KCTCS COLLEGE FINANCIALS FUNDAMENTALS OF KCTCS COLLEGE FINANCIALS

TWO PICTURES OF THE INSTITUTION’S FINANCIAL HEALTH AUDITED FINANCIAL STATEMENT ANNUAL OPERATING BUDGET

Operating Budget VS Financial Statements The main goal of a budget is to manage and control revenues and expenses by estimating amounts and projecting them into the future, following a set strategy, i.e., annually. A budget generally stays the same throughout the year once it's set up. A budget can be modified, but is typically static. Budgeting creates a baseline to compare actual results to determine how the results vary from the expected performance. Financial statements reflect actuals – revenue and expenses and changes that have occurred. Must follow strict set of principles. Financial statements are dynamic, changing with every business transaction. The standard set of financial statements include: a balance sheet (statement of net position), income statement (statement of revenues, expenses and changes in net assets) and cash flows (statement of cash flows) report. VS

Operating Budget ANNUAL BUDGET

Revenue must equal expenses in each fiscal year

OPERATING BUDGET LIKE A “CHECKING ACCOUNT” - IT’S THE MONEY YOU HAVE TO SPEND. + OPERATING BUDGET FUND BALANCE LIKE A “SAVINGS ACCOUNT” - IT’S THE MONEY YOU HAVE IN THE BANK. ANNUAL OPERATING BUDGET = EXPENDABLE CASH

The fund balance does not reveal the institution’s cash level. A high fund balance does not necessarily mean a high cash level. Cash Fund Balance VS

Operating Budget Health ANNUAL BUDGET

What happens When your budget doesn’t balance? “If your outgo exceeds your income, your upkeep becomes your downfall.”

Balancing your operating budget Revenues must equal expenses for any given fiscal year. Must be structurally balanced: Recurring Revenues = Recurring Expenses. Nonrecurring Revenues used for nonrecurring expenses. If one time funds are used from your “savings account,” the funds: Must cover one-time expenses. If used for recurring expenses, must be only for the fiscal year – cannot carry over into multiple years. Savings account (fund balance) for strategic purposes.

Adjustments must be made to sustain financial health. Principles for Both Operating Budgets and Financial Statements CURRENT YEAR REVENUES VS EXPENSES? OPERATING CASH TO COVER CURRENT LIABILITIES? IF YES? No change. IF NO? Adjustments must be made to sustain financial health. REQUIRED RESERVES? POSITIVE NET POSITION?

FINANCIAL STATEMENTS AUDITED FINANCIAL STATEMENT

What are assets?

Assets Are…

WHAT are Liabilities?

LIABILITIES ARE…

PERSONAL BALANCE SHEET

Statement of net position is… The Statement of Net Position reflects the overall financial position of the organization at a given moment in time. It is the report that shows the accumulated results of all the individual years of the organization’s operations added together.

STATEMENT OF NET POSITION – Balance Sheet

WHAT is net position?

STATEMENT OF NET POSITION AUDITED FINANCIAL STATEMENT BALANCE SHEET OPERATIONAL CASH + RESERVED CASH RESERVED CASH – Is cash held to upfront costs for items like reimbursable expenses (i.e., grants and contracts), major capital purchases, and for unforeseen situations and emergency expenses of which the normal operating budget cannot cover.

Statement of Revenues, Expenses, and Changes in net Assets is… The Statement of Revenues, Expenses, and Change in Net Assets reflects the revenues, expenses, and changes to the organization over a defined period.

Statement of Revenues, Expenses, and Changes in net Assets Operating revenue: revenue generated from a organization's day-to-day business activities.

Statement of Revenues, Expenses, and Changes in net Assets Operating Expenses: Expense incurred in carrying out an organization's day-to-day activities.

Statement of Revenues, Expenses, and Changes in net Assets Nonoperating Revenue/Expense: The portion of an organization's income/expense that is derived from activities not related to its core operations.

Statement of Cash Flows is… Records the amount of cash and cash equivalents entering and leaving an organization. The Statement of Cash Flows allows one to understand how an entity’s operations are running, where its money is coming from, and how it is being spent.

Statement of Cash Flows Cash flows from operating activities : Cash flows from ongoing, regular business activities.

Statement of Cash Flows Cash flows from noncapital financing activities : Cash flows from borrowing money and repaying the principal and interest on amounts borrowed for purposes other than to acquire, construct or improve capital assets.

Statement of Cash Flows Cash flows from capital and related financing activities : Cash flows from acquiring and disposing of capital assets, borrowing money to acquire, construct or improve capital assets, repaying the principal and interest amounts and paying for capital assets obtained on credit.

Statement of Cash Flows Cash flows from investing activities: Cash flows from activities including making and collecting loans and the acquisition and disposition of debt or equity instruments.

QUESTIONS?