How do you track your finance?

MSC Social Enterprise Year 1 Weekend 3

Jackie Scutt

Financial accounting & Management accounting

Financial accounting:

• Retrospective over a set accounting period

• A standard snapshot in time

• Audited

• Available

Financial accounting & Management accounting

Management accounting:

• Projections

• A way of keeping track of your budgets

• Updated constantly

• For internal use

The 3 main financial statements

How they give us different kinds of information about organisational performance:

Profit and Loss

• Shows the results over a particular period, normally a year

• Compares the income against the expenditure needed to create that income during that period

• Grant income is normally released against expenditure associated with the grant

• Income and expenditure are based on when items are invoiced, not when they are paid

• Includes non-cash items such as depreciation

• Adjusts for accruals and prepayments

• The surplus or deficit is carried forward to the next year through the balance sheet

Format of P&L accounts

Sales

Cost of Sales

Gross Profit

Fixed costs/overheads

Operating profit

Tax and interest charges

Earnings/net profit

Balance Sheet

• A summary of an organisations’ assets and liabilities, the basis for deciding if it is solvent or not

• The net assets balance with the financing of the organisation

• Includes liabilities i.e. cash owed to others, loans

• Assets can be tangible – cash, equipment, stock, buildings – or intangible – goodwill, reputation

• ‘Liquid’ assets are assets which can be converted into cash within a year

Typical balance sheet

Fixed assets (e.g. equipment)

Current assets (stock, cash, prepayments, debtors)

Current liabilities (creditors, bank overdraft)

Current assets less current liabilities = net current assets, or working capital

Fixed assets + net current assets = reserves, or equity

Issues in OSCR and accounting practice

• Distinction between restricted, designated and unrestricted reserves

• Allocation of income and expenditure according to charitable activities

• Reserves policy

• Risk mitigation

• Trading income

• VAT

Financial Risk

• Lack of profitability

• Lack of cash

• Budget forecasts inaccurate

• Loss of income

• Increased expenditure

• Lack of FCR

Task 1

1.Look at the financial statements for Any Org.

2.What do they tell you about the organisation?

•What are the strengths?

•What are the risks?

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Task 2

1.Complete the exercise for Right On products.

2.What are the learning points for your own business plan?

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