1. What are the major financial statements needed in a business plan?
Balance sheet: depict financial condition of a firm at a point in time (Assets = Liabilities + Equity).
Income statement: Summarizes income and expenditures of a firm over a period of time (Profit and loss)
Cash flow statement: Schedule of cash receipts and disbursements at specific points in time over a period of time.

2. What is the difference between an income statement and cash flow statement?
Income statement shows sales when purchase is made, and expenses when assets used; Cash flow shows when money changes hands (accrual vs. cash, expenses vs. expenditures).
Cash flows would include capital expenditures; income statement would not.
Income statement would include non-cash expenses such as depreciation; cash flow statement would not.

3. Exercise: Construct breakeven analysis, beginning and ending balance sheet, cash flow (quarterly) and income statement from the following data.
Equity investment = $50,000 (no long term debt)
Equipment = $5,000, 5 year useful life (straight-line depreciation)
Building = $30,000, 30 year useful life (straight-line depreciation)
Per unit: Price = $10
Raw material = $4
Labor = $4
Expected sales volume = 20,000 units (5,000 per quarter)
Administration = $20,000 per year ($5000 per quarter, paid as incurred)
Advertising = $12,000 per year ($5000 per quarter, paid as incurred)
Payables: goods for period are purchased in quarter before use, paid in next period when the goods are used.
Sales: 50% received in cash in period sale is made; 50% in following period

4. Balance Sheet
ASSETS LIABILITIES & EQUITY
Current Assets Current Liabilities
+LT/Fixed Assets +Long Term Liabilities
=Total Assets =Total Liabilities
EQUITY
Note: Assets = Liabilities + Equity

5. Beginning Balance Sheet
ASSETS LIABILITIES & EQUITY
Current Assets: $35, Current Liabilities $20,000
Inventory $20,000 Inventory $20,000
Cash $15,000
LT Assets: $35, Long Term Liabilities $0
Equipment $ 5,000
Building $30, Equity $50,000
______ _______
Total Assets $70, Total Liabilities + Equity $70,000

6. Cash Flow Statement Q0 Q1 Q 2 Q3 Q4 Total
RECEIPTS
Current sales
Collections from A/R
=Total
DISBURSEMENTS
Capital expenditures
Materials
Labor
Administration
Advertising
CASH FLOW TOTAL
Beginning Cash
+Receipts
=Cash Available
-Disbursements
=Total Ending Cash

7. Cash Flow Statement Q0 Q1 Q 2 Q3 Q4 Total RECEIPTS
Current sales
Sales from A/R
Total `
DISBURSEMENTS
Capital expenditures
Materials
Labor
Administration
Advertising
Total
CASH FLOW TOTAL
Beginning Cash
+Receipts
Cash Available
-Disbursements
Total Ending Cash

8. Note: gross margin = gross profit/sales
Income Statement
Sales Revenues
- Variable Costs
= Gross Profit
- Fixed Costs
= Profit
Note: gross margin = gross profit/sales

9. Income Statement Sales $200,000 Raw materials $80,000 Labor $80,000
Cost of Goods Sold $160,000
Gross Profit $ 40,000
Administration $20,000
Advertising $12,000
Depreciation $ 2,000
Operating Expenses (Fixed Costs) $34,000
Net Profit $ 6,000
Breakeven Point = Fixed Costs/(Gross Margin)

10. Ending Balance Sheet ASSETS LIABILITIES & EQUITY
Current Assets: $43, Current Liabilities $20,000
Accts. Rec. $25,000 Inventory $20,000
Inventory $20,000
Cash $ 2,000 Long Term Liabilities $0
Long Term Assets: $33,000
Equipment $ 4,000 Equity $56,000
Building $29,000
_______ _______
Total Assets $76,000 Total Liabilities + Equity $76,000