Learn about Financial Management

Throughout the course you will develop an ability to make better decisions for good financial management. These principles can be applied personally, but also at a business level. An exellent course for potential investors, implementing budgets, and understanding how financial traps work.

Course Duration: 100 hours

Course Structure

This course is ten lessons.

1. Understanding Financial Terminology

• Goals for financial management
• Financial terminology/language
• Financial statements
  
  

2. Planning & Managing your Cash

• Budgeting
• Cash flows
• P&L, balance sheet
• Financial records
• Problem solving
  
  

3. Borrowing : for goods and against your home etc.

• Why borrow?
• Types of loans/sources of funds
• Getting a mortgages to suit you
• Credit card control
• Debt Management
  
  

4. Buying -What to look for, hidden traps, consumer protection, credit

• Do you need to buy?
• The best time to buy
• Which is the cheapest?
• Buying and the law/Consumer protection
• Buying business
• Buying property
  
  

5. The Money Market: How it works

• Money market operations
  
  

6. Investing

• What is an investment?
• Types of investments
• Buying shares
• Spread your investment
• Investment appraisals
• A lifetime guide to money matters: Managing your cash, debt, insurance, housing, strategic planning
• Making your own money
• Using your money
• Keeping your money
• Counting your money
• Enjoying your money
• Investing in shares
• Buying or starting a business
  
  

7. Risk & Superannuation -Lump sum, roll over etc.

• Handling lump sums
• Investment options
• Superannuation for:
• Employees
• Employers
  
  

8. Reducing Costs: Cutting down on expenditure. Getting better credit card rates.

• Methods of cost saving
• Alternative Living
• Reducing the cost of credit
• Use your property
• Organizing your finances
  
  

9. Banks: How they can help you

• E-commerce
• Bank clearing house
• Choosing a bank
• Types of banks
• Bank fees
• Getting the most from your bank including reduced credit card rates
  
  

10. Communication

• Dealing with financial experts, bank managers, accountants
• and others in the financial world.
• Using the right financial terminology

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Start By Raising Your Awareness

Everyone should make it their business to know their own balance sheet is at any given time. Know the summation of your assets and your total liabilities. It gives an indication of your financial position. If you have a lot of debt, then your assets should ideally be high. But if you are borrowing money and spending it on purely expenses and not assets, you need to consider the fact that your asset value is likely to be low, your liabilities high and your finances in a bad state. Consider the impact this will have on your future lifestyle and potential borrowing power. If you are going to borrow money, then put it to good use and ensure you have a growing asset value.

Even though cars are considered assets, they rarely appreciate in value. If you are borrowing money and paying interest to own one, you might want to think about other more positive ways you could use that extra cash. Buying a cheap but reliable car for cash and then borrowing money in to invest in property/shares is likely to yield a far better future balance sheet, than spending on assets that do not appreciate. When you invest in an asset that goes up in value, and reinvest the interest/income, your money compounds over time. This is the way to grow wealth and have a balance sheet that will enable you to sleep better at night.

Financial Information

When looking at a business, the owner/manager needs to know whether the firm is earning a profit. No matter how small the business is, accounting should be seen as part of the overall management strategy, with financial information relating to all facets of the business being readily available.

Financial information helps owners/managers to know whether:

• The firm’s profit is improving or declining
• The owner is earning a sufficient return on the investment in the business
•  How much money (if any) the owner can withdraw from the business
•  The business has enough liquidity to continue trading
•  The firm can meet repayments of any outstanding loans
•  The firm is financially stable
•  The firm’s credit customers are paying on time
• What the value of the firm’s assets is and how they are financed

If a business owner is well informed in relation to all aspects of the firm, it has a better chance of not only surviving, but of being successful. Financial information helps management to make better decisions. In order to do this, financial data must be collected, sorted, classified, recorded and finally reported in a meaningful form. These steps make up the basic accounting process.

Users of Financial Information

There are many different applications of financial information and the nature of these varies according to its intended purpose. It is the user of the financial information who determines how it is to be used. Accounting must meet the needs of the individual users and therefore must be flexible enough to satisfy a variety of purposes.

Some of the main users of accounting information and their areas of interest are:

• Owner/manager: profit, liquidity, stability, sales, growth, budgets, stock management, debtors, creditors, rates of return
  Prospective owners: budgets, future earnings, predicted returns, stability, growth
• Banks/Lenders: liquidity, stability, budgets
• Suppliers of Materials: credit rating, reliability, stability
• Government Departments: eg. Taxation department, Bureau of Statistics, Small Business Corporation – these have specific needs pertaining to their own specialist areas
• Employees/Unions: stability of employment, profits, likelihood of wage increases.

Accounting Conventions and Standards

Both accounting conventions and accounting standards have an influence on accounting practice.

Accounting Conventions

Accounting conventions (or assumptions) are the basic rules of accounting which have become acceptable procedures over time. They are the basic rules of accounting. Accounting standards were commonly accepted accounting practices which have now become laws which accountants must follow. Together they form a set of rules which allow accounting records and reports to be prepared in a similar fashion, regardless of the type of business or the form of ownership.

The more important conventions are as follows:

The accounting entity convention is the basic principle that the personal transactions of the owner(s) should be kept separate from those of the business. The business is always viewed as a separate entity, regardless of whether the firm is a sole trader, a partnership or a company.

The historical cost convention is a rule which states that all transactions are recorded at their original value, and adjustments are not made for inflation. This means that assets are not valued at what they could be sold for at the present time. All items stay in the accounting records at their historical or original price. This method is quite objective, as it relies on document evidence such as invoices and receipts. There are some exceptions to this rule, for example with land. Unlike most assets which lose value over time, land normally appreciates in value and may be revalued in some circumstances.

The going concern assumption conceives that a business will continue as a ‘going concern’ for an indefinite period. By following this rule, accountants can report long-term assets in a balance sheet. Otherwise they would all have to be written off as costs in their year of purchase. The going concern rule also allows accountants to cater for transactions which overlap over two consecutive years, as is the case with many credit transactions.

The accounting period convention attempts to address the problem which arises once it is assumed that a business will go on forever. People are interested in how a business is performing in terms of profit, but do not want to wait until the business ceases to see how successful it was. Therefore, the continuous life of a business is divided into equal periods of time for the purpose of calculating profit or loss. These arbitrary periods are known as accounting periods. The length of an accounting period may be a week, a month, a quarter, or a full year, but must not be any longer due to taxation requirements.

The matching principle endeavours to calculate a profit or loss figure for an accounting period by matching revenue for that period with the expenses over the same period of time. There are two basic methods of applying this matching principle. (1) Cash accounting, where profit is calculated by matching revenue received with expenses paid. (2) The accrual method where profit is determined by matching revenue earned with expenses incurred.

The consistency principle requires that the accounting methods used are applied consistently from one accounting period to the next. By applying the same accounting techniques, comparisons of performance can be made over time.

Verifiability is the concept that evidence should be available whenever possible to verify or check the details of financial transactions. Business documents such as invoices, receipts and cheque butts are the tools of verifiability.

Conservatism (prudence). Accounting, in some cases, involves a degree of estimation. It is generally accepted that when trying to predict the future, it is better to err on the safe side. There is a tendency to allow for all possible losses and to recognise gains if reasonably certain that they will occur.

General Accounting Concepts

In addition to accounting conventions and assumptions, accounting is also influenced by several underlying concepts.

• Relevance. Accounting information needs to relevant to the entity under examination. Only events relevant to the business entity are recorded and reported.
• Reliability. Because a wide range of financial decisions are made/influenced by accounting reports, there is a high expectation that such reports contain reliable information.
• Materiality. All significant items must be reported in accounting reports. This allows for immaterial amounts to be omitted. The test of whether items are material is whether or not their omission would influence financial decision-making. For example, materiality leads to the omission of cents in accounting reports as they have an insignificant effect on the users of accounting information.
• Comparability. Accounting reports are used to track changes in a firm’s performance over consecutive accounting periods. Users of reports must be able to compare results from different years. In order to do this, the same methods must be applied consistently from one accounting period to the next.