The Finance Department part 1 — Transcript

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1. 0:00[Music]
2. 0:07hi I'm Jerry Fuller executive director
3. 0:09of the associated colleges of Illinois
4. 0:12welcome to the fifth segment of our
5. 0:14business basic series the finance
6. 0:16department provides the financial
7. 0:18information necessary for managers to
8. 0:20make decisions within the
9. 0:22organization thanks for being with
10. 0:28us
11. 0:35few areas within a business are as
12. 0:37misunderstood as Finance and Accounting
13. 0:40this is because their skill sets are
14. 0:41closely related and they both deal with
15. 0:43an organization's money however their
16. 0:46functions are quite different the
17. 0:48simplest explanation is that the
18. 0:50accounting Department's job is to
19. 0:51research and present what an
20. 0:53organization has done with its money in
21. 0:55the past and the finance department
22. 0:57works to determine what will be done
23. 0:58with that money in the the future
24. 1:01accounting is usually a division of the
25. 1:03finance department so we'll refer to the
26. 1:05home for both of these functions as the
27. 1:07finance department the Chief Financial
28. 1:10Officer oversees the Finance and
29. 1:12Accounting functions of a business his
30. 1:14or her main function is to provide
31. 1:16Financial reports for top officers
32. 1:19directors and shareholders CFOs exist in
33. 1:22public private and nonprofit
34. 1:25organizations if you've heard Finance
35. 1:27Executives refer to only as Bean
36. 1:29counters that stereotype is definitely
37. 1:31going away while Financial officers have
38. 1:34a particular set of skills many
39. 1:36Executives don't not everyone can hack
40. 1:39the math you'll see Chief Financial
41. 1:41officers who are cross trining and other
42. 1:43departments marketing operations and so
43. 1:45on so they can aim for the CEO's job
44. 1:48someday CFOs at major corporations not
45. 1:51only have backgrounds in accounting and
46. 1:53finance but they'll very likely have an
47. 1:55MBA to match let's take a closer look at
48. 1:58the kinds of work a County and finance
49. 2:00Executives
50. 2:03do companies and organizations May hire
51. 2:06four kinds of accountants public
52. 2:08accountants work as sole practitioners
53. 2:10or for accounting firms and handle a
54. 2:12range of accounting auditing tax and
55. 2:15Consulting projects for both profit and
56. 2:17nonprofit
57. 2:19organizations management accountants
58. 2:21record and analyze the financial
59. 2:23information for their employers they
60. 2:25serve the management of the organization
61. 2:27only and they often work on budgeting
62. 2:29and performance evaluation and handle
63. 2:31the business or nonprofits
64. 2:34Investments internal Auditors like
65. 2:36management accountants also work for a
66. 2:39single employer but they have a unique
67. 2:41function looking for mismanagement or
68. 2:44mistakes in a way an organization
69. 2:46manages its funds if they're doing their
70. 2:48job correctly they're the in-house
71. 2:50Watchdogs who make sure the entire
72. 2:52organization is spending its money
73. 2:55correctly finally government accountants
74. 2:57maintain and examine the financial and
75. 2:59tax tax records of government agencies
76. 3:02but they also have a role in businesses
77. 3:03and nonprofits that work with federal
78. 3:05state and local governments you'll see
79. 3:08government accountants working with
80. 3:09firms that receive sizable government
81. 3:11contracts or grants we'll conclude our
82. 3:14discussion with a look at the most
83. 3:15important financial statements created
84. 3:17by the financial department the balance
85. 3:19sheet income statement and cash flow
86. 3:22statement but first let's talk about the
87. 3:24two main subp departments within a
88. 3:26county that gather and prepare the data
89. 3:28for those statements accounts payable
90. 3:30and accounts
91. 3:33receivable accounts receivable is all
92. 3:36about the inflow of cash into the
93. 3:37company or organization when a good or
94. 3:40service is sold accounts receivable is
95. 3:42alerted and they create an invoice for
96. 3:44the customer when that invoice is sent
97. 3:47the account's receivable team books the
98. 3:49revenue meaning they count the revenue
99. 3:51on the income statement even though it
100. 3:53hasn't been deposited in the
101. 3:54organization's bank account next the
102. 3:57team monitors payment to determine the
103. 3:59money comes in on time and if it doesn't
104. 4:02it reaches out to customers to collect
105. 4:05when payment is finally made those
106. 4:07deposits are reported on the cash flow
107. 4:09statement which we'll get to later
108. 4:12accounts receivable also handles credit
109. 4:15some customers get extended payment
110. 4:16terms usually because they've always
111. 4:18paid on time and other customers are
112. 4:20required to pay in advance or in cash
113. 4:23customers who want credit can apply for
114. 4:25it and accounts receivable will decide
115. 4:28based on their credit record and other
116. 4:29factors if they'll receive better
117. 4:31payment
118. 4:34terms accounts payable is all about the
119. 4:36money that has to go out of the
120. 4:37organization to pay for wages supplies
121. 4:40and raw materials basically any money
122. 4:43that needs to cover expenses of the
123. 4:44business it's essentially the reverse
124. 4:47process of accounts receivable in most
125. 4:50companies and organizations the
126. 4:51accounting department serves as a
127. 4:53support function or back office function
128. 4:56this means they aren't usually the
129. 4:57people in front of customers or making
130. 4:59spending decisions therefore they need
131. 5:01input from people who are now to finance
132. 5:05where the organization sets budgets and
133. 5:07financial strategy for the whole
134. 5:11organization again every organization
135. 5:14handles its overall Financial structure
136. 5:16to suit its particular industry and
137. 5:18operations but generally think of
138. 5:20Finance as an umbrella structure that
139. 5:22ultimately handles financial reporting
140. 5:24risk management and budgeting and
141. 5:26strategic
142. 5:28planning let's start with financial
143. 5:30reporting the first stage in financial
144. 5:33reporting is collecting and tracking
145. 5:35where funds go on a continual basis
146. 5:38Finance takes the data and analyzes it
147. 5:40for reporting purposes to insiders and
148. 5:43shareholders that data is released to
149. 5:45shareholders typically on a quarterly
150. 5:47and annual basis and this is standard in
151. 5:50public and most private companies even
152. 5:53though nonprofits don't report to
153. 5:54shareholders financial reporting is also
154. 5:57done for donors granters and beneficiar
155. 6:00Aries now to risk management if you
156. 6:03think about it every risk in an
157. 6:05organization boils down to money when
158. 6:08products fail there's a cost when people
159. 6:10are hurt or killed on the job there's a
160. 6:13cost when Investments or Acquisitions
161. 6:15fail to produce a desired return again
162. 6:18there's a cost risk management has an
163. 6:21ultimate goal conserving the
164. 6:23organization's resources virtually all
165. 6:26departments within an organization do
166. 6:28their own variety of risk assessment but
167. 6:31in finance that practice can be very
168. 6:33sophisticated Finance Executives develop
169. 6:36mathematical models that predict risk
170. 6:38based on market conditions credit
171. 6:40conditions or operational conditions
172. 6:42that may pose damage to an
173. 6:44organization's business or Mission
174. 6:47Finance Executives apply math
175. 6:49statistical methods and their own
176. 6:51trained analysis to specific problems so
177. 6:54they can measure risk in all its
178. 6:57forms finally budgeting and strategic
179. 7:00planning the annual budgeting process is
180. 7:03often managed by the finance department
181. 7:05in close cooperation with the accounting
182. 7:07department during the budgeting process
183. 7:09managers throughout the organization are
184. 7:12asked to forecast what they expect their
185. 7:13spending needs will be budgets are a
186. 7:16projection of what those Executives hope
187. 7:18will happen in the next year or so in
188. 7:22established companies the budgeting
189. 7:23process usually Builds on what happened
190. 7:26the year before in newer companies with
191. 7:28less of a track record record
192. 7:30projections need to be created based on
193. 7:31what they think their customers will
194. 7:33need obviously the models we just
195. 7:35discussed will play A Part depending on
196. 7:37how the organization uses them
197. 7:40individual managers submit their team's
198. 7:42budgets and finance consolidates all
199. 7:44those results creating the overall
200. 7:46corporate budget is a very big job once
201. 7:49it's complete the people in the finance
202. 7:51department make sure they have enough
203. 7:53money to support the budget sometimes
204. 7:55borrowing or other Revenue strategies
205. 7:57have to enter the picture this is where
206. 8:00the strategic planning function comes in
207. 8:03the modern finance department has
208. 8:04evolved over the last generation into an
209. 8:06advisory role instead of a computational
210. 8:09One Finance Executives tend to be
211. 8:11involved in the earliest stages of
212. 8:13product development so Senior Management
213. 8:15can get a shared idea of Financial Risk
214. 8:18and reward as early as possible the
215. 8:21annual budget and financing plan must be
216. 8:23approved by the senior management team
217. 8:25and the board of directors the approved
218. 8:27budget is an important document in all
219. 8:30organizations because it outlines what a
220. 8:32team or department is authorized to
221. 8:34spend and help set the organization's
222. 8:37goals the budget also sets the basis for
223. 8:39bonus and commission programs which are
224. 8:42obviously important to everyone who
225. 8:43works there so that's a portrait of the
226. 8:46people in an organization's Finance and
227. 8:48Accounting functions let's look next at
228. 8:51the basic financial statements every
229. 8:53organization uses every employee should
230. 8:56understand them