Monthly P&L reporting

[Guest Andys@coffs]

People

 

I looked at the August Income and expenditure report (titled P&L.....but it isn't!) and the report identified that as of Sept we are $30something k in profit.

 

However I also saw that in the interest section of the income that there was a $24k interest payment received. That payment in talking with Jim represents a full 12 months return for a term deposit and as such if we were truly trying to understand at a P&L level we would not recognise the full 12 months income but rather each month (whether the bank pay us or not) we recognise 1/12th of the annual payment.

 

If we do that the reported profit drops to about 1/2 what it is.

 

Also, in the same insurance costs, should not be recognised as 100% costs in the month that payment is made but rather they are prepayments of which you then recognise 1/12th of the costs each month. Same for utilities, they bill 1/4yrly but we consume monthly and should accrue costs for these and apply an adjusting journal when we finally get the bill and can replace the estimated use with the measured use.

 

Anyway, sounds like Im complaining when im not really, compared to no visibility what we have now is eminently better.

 

Jim tells me that we have an accounting team working on changing from our simple (and inaccurate in all but a full years context) reporting to full accrual accounting which is as the auditor recommended in the last annual report.

 

Andy

 

 

[Chird65]

Jim tells me that we have an accounting team working on changing from our simple (and inaccurate in all but a full years context) reporting to full accrual accounting which is as the auditor recommended in the last annual report.

Andy

Hi Andy, (comment only)

 

this statement covers it all. We are currently using cash accounting not accrual accounting. There is nothing wrong with cash accounting so long as you accept the ebb and flow of the reports over time. We are not a very complicated entity as far as our accounting goes, so I do wonder if an accrual accounting system will help manage the association any better.

 

Mind you if we are employing an expert (Auditor) then just maybe this is enough reason to change. If we bring in 2 yearly memberships or registrations we would need to use Accrual as well.

 

Chris

 

 

[Spriteah]

Hi Andy, (comment only)this statement covers it all. We are currently using cash accounting not accrual accounting. There is nothing wrong with cash accounting so long as you accept the ebb and flow of the reports over time. We are not a very complicated entity as far as our accounting goes, so I do wonder if an accrual accounting system will help manage the association any better.

Mind you if we are employing an expert (Auditor) then just maybe this is enough reason to change. If we bring in 2 yearly memberships or registrations we would need to use Accrual as well.

 

Chris

Chris, 2 year memberships and registrations are on the cards in the not too distant future.

 

Jim.

 

 

[Aerochute Kev]

So Jim, we are still operating at a profit, and still have a need to increase the membership fees. Can you explain that?

 

Kev

 

 

[Guest Andys@coffs]

Jumping in here......

 

With our cash accounting approach if we register more than 1/4 of the aircraft fleet or renew more than 1/4 of the membership in the quarter just gone then it'll look like our income is better than it should be. Given that when we were grounded in nov12 and didnt get aircraft rego back on line for the better part of a quarter then those traditionally second quarter revenue may well have been pushed to third quarter.

 

But of greater interest is our insurance portfolio. In Q1 i think there is a renewal of 1 of the six policies and the remainder in Q3 or Q4. Insurance is big $ not accruing and handling things as cash is going to show profit all through the year until the big renewal and then suddenly all profit will be wiped out when that payment is made.

 

If renewals instead of being treated as cash revenue when they occur are treated as prepayments where the revenue claimed per month is 1/12th ( or 1/24th when we reintroduce 2yr) then peaks and troughs due to seasonal variations disappear. Equally the same treatment for our insurance does the same. That means a monthly statement of P&L is much more likely to be of use in forecasting a final annual outcome.

 

Today the benefit of the statements produced is our ability which isn't here yet, to compare 1 year against the next.

 

Andy

 

 

[FlyingVizsla]

Don't forget things like Depreciation (about $50,000+) which are not calculated until the end of the year, and Provisions for things like Long Service Leave. These come off the bottom line at the end of the year.

 

 

 

Sue

 

 

[nomadpete]

A big THANK YOU to those who are working at bringing us the transparency that we asked for. It ain't perfect, but we are on our way to better times.

 

 

[facthunter]

There has to be advantages in having ACTUAL monies paid and received shown. It is easier to trace that way because precise actual figures are on the record that relate exactly to invoices and receipts. It is OK to know that a certain cost or income equals so much per month, but it doesn't tell you it is actually paid or due. Your records could be done both ways so the split up one is like a howgozit chart if you think it is worthwhile . Nev

 

 

[Guest Andys@coffs]

Nev your right, its a cashflow forecast and its essential knowledge. No good on an accrual basis showing steady profits, but having insufficient cash in the bank to pay your staff......(which is an example that is 180 degrees away from reality for us)

 

To me however the howzit going chart is your itemised budget. you report actuals against time phased budget revenue and expense items and explain variances as they occur.

 

As Kev identified the majority of the members would look at the current report and stand scratching their head as to why an increase is being asked for.....(which is a whole different question to those that understand the financials also asking why with the surplus we have, are we asking for an increase....where the difference is that those who don't know, will read that we made a profit so far, those that do know, know that we made a loss but should be moving to address the structural underlying reasons rather than just ask for more...)

 

Andy

 

 

[facthunter]

I recollect we got into strife when we made some accounts (subs) run for two years, and that gave a wrong impression of extra profit. ( I don't like calling "members funds" profit) surely a note in a comments column would show an entry appropriate to the shortfall next year. the same thing happens when staff accrue long service leave. It's like funding a plane in service without putting money aside for the inevitable engine overhaul

 

Anyhow I don't see the finances being the big worry. What worries me is what form of aviation the CASA has in mind for us eventually and will we get any say in the outcome. Much of that would determine the final cost, FEES etc.Nev

 

 

[DonRamsay]

Careful Andy, somebody is going to confer CPA status on you if you keep posting such sound accounting policy.

 

As you say, RA-Aus does need to grow up and account on a full accrual basis if management reports are ever going to mean anything in real time rather than at the end of the year when it is too late to do anything about it. Cash flow reporting is something for the Board and the a Management to worry about. It is critical to efficient use of funds but not of great interest for members.

 

At the member level, we need only quarterly reports comparing Actual results from what we set out to do - the Budget. It is also useful to compared with the same quarter last year. This sort of reporting with critical commentary explaining the results can be truly meaningful.

 

A lot of good work on reporting has been commenced but we still have some distance to travel. Full credit to Jim and Mark Clayton. And let's not forget to also recognise the good work done by Maxine in the office who crunches the numbers.

 

 

[pylon500]

There was a $24k interest payment received. That payment in talking with Jim represents a full 12 months return for a term deposit

So, how much capital do you need to invest to get that sort of return?

 

 

[DonRamsay]

By simple arithmetic: at 4% p.a. you'd need to have $600,000 on deposit.

 

This is only one of a number of cash investments that RA-Aus has.