1. Bringing information to life Prepared by Hanady A. Osman
Block 3 Section 4
Bringing information to life
Prepared by
Hanady A. Osman

2. Budgets (Pg. 98 Binder)
A budget is a quantitative statement, for a defined period of time, which may include planned revenues, expenses, assets, liabilities and cash flows.
A budget provides a focus for the organization, aids the co-ordination of activities, and facilities control.
H. A. Osman

3. Example of a Budget control report for a profit centre (Pg. 99 Binder)
H. A. Osman

4. Uses of budgets (pg. 235 Text)
They tend to promote forward thinking and the possible identification of short-term problems.
They can be used to help co-ordination between various sections of the business.
They can motivate managers to better performance.
They can provide a basis for a system of control
H. A. Osman

5. Example 9.1 Example of a Cash Budget (Pg. 237/238 Atrill & McLaney)
Suppliers Ltd is a wholesale business. The budgeted profit and loss account for the next six months is as follows
Jan
Feb
Mar
Apr
May
June
Sales 52 55 60 53
Cost of goods sold 30 31 35 32
Salaries and wages 10
Electricity 5 4 3
Depreciation
Other overheads 2
Total expenses 50 51 49
Net profit 7 6
H. A. Osman

6. Show the cash budget for the six months ending in June
The business allows all of its customers one month's credit (that is, goods sold in January will be paid for in February).
Sales during December had been £60,000.
The business plans to maintain stocks at their existing level until sometime in March, when they are to be reduced by £5,000. Stocks will remain at this lower level indefinitely.
Stock purchases are made on one month's credit December purchases were £30,000).
Salaries, wages and 'other overheat paid in the month concerned.
Electricity is paid quarterly in arrears in March and June.
The business plans to buy and pay for a new delivery van in March This will cost a total of £15,000, but an existing van will be traded in for f as part of the deal.
The business expects to start January with £12,000 in cash
Show the cash budget for the six months ending in June
H. A. Osman

7. Solution Receipts Payments Salaries and wages Electricity
Cash budget for the six months ending 30 June
Jan
Feb
Mar
Apr
May
June
Receipts 60 52 55
Payments 30 31 26 35
Salaries and wages 10
Electricity 14
Other overheads 2
Van Purchase 11
Total payment 42 68 38 47
Cash surplus 18
(13) 17 13 3
Cash balance 40 27 44 57
H. A. Osman

8. Financial Performance Statements (Pg.106/107 Binder)
Balance Sheet: Is a financial position
statement shows how an organization
is performing in a stated period of time
(e.g. for the year ending July 2005).
ASSETS = CAPITAL + LIABILITIES
H. A. Osman

9. Balance Sheet Format (Pg. 32 Atrill & McLaney)
Assets : A summary listing of items owned or controlled by the organization.
Liabilities/Claims : Amount owned by the organization.
Capital/Owners Equity: The difference between the Assets and Liabilities.
H. A. Osman

10. Balance Sheet Format (Pg. 32 Atrill & McLaney)
FA + CA = C + LTL + CL
FA + (CA-CL) – LTL = C
H. A. Osman

11. Classifications of Assets (Pg. 28-30 Atrill & McLaney)
CURRENT ASSETS
FIXED ASSETS
Fixtures & fittings
Motor Vehicles
Patents
Stock of work-in-progress
Accounts
Receivables
Cash at bank
Short-term investments
Debtors
Freehold premises
Plants & machinery
Office equipment
H. A. Osman

12. Classifications of Liabilities (Pg. 30 Atrill & McLaney)
CURRENT LIABILITIES
LONG TERM LIABILITIES
Trade creditors
Accounts payable
Bank overdrafts
Long term mortgages
Debentures
Long term loans
H. A. Osman

13. XYZ Manufacturing Balance sheet as at 31 December 2000
Balance Sheet Format (Pg. 31 Atrill & McLaney)
XYZ Manufacturing Balance sheet as at 31 December 2000
$ $ Fixed assets Freehold premises 45,000 Plant & machinery 30,000 Motor vans 19,000 94,000 $
Capital
Opening balance ,000
Add profit ,000
64,000
Less drawings ,000
60,000
Long-term liabilities
Loan 50,000
Current liabilities
Trade creditors ,000
147,000
Current assets Stock-in-trade 23,000 Trade debtors 18,000 Cash at bank 12,000 53, ,000
H. A. Osman

14. Interpreting the balance sheet (Pg. 41-42 Text)
The following aspects of financial position can be
examined;
The liquidity of the business.
The mix of assets held by the business.
The financial structure of the business.
H. A. Osman

15. Cost Based Technical Information (Pg. 113 Binder)
COSTING
Costs represent the resources that have
to be sacrificed to achieve a business
objective. Costs classifications;
Fixed Costs: those that stay fixed when changes occur to the volume of activity, and
Variable Costs: those that vary according to the volume of activity.
H. A. Osman

16. Examples of fixed and variable costs at a hairdressing salon
Fixed costs
Rent
Insurance
Cleaning costs
Staff Salaries
Variable costs
Lotions and other materials used
Laundry costs to wash towels used to dry the hair of customers
H. A. Osman

17. Cost Analysis (Pg. 114 Binder)
Activity 4.8
H. A. Osman

18. Graphical representation of Costs (Pg. 182-184 Atrill & McLaney)
Fixed Costs
Variable Costs
Cost ($)
Cost ($) F
Volume of activity (unit of output)
Volume of activity (unit of output)
H. A. Osman

19. Graphical representation of Total Cost (Pg. 182-184 Atrill & McLaney)
Variable Costs
Fixed Costs F
Volume of activity (unit of output)
H. A. Osman

20. Graphical representation of Total Cost (Pg. 182-184 Atrill & McLaney)
Total Costs
Variable Costs
Fixed Costs F
Volume of activity (unit of output)
H. A. Osman

21. Sales Revenue is equal to the units sold multiplied by the selling
Graphical representation of Total Sales Revenue (Pg Atrill & McLaney)
Sales Revenue is
equal to the units
sold multiplied
by the selling
price per unit
Cost ($)
Total sales revenue
Volume of activity (unit of output)
H. A. Osman

22. Break-even chart (Pg. 187 Atrill & McLaney)
Total sales revenue
Break-Even point
Cost ($)
Variable Costs
Total Costs
Fixed Costs F
Volume of activity (unit of output)
H. A. Osman

23. Break-even point-formula (Pg. 187/188 Atrill & McLaney)
Total revenues = Total Costs
Total revenues= FC + TVC
(b x Sales per unit) = FC + (b x variable cost per unit)
(b x Sales per unit)-(b x variable cost per unit)= FC
b x (Sales per unit-variable cost per unit)= FC
Therefore:
Fixed Costs
b = Sales per unit-variable cost per unit
H. A. Osman

24. Full costing (Pg. 116 Binder & Pg. 208 Atrill & McLaney)
Where units of output are not identical,
we normally separate costs into two
categories;
Direct costs: These are costs that can be identified with specific cost units.
Indirect costs (or overheads): These are all other costs. That is cannot be directly measured in respect of each particular unit of output.
H. A. Osman

25. Job costing (Pg. 207 Atrill & McLaney)
The term job costing is used to describe the full
cost per unit of output (job) where the units of
output differ.
Direct costs
Of the unit
Fair share of
Indirect costs
(overheads)
Full cost of
the unit
H. A. Osman

26. Uses of full cost information (pg. 225 Text)
For pricing purposes:
Full costs are used as the basis of pricing. Here the full cost is deduced and a percentage is added on the profit.
For income measurement purposes: To measure business’s income it is necessary to match expenses with the revenues realized in the same accounting period.
H. A. Osman

27. Measuring & reporting financial performance (Pg. 47 Atrill & McLaney)
The purpose of the profit and loss account-
or income statement is to measure and
report how much profit (wealth) the business
has generated over a period.
Profit (loss) for
the period
Total revenue for the period less Total expenses incurred in generating the revenue =
H. A. Osman

28. Profit & Loss Account Format (Pg. 31 Atrill & McLaney)
Hi-Price Stores Trading and profit and loss account for the year ending 31 October 2000
232,000
154,000
78,000
2,000
80,000
54,500
25,500
24,500
14,200
7,500
1,200
1,000
3,400
1,100
600
Sales
Less Cost of Sakes
Gross profit
Add interest received from investment
Less Salaries and wages
Rent and rates
Heat and light
Telephone and postage
Insurance
Motor vehicle running expenses
Loan interest
Depreciation – fixtures and fittings
Depreciation – motor van
Net profit
H. A. Osman

29. Some concept used in the P/L account (Pg. 47-60 Atrill & McLaney)
Revenue/Sales
Cost of sales
Gross profit
Expenses
Depreciation
Net profit
H. A. Osman