REPORT ON FINANCIAL ACTIVITY FACILITATOR MANUAL WITH SIMULATED ONLINE BUSINESS ASSESSMENT BSBFIA402A

Transcription

1 REPORT ON FINANCIAL ACTIVITY FACILITATOR MANUAL WITH SIMULATED ONLINE BUSINESS ASSESSMENT BSBFIA402A

2 Precision Group (Australia) Pty Ltd 44 Bergin Rd, Ferny Grove, QLD, Website: BSBFIA402A Report on Financial Activity ISBN: Copyright Notice No part of this book may be reproduced in any form or by any means, electronic or mechanical, including photocopying or recording, or by an information retrieval system without written permission from Precision Group (Australia) Pty Ltd. Legal action may be taken against any person who infringes their copyright through unauthorised copying. These terms are subject to the conditions prescribed under the Australian Copyright Act Copying for Educational Purposes The Australian Copyright Act 1968 allows 10% of this book to be copied by any educational institute for educational purposes, provided that the institute (or the body that administers it) has given a remuneration notice to the Copyright Agency Limited (CAL) under the Act. For more information, info@copyright. com.au or visit for other contact details. Disclaimer Precision Group has made a great effort to ensure that this material is free from error or omissions. However, you should conduct your own enquiries and seek professional advice before relying on any fact, statement or matter contained in this book. Precision Group (Australia) Pty Ltd is not responsible for any injury, loss or damage as a result of material included or omitted from this material. Information in this course material is current at the time of publication.

3 Table of Contents 2 Legend 3 Qualification Pathways 4 Qualification Rules 5 Introduction 7 BSBFIA402A/01 Compile Financial Information and Data Key Points Collect, evaluate and code current financial data to ensure consistency, quality and accuracy in accordance with organisational requirements Use conversion and consolidation procedures to compile analysis in accordance with organisational requirements Make, record and disclose asset and liability valuations in accordance with organisational requirements Ensure that discrepancies, unusual features or queries are identified, resolved or referred to the appropriate authority 19 True or False Quiz 21 BSBFIA402A/02 Prepare Statutory Requirement Reports Key Points Correctly record income and expenditure to ensure compliance with statutory requirements Calculate liabilities for tax in accordance with current legislation and revenue gathering practices Correctly identify relevant receipts, revenue documentation and payments Ensure that statements and claims take full advantage of available benefits and allowances in accordance with statutory requirements Submit statutory requirement reports to appropriate authorities within stated deadlines 33 True or False Quiz 35 BSBFIA402A/03 Provide Financial Business Recommendations Key Points Ensure that recommendations are logically derived and supported by evidence in report Provide recommendations to propose constructive actions to enhance the effectiveness and efficacy of functions and services Ensure recommendations are concise and facilitate direction and control of organisation s operations Identify and prioritise significant issues in statements including comparative financial performances for review and decision making Ensure structure and format of reports are clear and conform to organisational and statutory requirements 47 True or False Quiz 48 Summary 49 Bibliography 51 Assessment Pack 1

4 Use considered risk taking in your grey area...and others will follow you! Legend This symbol indicates the beginning of a new element. These will help you to find the information for your assessment activities. Activity: Whenever you see this symbol, there is an activity to carry out which has been designed to help reinforce the learning about the topic and take some action. This symbol is used at the beginning of each element to indicate the summary key points. This symbol is used to indicate an answer to the Candidate s questions or notes to assist the Facilitator. 2

5 Qualification Pathways There are always two choices. Two paths to take. One is easy. And its only reward is that it s easy. Source Unknown This unit of competency is provided to meet the requirements of BSB07 Business Services Training Package although it can be used in a range of different qualifications. The BSB07 Business Services Training Package does not state how a qualification is to be achieved. Rather, Registered Training Organisations are required to use the qualification rules to ensure the needs of the learner and business customer are met. This is to be achieved through the development of effective learning programs delivered in an order that meets the stated needs of nominated Candidates and business customers. 3

6 Qualification Rules You re either part of the solution or part of the problem. Eldridge Cleaver Qualification requirements include core and elective units. The unit mix is determined by specific unit of competency requirements which are stated in the qualification description. Registered Training Organisations then work with learners and business customers to select elective units relevant to the work outcome, local industry requirements and the qualification level. All vocational education qualifications must lead to a work outcome. BSB07 Business Services Training Package qualifications allow for Registered Training Organisations (RTOs) to vary programs to meet: Specific needs of a business or group of businesses. Skill needs of a locality or a particular industry application of business skills. Maximum employability of a group of students or an individual. When packaging a qualification elective units are to be selected from an equivalent level qualification unless otherwise stated. 4

7 Introduction Whether as an individual, or as part of a group, real progress depends on entering whole-heartedly into the process and being motivated to make you a more deeply satisfied human being. Source Unknown This unit of competency is all about reporting financial information. It is for anyone who is working, or who wants to work in business. It will help you with the skills you need to demonstrate competency for the unit BSBFIA402A Report on Financial Activity. This is one of the units that make up the Certificates in Business. This training is broken up into three distinct sections. These are: 1. Compile financial information and data 2. Prepare statutory requirement reports 3. Provide financial business recommendations At the conclusion of this training you will be asked to complete an assessment pack for this unit of competency. The information contained in the Candidate Resource will assist you to complete this task. 5

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9 ELEMENT 1: Compile Financial Information and Data Key Points Element 1 Financial reporting begins with collecting, evaluating and coding current financial data to ensure consistency, quality and accuracy in accordance with organisational requirements. Conversion and consolidation procedures allow you to compile an analysis in accordance with organisational requirements. An important part of the financial process is making, recording and disclosing asset and liability valuations in accordance with organisational requirements. Any discrepancies, unusual features or queries must be identified, resolved or referred to the appropriate authority. 7

10 Financial Information An organisation carries out a variety of activities. These activities comprise both inputs and outputs. One of the most important activities is the financial activity. The accounting system in place is the means by which this activity is carried out. The process of gathering financial information and communicating it to those parties that require it is known as the accounting process. In this manual, we will examine this process in detail looking at how you go about gathering the types of information that internal and external stakeholders need to make decsisions about your organisation. The types of financial reports used within an organisation differ depending on the nature of the organisation and its financial activities. The types of financial reports required from organisations for external use also depend on the nature of the organisations and the legislation applicable to those organisations. Examples of organisations and legislation that require the presentation of financial reports are: The Australian Taxation Office (ATO); The Australian Securities and Investment Commission (ASIC); The Income Tax Assessment Act; and The Good and Services Act (GST). There are three steps in the process of reporting financial activity: Step 1 Collect, code and record financial data Step 2 Summarise and report the data Step 3 Analyse the reports and make recommendations. Every transaction or business event requires a document as proof that the transaction took place. In this topic you will learn how to collect, evaluate and code current financial data to ensure consistency, quality and accuracy in accordance with organisational requirements. You will also learn how to use consolidation procedures to compile analysis in accordance with organisational requirements. Consolidation is done by transferring the data from the journals to the ledger account. This procedure is known as posting the journals. The net worth of a business is its assets minus its liabilities. As part of this topic you will make, record and disclose asset and liability valuation in accordance with organisational requirements. The final reports (Income Statement and Balance Sheet) are only as accurate as the accounts from which they are prepared. It is your role to ensure that discrepancies, unusual features or queries are identified, resolved or referred to the appropriate authority. A business event or transaction occurs when the business agrees to either: Buy goods, or other items of benefit to it, or Sells goods or other items which it has and which can be expressed in money terms. 8

11 Every transaction or business event requires a document. There are two types of documents: Source Document: the originating (or starting) document, used to record required information in the accounting books of the business. It is expressed in money terms and indicates that a transaction has occurred. Control Document: a document used in the business to control the use, or prevent the misuse, of the source documents. Control documents are for use within the business and have no direct use outside that business. Any trading organisation would have transactions which can be grouped under the following headings or categories: Pay money to supplier Receive money from customer Invoice to customer for inventory sold on credit Invoice from supplier for goods or other items purchased on credit Adjustment note from supplier for goods and other items previously purchased on credit Adjustment note to customer for goods and other items previously sold on credit Internal memorandum Pay money for inventory or other items at the time of their purchase Receive money for inventory at the time of its sale. With the exception of the internal memorandum, each of the above events would have a source document as proof that the transaction took place. Events Pay money to supplier Receive money from customer Invoice to customer Invoice from supplier Adjustment note from supplier Adjustment note to customer Internal Adjustment Pay money Receive money Source Document Cheque butt Receipt Sales invoice Purchase invoice Purchase adjustment note Sales Adjustment note Memorandum Cheque butt Receipt of Cash docket When undertaking accounting processes, it is important that you check and evaluate the verifying documents to ensure that they are accurate. The two most common types of source document in any business are the invoice and the cheque. These are also the most common documents which have errors, and this is why the evaluation process is so important. We will look at each of these in turn. 9

12 Checking an invoice involves ensuring that the invoice reflects the order that you made. Whenever you make a purchase from a creditor or supplier, on credit, you will receive a tax invoice. Let s look at the process you should follow when reconciling invoices. On receiving the shipment of merchandise, it is crucial that you count and inspect all of the items in the shipment. This should be marked on the invoice carefully indicating that all items that were ordered were received as requested. If any items were not received, the supplier should be notified immediately. Before approving the invoice for payment, the accounts payable clerk must compare the copies of the purchase order, invoice and receiving report (if prepared by receiving staff ) to ensure that the quantities, descriptions and process are all in agreement. The purchaser should make no entries in the accounts until the invoice is approved for payment. The seller enters the transactions in the records when the invoice is prepared, usually on shipment of the merchandise. 10

13 A cheque is a payable on demand item which means it is negotiable as soon as it is written. Cheques can not be post dated (written for a future date). Because it is not cash, it is important to carefully check the cheque, to ensure that it meets all the necessary requirements to be cashed by your bank. A cheque contains the following items. 1. Date - the date the cheque is written (cannot be a future date). 2. Maker - person / business who writes the cheque - the name will be printed on the cheque. 3. Payee - person / business to whom the cheque is written. 4. Signature line or lines - two or more signatures can be required on a cheque. 5. Written amount - the amount written in numbers. 6. Legal amount - the amount written in words. 7. Cheque number - printed on the bottom of the cheque. 8. Banking information - both the name and location of the bank. 9. Account and routing numbers - appear on the bottom of the cheque. All of the above transactions are recorded in books of original entry called Journals. There are five journals required to record the above transactions, they are: The Cash Receipt Journal - known as cash journal The Cash Payment Journal - known as cash journal The Sales Dissection Journal - known as credit journal The Purchases Distribution Journal - known as credit journal The General Journal Journal entries occur after the source document has been created or received. The source document is analysed and the transaction is recorded into the relevant journal. The journal itself is a chronological list of all the transactions that have taken place within the business during a specified period. Since the year 2000 with the introduction of the GST legislation, source documents have been re-formatted to show GST if applicable. If, for example, GST was charged on a credit transaction then a Tax Invoice was issued to show the amount of GST applicable on that transaction. You must have a tax invoice to claim an input tax credit for creditable acquisitions of $82.50 (inclusive of GST) or higher. The journals where the source documents are first recorded should also have provisions to record GST. The double entry accounting system, whether manual or electronic, is the system used to record the transactions in the journals. 11

14 There are too many source documents to put in a pile, total the amounts and then work out the performance or financial position of the business. These source documents will be sorted by type of transaction that they support and then entered in a journal that has been designed specifically for a particular type of transaction. For example, all cash receipt duplicates will be summarised in the Cash Receipt Journal; all cheque butts will be summarised in the Cash Payment Journal. This makes it easier to check how many transactions have occurred for the day or the month, the value of each and the total of all the transactions. All journals must have accurate supporting documentation which have been verified as correct or working papers to justify the preparation of every journal. All documents used to prepare journals are cross referenced to a particular journal number where it has been recorded. The signed journal and referenced data are given to a senior accounting officer, who checks and authorises the journal. The documents used to prepare the journals are filed chronologically. In the previous section we saw that certain groups of accounts were used to prepare the balance sheet, namely, the assets, the liabilities and owner s equity accounts. Let us define what each group represents: Assets = what the business owns Liabilities = what the business owes to creditors Owner s Equity = what the business owes to the owners We see that the net worth of a business is its assets minus its liabilities, and since the owners own the whole business then the net worth of the business is owed to the owners (owner s equity). It must be stressed that the Balance Sheet is not a valuation report but a report of value of when the transactions took place, in other words it is an historical record of assets and liabilities. Asset values are recorded when they are purchased or sold and if this is a long time ago they might not reflect current market values. This is one of the key principles underlying modern accounting practice. For reporting and decision making purposes, the Balance Sheet would be more useful if the values shown were current market values. Unfortunately market values are very hard to ascertain, especially if you don t sell the asset, and subjectivity would creep in. Therefore most statutory authorities who require this report specify historical values as they are objective and verifiable at best the preparer can put notes showing how assets are re-valued to reflect current market value. Liabilities are not re-valued up or down as they do not change in value over time. Owner s Equity is also a result of both Assets and Liabilities therefore its value depends on how the other two components are valued. The final reports (Income Statement and Balance Sheet) are only as accurate as the accounts from which they are prepared. The organisation must have in place controls that make the accounts accurate. The double entry accounting system itself has its own checks and balances but it is not foolproof that everything has been recorded and posted accurately. 12

15 Before you can really start setting financial goals, you need to determine where you stand financially. David Bach One of the controls that the system has before the reports are prepared is called the Trial Balance. A trial balance is a listing of general ledger account names and values, which are shown as either a debit or a credit balance. The total of the debit balances agree to the total of the credit balances. The trial balance is prepared at a point in time, usually at the end of the month. If the trial balance balances, then it is a preliminary proof that the accounts in the ledger are correct, but it can be abused if the figures are manipulated. If it doesn t balance then it tells you not to go ahead in preparing the final reports because they will also be wrong. Therefore, the mistakes have to be found and the trial balance must be made to balance before proceeding further. There are other controls and checks done on value of accounts to make sure they reflect true accurate values. One of these controls is called a Bank Reconciliation. The purpose of this reconciliation is to ascertain the real value of cash available as at a point in time. 13

16 A bank reconciliation should be prepared each time an organisation receives a bank statement and is an important cash control procedure. The reconciliation verifies the amount of cash you have in your account against the amount you expect to be there. There are numerous reasons why the cash balance in your books will usually not agree with the balance shown on your bank statement. In the main, this discrepancy is due to a delay in cheques and deposits clearing the banking system, bank charges and credits being applied to your account and errors you may have made in your books. By preparing a bank reconciliation, you can be assured that the account balance shown on your books accurately reflects the amount in the bank. The key reasons for discrepancies between your books and your bank balance include: Outstanding Cheques: Cheques written and deducted in arriving at the book balance, but not yet presented to the bank for payment. Deposits not yet credited by the bank: Deposits made near the end of the month and processed by the bank after the monthly statement has been prepared. These deposits will appear on next month s statement Charges made by the bank but not yet reflected in the depositor s books: For example, service and collection changes, repayment of bank loan charged against a cheque account and all bank fees. Credits made by the bank but not yet reflected on the depositor s books: For example, collections of notes and drafts by the bank and interest earned on the cheque account balance. Accounting errors: Even banks make errors! Bank reconciliations are also useful for uncovering irregularities such as theft by your employees or other forms of fraud. The bank reconciliation is a schedule that accounts for any of the above differences between the bank balance and the book balance. Although we could reconcile either of these figures to the other, it is more convenient to reconcile both figures to an adjusted balance, which is the cash balance that will appear on the bank statement. This amount could be withdrawn from the bank after all outstanding items have cleared. A convenient form for reconciling our bank account is shown below. Balance per bank statement Balance per books Add: deposits not yet credited by bank Add: Items credited by bank, not yet entered in books Less: Outstanding cheques (List each individually) Less: Items charged by bank, not yet entered by bank The organisation must have in place controls that make the accounts accurate. 14

17 The value in the ledger account called Cash at Bank account might not agree with the balance on the bank statement issued by the bank. If this is the case, what is the right value? Maybe both are incorrect. The bank statement might not show all the cheques drawn on the account as payees have not all presented their cheques. On the other hand the Cash at Bank ledger account might not show the correct balance if some people have paid the business straight into the bank account or the bank has charged fees on the account and the owner does not know until he / she gets the statement. To ascertain the correct balance, a bank reconciliation is carried out and this reconciled figure is the value shown in the balance sheet. 15

18 Another control or check is made on the value of stock on hand. Normally this value is the balance of the inventory (stock) account in the ledger. This account goes up and down depending on whether stock comes in (purchased) or goes out (sales) and the balance at balance date should represent what is left. To make sure that this balance is correct, a physical stocktake is done and the actual physical quantity on hand is costed out to give actual value on hand. This actual value on hand might not be the same as the value of the account. If this is the case, the actual physical value is the value used to record stock in the balance sheet, the stock account is also adjusted to reflect that actual physical value. The historical accounting system adapts or is based on the doctrine of conservatism which means that values in the balance sheet must not be shown at values greater than the fair market value of those assets. At balance day when the Balance Sheet is prepared an impairment test is carried out. This test compares the carrying amount of non-current assets, (the values in the accounts less any accumulated depreciation) with the fair market value of those assets. If the fair market value of an asset is less than the carrying amount of that asset, then the asset is said to be impaired. The difference between the fair market value and the carrying amount is called the impairment loss. The fair market value is the value shown in the Balance Sheet and the impairment loss is written off to the Profit & Loss as an expense. Another asset which is looked at closely when the Balance Sheet is prepared is the asset called Accounts Receivable. The value of this account is the balance of all credit sales not yet collected, but a close analysis of the individual accounts (debtors) which make up the account called Accounts Receivable shown in the Balance Sheet could be overstated. Applying the doctrine of conservatism this account has to be reduced to reflect the value that is likely to be collected. This is done by reducing the balance of the Accounts Receivable account by an amount called Provision for Doubtful Debts. This provision is estimated by the Accountant and an account is created for such a purpose. As can be seen from above, errors and adjustments are identified at balance date and procedures are put in place to rectify and adjust values before a Balance Sheet is prepared. Management of a business is responsible for the preparation of various financial reports of which the Balance Sheet is one of them. They sign that these reports are prepared in accordance with the Australian Accounting Standards and reflect a true and fair value of the business as at a particular date. 16

19 Activity One Test your understanding of some of the key financial concepts. Name two (2) government agencies who will require organisational financial information: Name two Acts that govern financial reporting: What is a source document? What is a control document? Define what each group represents: Assets Liabiliites Owner s Equity 17

20 What is a trial balance? Facilitator s Notes for Activity One Name two (2) government agencies who will require organisational financial information: 1. The Australian Taxation Office (ATO) 2. The Australian Securities and Investment Commission (ASIC) Name two Acts that govern financial reporting: 1. The Income Tax Assessment Act 2. The Goods and Services Act What is a source document? Source Document: the originating (or starting) document, used to record required information in the accounting books of the business. It is expressed in money terms and indicates that a transaction has occurred. What is a control document? Control Document: a document used in the business to control the use, or prevent the misuse, of the source documents. Control documents are for use within the business and have no direct use outside that business. Define what each group represents: Assets = what the business owns Liabilities = what the business owes to creditors Owner s Equity = what the business owes to the owners. What is a trial balance? A trial balance is a listing of general ledger account names and values, which are shown as either a debit or a credit balance. The total of the debit balances agree to the total of the credit balances. The trial balance is prepared at a point in time, usually at the end of the month. 18

21 Element 1 - True or False Quiz True False Accounting is the process by which the organisation communicates information on its economic and financial activities. Some transactions do not produce source documents. All transactions have source documents. A source document is a document used in the business to control the use, or prevent the misuse, of the control documents. This actually describes the effect of a control document on a source document. The net worth of a business is its assets minus its liabilities. The source document Purchase Invoice will be received when purchasing with cash. That would produce a cash receipt. Checking an invoice involves ensuring that the invoice reflects the order that you made. You must have a tax invoice to claim an input tax credit for creditable acquisition of $82.50 (inclusive of GST) or higher. Cheques cannot have a future date. One of the controls that the system has before the reports are prepared is called the Trial Balance. Assets are what a business owes. Assets are what the business owns. 19