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 1 st July to 30 th 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 $ Start Date1 st July 2005 End Date30 th June 2007 YEAR /07/20051/08/20051/09/20051/10/20051/11/20051/12/2005 Expenses $ 416, Income $ 500, YEAR /01/20061/02/20061/03/20061/04/20061/05/20061/06/2006Total 05/06 Expenses $ 416, $ 5,000, Income $ 500, $ 6,000, Profit = $ x 30% = $

YEAR /07/20051/08/20051/09/20051/10/20051/11/20051/12/2005 Expenses $ 416, Income $ 500, YEAR /01/20061/02/20061/03/20061/04/20061/05/20061/06/2006Total 05/06 Expenses $ 416, $ 5,000, Income $ 500, $ 6,000, YEAR /07/20051/08/20051/09/20051/10/20051/11/20051/12/2005 Expenses $ 416, Income $ 333, YEAR /01/20061/02/20061/03/20061/04/20061/05/20061/06/2006Total 06/07 Expenses $ 416, $ 5,000, Income $ 333, $ 4,000, Profit Year 05/06 =$ Loss Year 06/07=$ Over Project Life it broke even But $ tax was paid

Profit v Cash Flows Materials Purchased On Credit Credit Sales Telephone Bill Paid Taxes Incurred Completed Job New Capital Equipment Depreciation of an Asset Capital Withdrawals Business Borrowings Negative Profit Positive Cashflow Positive Profit Negative Cashflow` Negative Profit Negative Cashflow Negative Profit Positive Cashflow Positive Profit Negative Cashflow No Effect Profit Negative Cashflow Negative Profit No Effect Cashflow No Effect Profit Negative Cashflow 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

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Cashflow Exercise Page 6

Cash Flow Example Page 7