1 CS38010

2 P/L Costs Overheads  Wages  NI  Rent  Rates – Business & Water  Gas & Electricity  Telephone, ISP  Postage, Printing, Stationary  Advertising  Insurance

3 P/L Costs ……..  Repairs & Maintenance  Interest Payments  Bank Charges  Depreciation  Travel  Legal  Subscriptions and Periodicals

4 Sales And Income  Invoice sales  Cash Sales  Interest on deposit

5 Cash In – Not Sales  Equity  Bank Loan/Mortgage  VAT  These DO NOT appear in profit/loss

6 Capital Equipment  Capital Equipment does not appear in the P/L  It is taken from the cashflow and the depreciation is treated as a cost in the P/L

7 Balance Sheet  Snap Shot on a particular date  How much are you worth? –Assets  Fixed Asset  Liquid (Current) Assets  How much do you owe? –Tax –VAT –Creditors –Bank Loans –Shareholders

8 Balance Sheet  Assets = Liabilities +Shareholders Equity

9 Start up  Shareholders raise £50,000  Cash goes into bank  Assets –Cash on hand £50,000  Liabilities + Sharehldrs –£0 +£50,000

10 Trading for a while  Sales £10,000 (invoiced)  Vat £1750  Purchases £2,000  Assets –Receivables £11750 –Cash on hand £48,000 –Computers £2,000 –Total £61,750  Liabilities & Sharehldrs –Profit £10,000 –Vat £1,750 –Shares £50,000 –Total £61,750

11 Balance Sheet  Assets –Current  Cash  Accounts Receivable  Inventory –Long Term  Fixed or Tangible –Buildings, Furniture, Plant & Machinery  Intangible –Name & Goodwill –Patents –Website

12 Balance Sheet  Liabilities –Current Liabilities  Accounts Payable  Loan Payment Payable  VAT  Inland Revenue –Long Term Debt  Remainder of Loan

13 Balance Sheet  Shareholder Equity –Shareholdings –Retained profit

Equation  Assets = Liabilities + Shareholders Equity

Start of Business  Sell shares for £50,000 on day  Therefore balance sheet reads  Assets = £50K  Liabilities + £0  Shareholders Equity = £50K  £50K = £0 + £50K

P/L & Cashflow Sales10K12K 13k14K Costs-8K-9K -10K Profit2K3K 4K Accum Profit 2k5K8K11k15K19K Cash in 0K 5K11K12K13K Cash Out -8K-9K -10K Balance -8K-17K-21K-20K-18K-15K

P/L & Cashflow now looks like Sales10K Costs-8K Profit2K Accum Profit 2k Cash in £50K Cash Out -£8K Cash on Hand £42K

Balance sheet month end 1  Assets £10K in receivables £42K in the bank Liabilities Shareholders Equity = £50K Shares £2K profit

 £10K + £42K = £50K + £2K

Purchases Month 2  During Month 2 we purchase £22K of hardware

P/L & Cashflow 12 Sales10K12K Costs-8K-9K Profit2K3K Accum Profit 2k5K Cash in 50K0K Cash Out -8K-31K(9K costs and 22K equipment) Cash on Hand 42K11K

Balance sheet Month 2  Assets Receivables = £22K Outstanding invoices Assets = £22k New equipment (no depreciation) Cash = £11K  Liabilities £0  Shareholders equity Shares = £50K Profit = £5K

Month 3  Money starts to come in  Depreciation started

P/L & Cashflow 123 Sales10K12K Costs-8K-9K Deprecat ion -1K Profit2K3K2K Accum Profit 2k5K7K Cash in50K0K5K Cash Out -8K-31K-9K Cash on Hand 42K11K7K

Balance Sheet Month 3  Assets Invoiced £34K, received £5K. Therefore: Receivables = £29K Assets = £21K Cash = £7K  Liabilities £0  Shareholders Equity £50K Shares £7K Profit

Balance Sheet  ( )K = (50+7)K Receivab les Assets Cash Profit Shares

Remember 1  Try this by purchasing items on credit to create liabilities –You put how much you owe on the liabilities side and the new item into your assets. –This balances.  When you pay it off you lose the liability on one side and the cash from your asset side.

Remember 2  Reduce the profit (shareholders equity) by the depreciation to date, balances with loss of same amount on the assets side of the equation.  Balance sheets BALANCE.  Balance sheets run vertically 28

Example 2  Shares = £50,000  Salaries = £8,000 per month  Sales £15,000 per month  Equipment = £12,500 Month 1 using cash  Fixed Costs £4,000

1. Raise capitalP/L Account: £0 Cashflow: £50,000 Balance Sheet: Assets = Liabilities + Shareholders Equity £50,000 = 0 +£50,000

2. Purchase equipment for £12,500 using cash P/L Account: £0 Cashflow: £37,500 Balance Sheet: Assets = Liabilities + Shareholders Equity £37,500 + £12,500 = 0 + £50,000 Cash Equipment

3. Sales Invoices sent Labour fees = £15,000 P/L Account: £15,000 Cashflow: £37,500 Balance Sheet: Assets = Liabilities + Shareholders Equity £37,500 + £12,500 + £15,000 Cash Equipment Invoices = £0 + (£50,000 + £15,000) Liabilities

4. Pay the wages and the fixed costs Salaries £8,000 Fixed costs £4,000 Total £12,000 P/L Account: £15,000 - £12,000 = £3,000 Cashflow: £37,500 - £12,000 = £25,500 Balance Sheet: Assets = Liabilities + Shareholders Equity £25,500 + £12,500 + £15,000 Cash Equipment Invoices = £0 + (£50,000 + £3,000) Liabilities

5 Month 2 receive all cash (unexpectantly) Cash in = £15,000 P/L Account: £3,000 Cashflow: £25,500 + £15,000 =£40,500 Balance Sheet: Assets = Liabilities + Shareholders Equity £25,500 + £12,500 + £15,000 Cash Equipment New cash = £0 + (£50,000 + £3,000) Liabilities

6. Purchase £16,500 of equipment on 30 days credit P/L Account: £3,000 Cashflow: £40,500 Balance Sheet: Assets = Liabilities + Shareholders Equity £40,500 + £12,500 + £16,500 Cash Equip + new equip now = £16,500 + (£50,000 + £3,000) Liabilities + Shareholders

7. Pay: Equipment bill £16,500 Salaries £8,000 Fixed £4,000 Invoice fees £15,000 P/L Account: £3,000 last month £3,000 this month Cashflow: £40,500 - £28,500 = £12,000 Balance Sheet: Assets = Liabilities + Shareholders Equity £12,000 + £29,000 + £15,000 Cash Equip Invoices = £0 + (£50,000 + £6,000) Liabilities + Shareholders