CS38010
1
P/L Costs Overheads
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Wages
NI
Rent
Rates – Business & Water
Gas & Electricity
Telephone, ISP
Postage, Printing, Stationary
Advertising
Insurance
2
P/L Costs ……..
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Repairs & Maintenance
Interest Payments
Bank Charges
Depreciation
Travel
Legal
Subscriptions and Periodicals
3
Sales And Income
 Invoice sales
 Cash Sales
 Interest on deposit
4
Cash In – Not Sales
 Equity
 Bank Loan/Mortgage
 VAT
 These DO NOT appear in profit/loss
5
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
6
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
7
Balance Sheet
 Assets = Liabilities +Shareholders Equity
8
Start up
 Shareholders raise
£50,000
 Cash goes into bank
 Assets
– Cash on hand £50,000
 Liabilities + Sharehldrs
– £0
+£50,000
9
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
10
Balance Sheet
 Assets
– Current
 Cash
 Accounts Receivable
 Inventory
– Long Term
 Fixed or Tangible
– Buildings, Furniture, Plant & Machinery
 Intangible
– Name & Goodwill
– Patents
– Website
11
Balance Sheet
 Liabilities
– Current Liabilities
 Accounts Payable
 Loan Payment Payable
 VAT
 Inland Revenue
– Long Term Debt
 Remainder of Loan
12
Balance Sheet
 Shareholder Equity
– Shareholdings
– Retained profit
13
Equation
 Assets = Liabilities + Shareholders Equity
Start of Business
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Sell shares for £50,000 on day
Therefore balance sheet reads
Assets = £50K
Liabilities + £0
Shareholders Equity = £50K
 £50K = £0 + £50K
P/L & Cashflow
1
Sales 10K
Costs -8K
Profit 2K
Accum
2k
2
12K
-9K
3K
5K
3
12K
-9K
3K
8K
4
13k
-10K
3K
11k
5
14K
-10K
4K
15K
6
14K
-10K
4K
19K
Cash in
0K
-8K
0K
-9K
5K
-9K
11K
-10K
12K
-10K
13K
-10K
-8K
-17K
-21K
-20K
-18K
-15K
Profit
Cash
Out
Balance
P/L & Cashflow now looks like
1
Sales 10K
Costs -8K
Profit 2K
Accum
2k
Profit
Cash in
Cash
Out
Cash on
Hand
£50K
-£8K
£42K
2
3
4
5
6
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
1
Sales 10K
Costs -8K
Profit 2K
Accum
2k
2
12K
-9K
3K
5K
Cash in
50K
-8K
0K
-31K
42K
11K
Profit
Cash
Out
Cash on
(9K costs and 22K
equipment)
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
1
2
3
Sales
10K
12K
12K
Costs
-8K
-9K
-9K
Deprecat
ion
-1K
Profit
2K
3K
2K
Accum
Profit
2k
5K
7K
Cash in
50K
0K
5K
Cash
Out
-8K
-31K
-9K
Cash on
42K
11K
7K
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
 (29+21+7)K = (50+7)K
Receivab
les
Profit
Assets
Shares
Cash
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
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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 capital
P/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:
Cashflow:
£37,500 - £12,000
Balance Sheet:
= £25,500
£15,000 - £12,000
= £3,000
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:
Cashflow:
Balance Sheet:
£25,500 + £15,000
=£40,500
£3,000
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:
Balance Sheet:
£40,500
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:
P/L Account:
Equipment bill £16,500 £3,000 last month
Salaries
£8,000 £3,000 this month
Fixed
£4,000
Invoice fees
£15,000
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