs and

projects

■ Compare actual figures to date with

budgeted figures

■ Highlight discrepancies

Your reports should be as detailed as

possible so you can answer questions

such as:

■ How much money goes into particular

aspects of a program (for example,

HELPSHEET 9: PAGE 3 OF 3 Brought to you by

Expenses include wages, interest, costs of

goods sold and advertising.

Cash versus profit

Unless all your transactions are cash, it is

most unlikely that the profit or loss shown

in this period will equal the ‘cash

received’ minus the ‘cash paid’ in the

same period.

Reasons for the differences include:

■ Some of your debtors may not yet have

paid your invoices.

■ You may have paid for some goods and

services with credit, rather than cash.

■ It is not appropriate to charge the

entire cost of a capital expenditure in

one year. The cost is depreciated (or

written off) over the life–span of the

item, rather than treated as a one–off

charge at the time of purchase.

Constructing a profit and loss

statement

Construct the profit and loss statement

using the accounting–matching principle –

in other words, match profit and loss

items against each other in categories.

Include the figures from the end of the

previous year as a comparison.

How to write good reports

Minutes and agenda are usually the

responsibility of the chairperson and

secretary in consultation with the

treasurer.

The treasurer needs to provide monthly

and often quarterly reports to the board.

If your organisation has staff, they can

prepare much of the detail of the reports

well in advance of the meeting. It is good

practice to circulate these reports before

the meeting so people have time to read

and understand them.

At each meeting, you should give an

updated estimate of the year-end result,

after taking actual results to date into

account. As well as providing an overview

of your organisation's finances, you need

to separate the accounts for specific

programs and projects.

It is your responsibility to make sure your

fellow board members understand the

budget and your monthly reports. Your

reports must communicate complex

financial information to people who don't

necessarily understand figures. You must

be able to explain in everyday language,

the meaning behind the figures. If people

don't understand, they will either switch

off or you will have unnecessary

discussions at each meeting about the

same information.

how much goes into advertising and

how much into administration?)

■ Are there any unbudgeted or unusual

revenue or expenses?

■ What is the cash balance and are there

any cash-flow problems?

■ Are we meeting our financial

commitments on time, for example,

payroll taxes, GST returns and

superannuation?

■ Are we having to dip into reserves or

restricted funds?

■ Are we relying on credit too much?

■ Is board approval needed for any

major purchases?

■ Do we have many unpaid bills? Who is

chasing them up?

Profit & Loss

DEF Limited

Profit and Loss

This year Last year

Jan-Dec 2003 $ Jan-Dec 2002 $

Sales 500,000 425,000

Cost of sales

Opening stock 75,000 57,000

Purchases 235,000 215,000

310,000 272,000

Closing stock (65,000) (75,000)

Cost of goods sold 245,000 197,000

Gross profit 255,000 228,000

51% 53.6%

Expenses

Wages and salaries 101,230 95,000

Rent 13,740 13,740

Rates 6,400 6,400

Heat and light 2,350 2,420

Communications 4,400 3,980

Insurance 1,200 1,100

Depreciation 4,100 3,500

Legal & professional fees 2,500 2,300

Accounting & auditing fees 5,000 4,500

Travel expenses 12,000 11,800

Advertising and PR 24,350 24,220

Repairs 3,720 2,790

Printing & stationery 6,240 5,950

Sundry expenses 940 800

Bank interest & charges 1,110 1,200

Total operation expenses 189,280 179,700

37.9% 42.3%

Net profit 65,720 48,300

131.1% 11.4%