CS38010

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

10. 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 Trading for a while

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

14. Equation • Assets = Liabilities + Shareholders Equity

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

16. P/L & Cashflow

17. P/L & Cashflow now looks like

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

19. £10K + £42K = £50K + £2K

20. Purchases Month 2 • During Month 2 we purchase £22K of hardware

21. P/L & Cashflow

22. 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

23. Month 3 • Money starts to come in • Depreciation started

24. P/L & Cashflow

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

26. Balance Sheet • (29+21+7)K = (50+7)K Profit Receivables Assets Shares Cash

27. 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.

28. 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

29. 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