SITXFIN008 Slideshow

SITXFIN008
Interpret financial information

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SITXFIN008 Interpret financial information © 2023 RTO Works

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IMPORTANCE OF INTERPRETING FINANCIAL INFORMATION

Understanding and interpreting financial information is important for a
business because it:
• guides strategic decisions by revealing a company's financial health
• helps evaluate how much money the company is making and where
improvements can be made
• ensures that a company follows financial regulations and pays their taxes
correctly
1: Access and interpret financial information

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IMPORTANCE OF INTERPRETING FINANCIAL INFORMATION

• helps allocate resources efficiently and plan for the future
• helps to gauge the risks and returns of any investments
• allows comparison with industry standards to identify areas needing
improvement.
• leads to better financial management.

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FINANCIAL TERMINOLOGY
‘Financial terminology’ refers to words and
terms used by accountants, bookkeepers and
those involved with financial matters to
communicate with each other using language
that is clear, definitive and commonly
understood.
Familiarise yourself with the terms in the table
in your Student Guide.

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THE DOUBLE ENTRY SYSTEM

• Increases the potential for accurate bookkeeping records to be kept.
• Diminishes the possibility of posting or entry mistakes.
• Increases the likelihood of detecting fraudulent activity.

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TRANSACTIONS
• A transaction is any business event that has an impact on the income
or expenses of the business.
• Most commonly it relates to a purchase or a sale but includes any
action that has an impact on a financial statement.

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THE GENERAL LEDGER

The general ledger is an accounting record that contains all of a
business’s financial transactions. It is a main component of the double-
entry accounting system.
The general ledger is important for creating financial statements and
monitoring the financial health of a business.

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EXPENDITURE ITEMS
Departmental expenditure items are ‘costs’ to the department and can
include:
• labour – referring to wages paid, superannuation and leave
entitlements
• stock purchased – this is the inventory of the property: materials,
ingredients, food and beverages
• wastage – being materials or ingredients that have not been
productively used/has not earned any income.

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INCOME ITEMS
These are the sales made by the business, or the ‘revenue’ it earns as a
result of the expenditure incurred.
The business may choose to monitor:
• covers and gross income
• commission earnings
• occupancy and gross income
• sales.

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DEBTORS AND CREDITORS

Debtors refer to individuals or entities who owe money to a business for
services rendered.
Creditors refer to businesses or suppliers that have provided goods or
services to a business and are awaiting payment.

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ACCOUNTS RECEIVABLE
Accounts receivable represent outstanding amounts of money that
customers (debtors) owe a business for services or products provided but
have not yet paid. This typically includes charges for accommodations,
meals, room service or any other services rendered to guests.

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ACCOUNTS PAYABLE
Accounts payable refer to the outstanding debts and financial obligations
that a business owes to suppliers, vendors or service providers
(creditors). These amounts represent unpaid bills for goods or services
received, such as food and beverage supplies, utility bills, cleaning
services or maintenance work.

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DISBURSEMENTS
Disbursements refer to payments or outflows of money made by a
business to cover various expenses and financial obligations.

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FIXED COSTS
Fixed costs represent the expenses that remain constant and do not
fluctuate with changes in business activity or the volume of guests
served. Fixed costs can include:
• rent or lease payments
• insurance premiums
• depreciation
• salaries and wages
• utilities.

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VARIABLE COSTS
Variable costs are expenses that fluctuate in direct proportion to changes
in the level of business activity. These costs are directly linked to the
volume of guests served or the amount of business conduct. Variable
costs can include:
• cost of food and beverages
• housekeeping supplies
• hourly wages for staff whose hours vary based on demand.

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INVOICES
Invoices are documents issued by a seller to a buyer, detailing the
products or services provided, their quantities, prices, taxes included and
the terms of payment.

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RECEIPTS
Receipts are records provided to customers or guests as evidence of
payment for services or products received. These documents typically
include details such as the date of the transaction, a list of items or
services purchased, their prices any applicable taxes and the total
amount paid.

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FINANCIAL REPORTING PERIODS

• A financial year is the 12-month period to which an organisation’s
annual statements and reports relate. In Australia, our financial year is
from 1 July to 30 June.
• Activity statement reporting periods can vary and may be monthly,
quarterly or annually.

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PROFIT AND LOSS STATEMENT

The profit and loss statement, often referred to as the income statement,
is a financial report that shows revenues, costs and expenses over a
specific period – typically a financial quarter or year. It provides a
summary of financial performance, indicating whether the business made
a profit or incurred a loss during that period.

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BALANCE SHEET
• The purpose of the Balance Sheet is to show assets, liabilities and
equity of the business at a given time to show a picture of the overall
financial position (‘solvency’) of the organisation at that point in time.
• It is the last statement produced when compiling the financial
statements and, as its name indicates, it must balance, in accordance
with the accounting equation.

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RECONCILIATIONS
Reconciliation in accounting refers to comparing two sets of financial
records to ensure they align and are accurate. This often involves
matching transactions between a business’s internal records and external
statements, such as bank statements or supplier invoices.
Other reconciliations include reconciliations of daily takings and debt
reconciliation – of loans and mortgages.

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BUDGET REPORTS
Budget reports provide a summary of a business’s budgeting activities
and their actual financial performance. These reports play a role in
monitoring and controlling a business’s financial resources.

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CASH FLOW REPORTS

Cash flow reports provide an overview of how cash moves in and out of a
business over a specific period. These reports help a business to assess
its liquidity, understand its ability to meet financial obligations and make
informed financial decisions.

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COVERS REPORT
This report tracks how many guests are served in a restaurant, café or food
service establishment over a specific period. The term ‘covers’ refers to the
individual places or seats occupied by diners. This report helps to monitor
and manage restaurant operations, as it provides valuable insights into
customer traffic and dining patterns.

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EXPENDITURE REPORTS
Expenditure reports are often referred to as expense reports. These
reports track and summarise expenses incurred by an individual, employee
or the business during a specific period. These reports are often used for
reimbursement, financial recordkeeping and to monitor and manage
expenses.

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LABOUR AND WAGES REPORTS

This type of report provides information about the labour costs associated
with running the business. It is used to monitor and manage staffing
expenses, understand labour productivity and ensure that labour costs are
in line with the business’s budget and financial goals.

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OCCUPANCY RATES
Occupancy rates are an important performance metric in hospitality,
particularly in hotels and other accommodation establishments. They indicate
the percentage of available rooms that are occupied by guests during a
specific period, typically on a daily, weekly, monthly or annual basis.
Occupancy rates are calculated by dividing the number of occupied rooms or
units by the total number of available rooms or units and then multiplying by
100 to express it as a percentage:
Occupancy Rate (%) = (Number of Occupied Rooms / Total Number of
Available Rooms) * 100

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PURCHASES REPORTS
These reports provide an overview of the goods or services that a business
has acquired from suppliers during a specific period. These reports help with
monitoring and managing procurement activities, tracking expenses and
ensuring that purchases align with the business’s budget and financial
objectives.

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RECEIVABLES REPORTS
These reports provide a detailed summary of the amounts owed to a
business by its customers or clients. These reports help with monitoring and
managing accounts receivable, tracking outstanding payments and ensuring
that the business’s cash flow remains healthy.

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SALES REPORTS
Sales reports provide an overview of a business’s sales activities over a
specific period. These reports help with monitoring and analysing sales
performance, tracking revenue and making informed business decisions.

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STOCK REPORTS
Stock reports, also known as inventory reports, provide a detailed summary
of a business’s current inventory levels, the value of the inventory and other
relevant inventory-related information. These reports help with monitoring
and managing inventory, tracking costs and ensuring that the business’s
supply chain functions efficiently.

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TRANSACTION REPORTS
Transaction reports provide a detailed record of individual financial
transactions conducted by a business or individual over a specific period.
These reports help with tracking financial activities, ensuring accuracy in
accounting records and providing an audit trail for financial analysis and
compliance purposes.

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TRANSACTIONS EXEMPTED REPORTS

Transactions that are exempted typically refer to specific financial activities
or events that are excluded from certain taxes, regulations or reporting
requirements.

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UNITS SOLD REPORTS

These reports provide an overview of the quantity of products or services
sold by a business over a specific period. These reports help with monitoring
sales performance, analysing demand trends and making informed decisions
related to inventory, pricing and marketing strategies.

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VARIANCE REPORTS
Variance reports, often referred to as variance analysis reports, compare
actual financial performance to budgeted or expected performance. These
reports help to understand differences (variances) between what was
budgeted and what was actually achieved. Variance reports help businesses
to identify areas where they are performing well or falling short of
expectations.

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WASTAGE REPORTS
Wastage reports, also known as waste reports or wastage analysis reports,
provide an overview of the amount of materials, products or resources that
have been wasted or discarded by a business. These reports help with
identifying areas where waste occurs, understanding the reasons for
wastage and implementing strategies to reduce it.

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ADDITIONAL FINANCIAL INFORMATION INCLUDES

• Account summaries and balances
• Bank deposit documentation
• Bank statements
• Banking summaries
• Credit card transaction statements
• Merchant statements
• Merchant summaries
• Business activity statements (BAS)

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CONTEXT
Interpretation of the financial information contained in financial statements
and reports requires managers to:
• understand what the terms and line items mean in each of the documents
they examine
• comprehend the meaning behind the figures presented
• compare the results shown with expectations/projections and
organisational goals and objectives.
2: Interpretation and use of financial information

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VARIANCE FROM BUDGET
Represents the difference between ‘actual’ and ‘projected’

figure.
May be a positive or negative variance and may apply to

an income or an expenditure budget.
May be expressed as a dollar term or a percentage.

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ORGANISATIONAL OR DEPARTMENTAL ACTIVITIES

The unique nature of each business and the individual work areas or
departments of each property will determine the exact nature of these but
they can include:
• food and beverage sales
• accommodation sales
• gaming and entertainment
• functions and events
• travel and tourism.

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FOCUS OF THE ANALYSIS

For all of the activities there will be a need to track and interpret:
• income
• expenditure
• inventory.

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EXAMPLES OF ITEMS MONITORED

• Average customer spend.
• Quotations realised to sales.
• Sales performance.
• Stock levels.

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GENERIC INTERPRETATIONS OF FINANCIAL INFORMATION

It is important to understand interpretation of financial information is done in
context – this means:
• deciding if targets set for the period in question were realistic or not –
perhaps the figures initially set were too optimistic
• identifying if there have been any changes in the external environment the
business is operating in that may be responsible or casual factors – or if
there have been any external changes
• not considering a statistic from one report or statement in isolation from
relevant other factors, as appropriate.

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GENERIC INTERPRETATIONS OF FINANCIAL INFORMATION

It is important to understand interpretation of financial information is done in
context – this means:
• deciding if targets set for the period in question were realistic or not –
perhaps the figures initially set were too optimistic
• identifying if there have been any changes in the external environment the
business is operating in that may be responsible or casual factors – or if
there have been any external changes
• not considering a statistic from one report or statement in isolation from
relevant other factors, as appropriate.

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UNACCEPTABLE OR NEGATIVE SITUATIONS MAY INCLUDE

• Decreasing sales.
• Increases in expenditure.
• Increasing cost of goods sold percentages.
• Lower ROI percentages.
• Falling cover numbers or rates of conversion.
• Delays in payment of accounts receivable.
• Growth of account payable and delays in paying same.
• Growing labour costs.

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FINANCIAL INFORMATION IS REVIEWED TO:

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OPERATIONAL CALCULATIONS
• Labour cost percentage.
• Average dollar sale per cover.
• Average sale per transaction.
• Average dollar sale per room or guest.
• Percentage bed occupancy.
• Percentage room occupancy.
• Average room rate.

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DETERMINING THE OPERATING PERFORMANCE OF THE BUSINESS

Calculations determine the efficiency with which the business is using owners’
funds and the assets of the business in terms of return on owner funds and
return on assets.
Calculations need also to be made to see the efficiency with which sales and
profit are made in terms of:
• gross profit
• net profit
• cost of goods sold.

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DETERMINING THE FINANCIAL STABILITY OF THE BUSINESS

Calculations are made to determine the short-term ability of the business to
pay its way by identifying, for example:
• the working capital ratio
• the quick asset ratio.
Calculations need also to be made to determine the long-term viability of the
enterprise in terms of things such as:
• the proprietary ratio
• interest coverage.

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DISCREPANCY RESOLUTION
A ‘discrepancy’ is a difference between what appears ‘on the books’ and what
is the real situation.
These discrepancies may be in the form of:
• an error in posting • a calculation error
• a transpositional error • a formulaic mistake
• an omission error • mistake in the application of accounting principles and
• a duplication error standards

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DISCREPANCY RESOLUTION
Care needs to be taken when resolving discrepancies to ensure:
• the resolution fixes the initial error and does not create other discrepancies
• nothing is done to cause concern that fraud is occurring or is being covered
up.

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DISCREPANCY RESOLUTION: LEVELS OF RESPONSIBILITY

• Operational staff have no authority to act in this regard.
• Supervisors can only resolve Daily takings figures on Daily taking Sheets
and nothing else.
• Only department managers can adjust or resolve figures for their own
department.
• Accounts which are organisation-wide can only be adjusted by the Accounts
department – and a ‘Financial adjustment report’ must be completed and
forwarded to relevant departmental managers for their information.

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DISCREPANCY RESOLUTION: ACTIVITIES POTENTIALLY INVOLVED

• Recalculate figures.
• Follow up with the Accounts department or an individual to determine
causes and/or arrange remedies.
• Re-enter figures.
• Attach explanatory notes to subsequent financial reports issued.
• Notify relevant others of what was found and action taken in response.
• Complete, file and/or forward ‘Financial adjustment report’.

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ACCOUNTING SOFTWARE
• It automates tasks such as data entry, calculations and report generation,
saving time and reducing the risk of errors.
• By automating calculations and reducing manual data entry, accounting
software helps reduce errors and ensures more accurate financial records.
• It helps keep all financial information in one place, making it easier to
access and manage records.
• Most software is updated regularly to keep in line with tax and regulatory
updates.

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ACCOUNTING SOFTWARE
• It is a secure way to store sensitive financial data, reducing the risk of data
breaches or loss.
• It offers a range of reporting options, enabling quick creation of financial
statements, balance sheets, profit and loss reports and more.
• It is easy to use reports to analyse financial performance, identify trends and
make informed decisions.

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ACCOUNTING SOFTWARE
• Most software includes invoicing features that make it easy to bill customers
and track payments.
• Financial data can be accessed by users from anywhere with an internet
connection, allowing for remote work and collaboration.
• It can often be integrated with other business software, making it easier to
manage various aspects of operations.

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ACCOUNTING SOFTWARE: FEATURES AND FUNCTIONS

• General ledger.
• Accounts payable.
• Accounts receivable.
• Financial reporting.
• Bank reconciliation.
• Payroll management.
• Expense tracking.

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ACCOUNTING SOFTWARE: FEATURES AND FUNCTIONS

• Invoicing.
• Budgeting and forecasting.
• Taxation support.
• Multi-currency support.
• Audit trails.
• Inventory management.
• Integration.

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WHAT’S COOKING
To learn more, complete the activity.

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ACCOUNTING SOFTWARE: TIMING

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ACCOUNTING SOFTWARE: METHODS

The information is commonly provided in two forms:
• in hard copy form
• in electronic form.

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GST
GST is ‘a broad-based tax of 10% on most goods, services and other items
sold or consumed in Australia.’
Most products and services are subject to GST but exemptions exist for some
foodstuffs, medical-related items, training and education and a limited range of
other goods and services. Only businesses registered for GST can charge
GST when they charge for a product or service.

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WHAT’S COOKING


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Interpret financial information

SITXFIN008 Interpret financial information © 2023 RTO Works

IMPORTANCE OF INTERPRETING FINANCIAL INFORMATION

1: Access and interpret financial information

IMPORTANCE OF INTERPRETING FINANCIAL INFORMATION

1: Access and interpret financial information

1: Access and interpret financial information

THE DOUBLE ENTRY SYSTEM

1: Access and interpret financial information

LIFT THE LID

1: Access and interpret financial information

1: Access and interpret financial information

THE GENERAL LEDGER

1: Access and interpret financial information

LIFT THE LID

1: Access and interpret financial information

1: Access and interpret financial information

LIFT THE LID

1: Access and interpret financial information

1: Access and interpret financial information

1: Access and interpret financial information

DEBTORS AND CREDITORS

1: Access and interpret financial information

1: Access and interpret financial information

1: Access and interpret financial information

1: Access and interpret financial information

LIFT THE LID

1: Access and interpret financial information

1: Access and interpret financial information

1: Access and interpret financial information

1: Access and interpret financial information

LIFT THE LID

1: Access and interpret financial information

1: Access and interpret financial information

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1: Access and interpret financial information

FINANCIAL REPORTING PERIODS

1: Access and interpret financial information

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1: Access and interpret financial information

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1: Access and interpret financial information

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1: Access and interpret financial information

PROFIT AND LOSS STATEMENT

1: Access and interpret financial information

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1: Access and interpret financial information

1: Access and interpret financial information

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1: Access and interpret financial information

1: Access and interpret financial information

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1: Access and interpret financial information

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1: Access and interpret financial information

1: Access and interpret financial information