1. Managing Finance and Budgets Seminar 2

2. Seminar 2 - Activities During this seminar we will:  Review the three types of financial statement  Discuss the three statements for Day 3 of the ‘lemonade’ stall.  Discuss the three statements for Day 4 of the ‘wrapping paper’ business.

3. Some Starting Points  Explain, and if possible elaborate on the following terms:  Assets  Claims  Creditors  Debtors  Name the three main types of financial statement, what you think they might be used for, and some of the things you might find on each of them.

4. Financial Statements StatementPurposeTerms used Balance Sheet To assess the financial position of the business at one moment in time Assets, claims, liabilities, capital, retained profit etc. Profit & Loss Account To measure & report on how much wealth the business has created over a period. Sales, Turnover, Cost of Sales, Operating Costs, Overheads, net profit etc. Cash Flow Statement A summary of all cash transactions over a period Cash inflow, Taxation, expenditure, dividends, net increase in cash

5. Profit and loss account Cash flow statement Balance sheet Profit and loss account Cash flow statement Relationship between the balance sheet, profit and loss account and cash flow statement

6. Seminar Preparation Activity Lemonade Stall  On the third car boot sale that you attend, you decide to pay your friend back entirely. In addition you purchase another 250 cans of lemonade at 20p per can. This time the entry fee is £10, but it rains and you only sell 50 of your cans at 50p each.  Construct a cash flow statement, profit & loss account and a balance sheet. for the third day.

7. The Cash Flow Statement – end of Day 2 Opening Balance: £ 80 Loan from friend:£ 30- (paid back) Goods purchased:£ 30- (150 x 20p) Entry Fee:£ 5- Cash received:£ 50+ (100 x 50p) Closing Balance:£ 65

8. Seminar Activity Cash Flow Statement Day 3 Opening Balance: £ 65 Loan from friend:£ 20- (now paid back) Goods purchased:£ 50- (250 x 20p) Entry Fee:£ 10- Cash received:£ 25+ (50 x 50p) Closing Balance:£ 10 NOTE: This could not have happened in this sequence, as the business did not have enough cash after paying back the loan! NOTE: This could not have happened in this sequence, as the business did not have enough cash after paying back the loan!

9. The Profit & Loss Account – End of Day 2 Sales: £ 50 (100 x 50p) Cost of Sales:-£ 20 (100 x 20p) Entry Fee:-£ 5 Net Profit: £ 25

10. Seminar Activity Profit & Loss Account – Day 3 Sales: £ 25 (50 x 50p) Cost of Sales:£ 10 (50 x 20p) Gross Profit: £ 15 Entry Fee: - £ 10 Net Profit: £ 5

11. The Balance Sheet – End of Day 2 Assets: Cash: £ 65 Stock: £ 20 (100 x 20p) Total: £ 85 Liabilities: Loan outstanding: £ 20 Retained profits: £ 65 Total: £ 85

12. Seminar Activity Balance Sheet Day 3 Assets: Cash: £ 10 Stock: £ 60 (300 x 20p) Total: £ 70 * Opening Stock: 100 cans Stock Purchased+ 250 cans Stock Sold - 50 cans Closing Stock: 300 cans Liabilities: Loan outstanding: £ 0 Retained profits: £ 70 Total: £ 70

13. McLaney & Atrill Exercise 2.1 & 2.1 p 54 Wrapping Paper Accounts (End of Day 3) Cash Flow Op. Bal. £63 Sale £32 £95 Cash paid-£46 C. Bal. £49 Profit & Loss Sales £32 Cost of goods-£23 Profit. £9 Balance Sheet Cash £49 Stock £28 Total Wealth £77 NB this is just the asset side of the Balance Sheet

14. McLaney & Atrill Exercise 2.1 & 2.1 p 54  On day 4, Paul purchases stock for £53 in cash. During the day he sells stock that cost £33 for £47.  Construct a cash flow statement, profit & loss account and a balance sheet. for the fourth day.

15. McLaney & Atrill Exercise 2.1 & 2.1 p 54 Wrapping Paper day 4 Cash Flow Op. Bal. £49 Sale £47 £96 Cash paid-£53 C. Bal. £43 Profit & Loss Sales £47 Cost of goods-£33 Profit. £14 Balance Sheet Cash £43 Stock £48 Total Wealth £91 Can you now account for the ‘Total Wealth ‘figure?

16. McLaney & Atrill Exercise 2.1 & 2.1 p 54 - Solution Wrapping Paper - Total Wealth Cash on Day 1£40 Profit Day 1 £15 Profit Day 2 £13 Profit Day 3 £9 Profit Day 4 £14 Total£91 Balance Sheet Cash £43 Stock £48 Total Wealth £91 Can you now create the right hand side to the Balance sheet?

17. McLaney & Atrill Exercise 2.1 & 2.1 p 54- Solution Wrapping Paper Balance Sheet CLAIMS Owner’s Capital£40 Retained Profits £51 Total£91 ASSETS Cash £43 Stock £48 Total £91