Cash Flows by sT9X7LEy

VIEWS: 12 PAGES: 16

									Cash Flows
               Cash Movements
• Assets are everything of value that is owned by an
  entity. A future benefit or Potential Gain
• Purchasing ASSETS will decrease your bank balance

  – Property Purchase
  – Vehicle Purchase
  – Pant & Equipment Purchase
  – Providing Finance
  – Legal Action
            Cash Movements
• An obligation that legally binds an individual
  or company to settle a debt.
• Liabilities in the form of Borrowings will
  increase your bank balance.
  – Loans
  – Trade Credit
  – Taxes
  – GST
            Cash Movements
• Expenses Any cost incurred resulting from
  revenue-generating activities.
• Paying Expenses will decrease your bank
  balances
  – Repayment of Loans
  – Paying Trade Accounts
  – Purchases
            Cash Movements
• Income is cash inflow to the entity during the
  accounting period resulting from revenue-
  generating activities
• Income received by the entity will increase the
  bank balance
  – Progress Claim
  – Bank Interest
  – Dividends
           Profit v’s Cashflow
• Profit is an arbitrary measurement
• Tax Profit is measured 1st July to 30th June
• Corporations Law requires a some companies
  to produce a report to determine profit.
• Generally same as Tax
• In USA same as calendar
• In UK , March to March
           When Should Profit Be Measured
                               Project Value $10 000 000
                               Start Date         1st July 2005
                               End Date           30th June 2007

                                              YEAR 2005
             1/07/2005      1/08/2005      1/09/2005      1/10/2005      1/11/2005      1/12/2005

Expenses   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 416,666.67

Income     $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 500,000.00

                                              YEAR 2006
             1/01/2006      1/02/2006      1/03/2006      1/04/2006      1/05/2006      1/06/2006       Total 05/06

Expenses   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 5,000,000.00

Income     $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 6,000,000.00




                 Profit = $1 000 000 x 30%
                        = $300 000
                                                 YEAR 2005
             1/07/2005      1/08/2005      1/09/2005       1/10/2005      1/11/2005      1/12/2005

Expenses   $ 416,666.67   $ 416,666.67   $ 416,666.67    $ 416,666.67   $ 416,666.67   $ 416,666.67

Income     $ 500,000.00   $ 500,000.00   $ 500,000.00    $ 500,000.00   $ 500,000.00   $ 500,000.00

                                                 YEAR 2006
             1/01/2006      1/02/2006      1/03/2006       1/04/2006      1/05/2006      1/06/2006       Total 05/06

Expenses   $ 416,666.67   $ 416,666.67   $ 416,666.67    $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 5,000,000.00

Income     $ 500,000.00   $ 500,000.00   $ 500,000.00    $ 500,000.00   $ 500,000.00   $ 500,000.00   $ 6,000,000.00
                                                 YEAR 2006
             1/07/2005      1/08/2005      1/09/2005       1/10/2005      1/11/2005      1/12/2005
Expenses   $ 416,666.67   $ 416,666.67   $ 416,666.67    $ 416,666.67   $ 416,666.67   $ 416,666.67
Income     $ 333,333.33   $ 333,333.33   $ 333,333.33    $ 333,333.33   $ 333,333.33   $ 333,333.33
                                                 YEAR 2007
             1/01/2006      1/02/2006      1/03/2006       1/04/2006      1/05/2006      1/06/2006       Total 06/07
Expenses   $ 416,666.67   $ 416,666.67   $ 416,666.67    $ 416,666.67   $ 416,666.67   $ 416,666.67   $ 5,000,000.00
Income     $ 333,333.33   $ 333,333.33   $ 333,333.33    $ 333,333.33   $ 333,333.33   $ 333,333.33   $ 4,000,000.00



 Profit Year 05/06 =$1 000 000                          Over Project Life it broke even
 Loss Year 06/07 =$1 000 000                            But $300 000 tax was paid
                   Profit v Cash Flows
•   Materials Purchased On Credit Negative Profit Positive Cashflow
•   Credit Sales                  Positive Profit Negative Cashflow`

•   Telephone Bill Paid          Negative Profit Negative Cashflow

•   Taxes Incurred               Negative Profit Positive Cashflow

•   Completed Job                Positive Profit Negative Cashflow

•   New Capital Equipment       No Effect Profit Negative Cashflow

•   Depreciation of an Asset    Negative Profit No Effect Cashflow

•   Capital Withdrawals         No Effect Profit Negative Cashflow

•   Business Borrowings         No Effect Profit Positive Cashflow
          Cash Flows v Profits
• Cash Accounting – is where your business
  records the flow of money

• An accounting method where receipts are
  recorded during the period they are received,
  and the expenses in the period in which they
  are actually paid
          Cashflows v Profits
• ACCRUAL ACCOUNTING - An accounting
  method that measures the performance and
  position of a company by recognizing
  economic events regardless of when cash
  transactions occur
                 Accrual V Cash Example
                                                              Cash             Accrual
Date     Business Event                                 Economic Position Economic Position
Week 1   Cash Deposit 1/7/2005                                    10,000.00         10,000.00
Week 1   Wages Bill for week $5500                                 4,500.00          4,500.00
Week 2   Invioce (1) for week 1 Work (7 Days) $8000                4,500.00         12,500.00
Week2    Wages Bill for week $5500                                -1,000.00          7,000.00
Week3    Invioce (1) for week 1 Paid $8000                         7,000.00          7,000.00
Week 3   Invioce (2) for week 2 Work (14 Days) $15000              7,000.00         22,000.00
Week3    Wages Bill for week $5500                                 1,500.00         16,500.00
Week 4   Cash Purchase of Tools $1000                                500.00         15,500.00
Week 4   Wages Bill for week $5500                                -5,000.00         10,000.00
Week 5   Payment of Invoice 2                                     10,000.00         10,000.00
Week 5   Bunning Account Invoice $15000 Due Week 6                10,000.00         -5,000.00
Week 5   Wages Bill for week $5500                                 4,500.00        -10,500.00
Week 6   Invoice (3) Issued for weeks 4,5 $6000                    4,500.00         -4,500.00
Scan Question Here
      Cashflow Exercise Page 6
                  January         February         March

Opening Balance   $ 25,000.00 $        27,415.00 $ 30,430.00
Money in          $ 12,000.00 $        16,000.00 $ 15,000.00

Money Out         -$   4,000.00   -$    5,800.00   -$ 14,000.00
                  -$   3,600.00   -$    4,200.00   -$ 9,300.00
                  -$     750.00   -$      750.00   -$    750.00
                  -$     235.00   -$    1,235.00   -$ 8,700.00
                  -$   1,000.00   -$    1,000.00   -$ 1,000.00
                  -$   9,585.00   -$   12,985.00   -$ 33,750.00


Closing Balance   $ 27,415.00 $        30,430.00 $ 11,680.00

                                  Cash Position    -$ 13,320.00
        Cash Flow Example Page 7
                  January     February        March

Opening Balance   $ 10,000.00 $     3,000.00 $ 17,000.00
Money in          $ 25,000.00 $    47,000.00 $ 40,000.00

Money Out         $ 32,000.00 $    33,000.00 $ 22,000.00




Closing Balance   $   3,000.00 $   17,000.00 $ 35,000.00

                              Cash Position   $ 25,000.00

								
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