Accounting Terminology Explained Allison Taylor and Paul Cropper

1. Accounting Terminology ExplainedAllison Taylor and Paul Cropper

2. Objectives • Understand the differences between key words (accrual, deferral and prepayment, debtors and creditors, cash and profit, asset and liability, financial and management accounts, etc…) • Identify how accounting processes and procedures work at the University of Huddersfield • Understand the meaning of common financial statements • Know how to assess whether financial statements look good, bad or indifferent

3. Part 1 - Accounting Theory • Accounting terms • Management v financial accounts • Accounting data entry • Profit & Loss • Balance sheet • Debits and credits • Costing • Cash • Measuring performance

4. Accounting terms Transactions Chart of accounts Trial Balance Profit & Loss accounts Costing analysis Cash flow statements Balance sheets

5. Financial v management accounts Financial Accounts: Prepared at the end of each year and are a ‘snap shot’ of an organisation’s financial standing. Published externally. Management Accounts: Prepared each month and compare forecast income and expenditure with actuals. Published internally.

6. Accounting data entry Where do transactions go? Journals Ledgers Agresso

7. Profit and loss account An analysis of income and expenditure which includes: • Turnover (All income) • Staff expenditure (salary payments) • Non-pay costs (any expenditure other than pay e.g. printing, stationery, telephone bills etc..) • Gross profit • Net profit

8. Balance sheet “A summary of all the accounts of a business. Usually prepared at the end of each financial year. The term 'balance sheet' implies that the combined balances of assets exactly equals the liabilities (i.e. net worth)”.

9. Debits and credits Newton’s third law of physics “to every action there is an equal and opposite re-action” Accountancy principles “to every debit there is an equal and opposite credit(s)!” (eg. if you are paying money into your bank account you would debit the bank when making a journal entry and credit an income account).

10. Costing Identifying the expenditure of an activity Different types of costing: ABC, marginal costs, absorption costing, etc.. University wide methodology: Transparency Review and full Economic Costing

11. Cash Cash flow statement: A report which shows the flow of money in and out of the business over a period of time. Cash accounting: This term describes an accounting method whereby only invoices and bills which have been paid are accounted for. However, for most types of business in the UK, as soon as you issue an invoice (paid or not), it is treated as revenue and must be accounted for.

12. Measuring financial performance • Variances from budget • Profit or loss • Sufficient cash • Ratio analysis Published Annual Financial Accounts (http://www.hud.ac.uk/finance/finstat/index.htm) Monthly Management Accounts (Available from Agresso or Accounting Technicians)

17. Part 2 - How do things work at Huddersfield? • Budgeting • Structure of the accounts • Transactions • Reporting • Where to go for help • Financial Services department

18. Budgeting The annual budget planning function utilizes a University-wide Devolved Revenue model to allocate funds to schools, services and strategic provision.

19. Budgeting The DevRev model is simple, straightforward and transparent. All qualifying income is top-sliced to give the strategic provision [SP] and the remainder is split between schools and infrastructure.

20. Budgeting The budget operating function is contained within the finance system, Agresso, which allows budget holders and financial services staff to update, maintain, and monitor the operating budget throughout the financial year.

21. Budgeting • Forecasting of income and expenditure • Profiling (placing ‘pots’ of income and expenditure into the correct month) • Virements (Moving budgets around)

22. Structure Coding Structure: • The account identifies the type of income or expenditure being recorded • Account (Nominal) • Income codes have the form 8nnn • Salary codes have the form 1nnn • Other expenditure codes have the form annn (product code) • Balance sheet codes have the form Bnnnnn

23. Structure • Cost Centre (aaannn) identifies which part of the university ‘owns’ the transaction • Additional codes can be ‘attached’ • Trees are used for reporting and analysis

24. Structure

25. Transactions What type of transactions? Budgets Actuals Commitments (orders)

26. Complicated transactions • Accruals • Prepayments • Deferred Income/Expenditure • Reversing journals • Recharges

27. Reporting • Full picture by cost centre • Excelerator is our software for producing reports

29. Where to go for help? • Accounting technicians • Agresso training and other courses • University web site for Financial Services pages (www.hud.ac.uk/finance/index.htm) – Link to glossary of terms • External web sites • Library texts

31. Management Accounting Team - Structure Allison Taylor Monthly Management reports Capital Expenditure Computing & Engineering Music, Humanities &Media Computing & Library Diane Webster Assisting with DevRev NHS Contract Service Departments Cash Flow Forecasting Statutory Reporting TRAC Phil McEwan Assisting with management reports Investment Appraisals Estates Department Art, Design & Architecture Education & PD Education Consortium Nathalie Chavrimootoo Human & Health Sciences Applied Sciences Business Research & Enterprise Office Statutory Reporting Investment Appraisals