Financial Matters

Introduction
Profit & Loss Account
Balance Sheet
Assets & Liabilities
Fee Invoicing
Annual Accounts/Auditing
Tax Matters
Insurance Matters
 INTRODUCTION
• The importance of the finance function in
organisations
• Need for financial discipline
• An organisation is a separate entity from those
that run it
• The law requires some financial reporting
responsibilities
• Finance as the bottom line
 FINANCIAL STATEMENTS
• Financial information is conveyed via financial
statements
• There are four main types of financial
statements
Balance Sheet (Statement of Financial Position)
Income Statement (Profit and Loss Statement)
Cash Flow Statement
Statement of Owner's Equity
 Balance Sheet
• A balance sheet contains information on Assets, Liabilities
and Equity
• Assets must equal sum of liabilities and equity
• Assets are what the organisation owns and controls and
include Current Assets such as Cash and Inventory as well
as Fixed Assets such as plants, equipment and property
• Liabilities refer to what the organisation owes outsiders
and include short term liabilities such as Account Payable
and long term liabilities such as Bonds
• Equity is what the organisation owes its owners
Income Statement (Profit & Loss Statement)

• Income: What is earned within a time frame

usually one year
• Expenses: What the organisation expends within
the same time frame. It includes salaries and
wages, rental charges, depreciation, etc
• The difference between income and expenditure
is gross profit or loss
• The profit after allowance for taxation is called
net profit or profit after tax (PAT)
 Cash Flow Statement
• Cash Flow Statement presents the movement in cash and
bank balances over a period. The statement covers three
aspects:
1. Operating Activities: Represents the cash flow from
primary activities of a business.
2. Investing Activities: Represents cash flow from the
purchase and sale of assets other than inventories (e.g.
purchase of a factory plant)
3. Financing Activities: Represents cash flow generated or
spent on raising and repaying share capital and debt
together with the payments of interest and dividends.
 Statement of Changes in Equity
(Statement of Retained Earnings)
• This tatement details the movement in owners' equity over
a period usually derived from the following components:
1. Net Profit or loss during the period as reported in the
income statement
2. Share capital issued or repaid during the period
3. Dividend payments
4. Gains or losses recognized directly in equity (e.g.
revaluation surpluses)
5. Effects of a change in accounting policy or correction of
accounting error.
 Annual Account /Auditing
• Annual accounts are needed to evaluate the financial
performance of the organisation
• The annual account is prepared internally by the organisation
• An external body may be required to audit the account to
ensure that the report is in order and in accordance with
standard accounting practice
• Even though paid by the organisation, the auditor executes
the work professionally and without fear or favour.
• An audit report is not an indictment but an opportunity to
help the organisation plug financial loopholes. However,
fraudulent activities can be taken up by the organisation
 BUDGETING
• A budget is a spending plan backed by the
expected income to execute the plan. Budgeting is
the process of balacing expenditure with income
• Why do we need to budget?
1. For planning
2. To critically examine income
3. To evaluate previous activities
4. To place expenditure and expected income in the
context of prevailing realities
 Budgeting Concepts
• Expenditure Heads and Subheads
• Handling of Depreciation
• Income Based Budgeting. The most reliable budgets yielding the best
fiscal results for the organization are conservative and income based.
Budget for income first based on realistic income expectations
• Incremental budgeting begins with prior year totals, and builds the
subsequent year's budget by calculating percentage
increases/decreases.
• Zero-based budgeting starts from scratch every year: How much can
we raise?  How much can we spend?  What are the most important
mission activities?  Zero-based budgeting forces reevaluation of all
assumptions.
 FEE INVOICING
• Invoicing and payment are very important aspects of the
architect – clients relationship. The management of this
aspect of the architects work can be very difficult. The issue
of fee and payment must be discussed early in the project
• Understanding the Scale of Fees or other methods of fee
determination
• Understanding the various stages at which fee invoices
should be submitted and submitting them on time.
• Preparing a schedule for fee invoicing based on total fees
payable
• Invoicing for reimbursable expenses
 Insurance & Tax Matters
• Professional Indemnity Insurance
• Other Insurance Policies (Office, Equipment,
etc)
• Personal Income Tax
• Company Tax
• Value Added Tax
• Filing tax returns