Managing Finance and Budgets Seminar 6. Seminar 6 - Activities During this seminar we will: Review...
-
date post
21-Dec-2015 -
Category
Documents
-
view
214 -
download
2
Transcript of Managing Finance and Budgets Seminar 6. Seminar 6 - Activities During this seminar we will: Review...
Managing Finance and Budgets
Seminar 6
Seminar 6 - Activities
During this seminar we will: Review the key concepts and ideas of Cash
Flows Review Chapter 6 of the set book Review the Cash Flow Activity (If time) Examine M & A Exercise 6.7
Some Starting Points
Explain the difference between Cash and Profit. Explain what is meant by the following:
Operating Activities Returns from Investment Servicing of Finances Taxation Capital Expenditure Equity Dividends Liquid Resources
Equity dividends
paid
Financing
Capital expenditure
Returns from investment
and servicing of finance
Taxation
Management of liquid
resources
Operating activities
Cash balance
Elements of of the cash flow statement:
Inflows and Outflows
The Cash-Flow Statement 1
Describe the standard layout of the Cash-Flow Statement.
plus or minus
plus or minus
plus or minus
plus or minus
equals
plus or minus
plus or minus
Increase or decrease in cash over the period
Net cash flow from operating activities
Returns from investment and servicing of
finance
Taxation
Capital expenditure
Equity dividends paid
Management of liquid resource
Financing
Standard layout of the cash flow statement
The Cash-Flow Activity
The Cash Flow Activity Spreadsheet describes one month in the life of ACME Paper Supplies. You are asked to use the information given to construct a Balance Sheet, a Profit & Loss Account and a Cash Flow Statement.
One of the Important elements here is to ensure that all of your statements agree.
ACME PAPER Supplies.
The company also received payments from its Trade Debtors (Transaction C).
Towards the end of February, a new van was purchased for £30,000, and the first payment of interest was taken from the bank account. In addition a tax demand of a further £1000 was received.
In the middle of February, the van used to deliver products to customers broke down, and the garage said that it was beyond repair. This meant that the current asset value of the van (£5000) was effectively lost, and a new van needed to be bought to replace it.
ACME Paper Supplies is a small retail company which specialises in quality paper products. During February the company had a number of sales to various organisations. These are summarised as Transactions A & B.
There was not enough money in the bank to buy a new van, so a bank loan of £25,000 was negotiated with the bank. The interest on this loan would be 10% p.a.
Shortly after this, an order for £14,000 of paper from the maufacturers was delivered with a forceful request for payment of part of a previous order . A cheque for £13,000 was written immediately.
Acme Paper: TRANSACTIONS for February
A Cash Sales: £8000 worth of Stock sold for £12000B Credit Sales: £19000 worth of Stock sold for £28000C Trade Debtor payments: £18000D Bank Loan arranged £25000E Depreciation of old Van £5000F Purchase £14000 Stock on Credit
G Pay Creditors £13000 cashH Purchase new Van for £30000I Pay interest of £2500 on loan.J Receive Tax Demand for £1000
This panel shows the
effect of each transaction on the Balance
Sheet.
TRANSACTION EFFECT ON BALANCE SHEET Amount
A Reduce Stock £8,000Increase Bank Account £12,000Increase Retained Profit £4,000
B Reduce Stock £19,000Increase Debtors £28,000Increase Retained profit £9,000
C Increase Bank Account £18,000Reduce Debtors £18,000
D Increase Bank Account £25,000Increase Loan £25,000
E Reduce Fixed Assets £5,000Reduce Retained Profit £5,000
F Increase Stock £14,000Increase Creditors £14,000
G Reduce Creditors £13,000Reduce Bank Account £13,000
H Increase Fixed Assets £30,000
Reduce Bank Account £30,000
I Reduce Bank Account £2,500
Reduce Retained Profit £2,500
J Reduce Retained Profit £1,000
Increase Unpaid Tax £1,000
Tax Demand for a further £1000
Cash Sales: £8000 worth of Stock sold for
£12000
Credit Sales: £19000 worth of Stock sold for
£28000
Trade Debtor payments: £18000
Bank Loan arranged £25000
Pay interest of £2500 on loan.
Depreciation of old Van £5000
Purchase £14000 Stock on Credit
Pay Creditors £13000 cash
Purchase new Van for £30000
The February Balance Sheet
has been amended as a result of the transactions.
Balance Sheet - January
ASSETS CLAIMS
Fixed Assets £211,000 Capital £150,000Stock-in-trade £28,000 Retained profit £56,000Trade Debtors £33,000 Bank Loan £50,000Bank Account £10,000 Trade creditors £23,000
Unpaid Tax £3,000
Total £282,000 Total £282,000
Revised Balance Sheet - February
ASSETS CLAIMS
Fixed Assets £236,000 Capital £150,000Stock-in-trade £15,000 Retained profit £60,500Trade Debtors £43,000 Bank Loan £75,000Bank Account £19,500 Trade creditors £24,000
Unpaid Tax £4,000
Total £313,500 Total £313,500
This panel shows the effect of each transaction on the Profit & Loss Account
TRANSACTION EFFECT ON PROFIT & LOSS Amount
A Turnover £12,000Cost of Sales £8,000
B Turnover £28,000Cost of Sales £19,000
C Trade Debtor payments: £18000 None
D Bank Loan arranged £25000 None
E Depreciation of old Van £5000 Overheads £5,000
F Purchase £14000 Stock on Credit None
G Pay Creditors £13000 cash None
H Purchase new Van for £30000 None
I Pay interest of £2500 on loan. Interest on Loan £2,500
J Receive Tax Bill for £1000 Tax £1,000
Cash Sales: £8000 worth of Stock sold for £12000
Credit Sales: £19000 worth of Stock sold for £28000
Profit & Loss Account
Turnover £40,000Cost of Sales £27,000Gross profit £13,000
Overheads £5,000Operating profit £8,000
Interest on Loan £2,500Profit Before Tax £5,500
Tax £1,000Profit After Tax £4,500
SURPLUS £4,500
The February Profit and Loss account has been constructed from the information in the
previous slide.
Compare
Balance Sheets (Jan/Feb) (Retained Profit)
Compare
Balance Sheets (Jan/Feb) (Retained Profit)
The Cash-Flow ActivityP & L v Balance Sheet
The Balance Sheet shows: January Retained profit: £56,000 February Retained profit: £60,500
This is an increase of £4,500
The P & L Account Shows:
February Surplus: £4,500
The Profit Agrees
The Profit Agrees
TRANSACTION EFFECT ON CASH FLOW Amount
A CASH Inflow (Op Act) £12,000
B None
C Cash Inflow ( Op Act) £18,000
D Financing (Cash Inflow) £25,000
E None
F None
G Cash OUTflow ( Op Act) -£13,000
H Capital Expenditure (OUT) -£30,000
I Servicing of Finance (OUT) -£2,500
J None
Pay interest of £2500 on loan.
Receive Tax Bill for £1000
Depreciation of old Van £5000
Purchase £14000 Stock on Credit
Pay Creditors £13000 cash
Purchase new Van for £30000
Trade Debtor payments: £18000
Bank Loan arranged £25000
Cash Sales: £8000 worth of Stock sold for £12000
Credit Sales: £19000 worth of Stock sold for £28000This panel
shows the effect of
each transaction
on the Cash Flow
The February Cash Flow has
been constructed
from the information on
the previous slide.
Cash Flow Statement - February
Net Cash Inflow from Op. Act £17,000Servicing of Finance -£2,500
£14,500
Taxation £0£14,500
Capital Expenditure -£30,000-£15,500
Financing £25,000£9,500
Increase in Cash £9,500
Compare increase in Bank on Balance Sheets (Jan to Feb)
Compare increase in Bank on Balance Sheets (Jan to Feb)
Tax demanded, but not paid!
Tax demanded, but not paid!
The Cash-Flow ActivityCash Flow v Balance Sheet
The Balance Sheet shows: January Bank Balance: £10,000 February Bank Balance: £19,500
This is an increase of £9,500
The Cash Flow Statement shows:
February Cash Inflow: £9,500
The Cash Agrees
The Cash Agrees
Final Check
For the final part of this activity, we will deduce the Net Cash Inflow from Operating Activities, via the indirect method.
The Cash-Flow Statement 2
State what is meant by the direct and indirect methods of deducing the Net Cash-Flow from the Operating Activities, explaining briefly the difference between them.
For the Indirect method of calculating the net cash-flow, state the list of items, taken in order, that you would need to include in your calculations.
Cash Flow Activity Spreadsheet
plus
plus or minus
equals
plus or minus
plus or minus
Net cash flow from operating activities
Net operating profit
Depreciation expense
Increase (minus) or decrease (plus) in stock
Increase (minus) or decrease (plus) in debtors
Increase (plus) or decrease (minus) in creditors
The indirect method of deducing the net cash flow from the operating activities
Net Cash Inflow From Operating Activities
Net Operating profit £8,000
Depreciation £5,000
StockJanuary Balance Sheet £28,000February Balance Sheet £15,000
£13,000DebtorsJanuary Balance Sheet £33,000
February Balance Sheet £43,000-£10,000
CreditorsJanuary Balance Sheet £23,000February Balance Sheet £24,000
£1,000
Net Cash Flow £17,000
The Net Cash Flow from Operating
Activities has been calculated from the information in the 2 Balance Sheets
and the P & L Account.
Compare Cash Flow (1st item) Agrees
Compare Cash Flow (1st item) Agrees
Summarising…
Describe the relationship(s) between:The Balance SheetThe Cash-Flow StatementThe Profit & Loss Account
Balance sheet at the start of
the accounting period
Owner’s claim
Cash
Balance sheet at the end of
the accounting period
Owner’s claim
CashCash flow statement
Profit and loss account
The relationship between the balance sheet, the profit and loss account and the cash flow statement