a.) If it is a new business, the financial analysis is as follows;
• Prepare an income & expenditure statement for the next 12 months only! What is Income?
1. Any cash received may or may not be regarded as income. Cash received for current year is regarded only as income.
2. It is confined to current accounting year only.
3. It is of revenue nature only.
4. In case of income cash may not increase equal to the amount of income.
5. An item may be "income", even though cash has not been received.
6. It is credited to income and expenditure account.
7. It must be considered in final accounts.
Management Skills & Entrepreneurship(MSE)
Loading...
In preparing the income statement:
•All assumptions must be mentioned
•Incorporate the effects of inflation
•Every new business will have its own format for income and expenditure statement
Management Skills & Entrepreneurship(MSE)
•What is expenditure? 1.Any cash paid may or may not be regarded as expenditure.
2.It is confined to current accounting year only.
3.It is of revenue nature only.
4.Cash may or may not decrease equal to the amount of expenditure.
5.An item may be "expenditure" even though cash has not been paid.
6.It is debited to income and expenditure account.
7.It must be considered in final accounts.
Management Skills & Entrepreneurship(MSE)
Loading...
•Distinction between payment and expenditure Payment means total cash paid during the current year. But expenditure means total expenses incurred for the current year only. •Distinction between receipt and income "Receipt" means total cash received during the current year. But "income" means total income earned for the current year.
Management Skills & Entrepreneurship(MSE)
b.) If it is existing business;
•You will prepare P & L accounts for the next 3 years based on the current year actual figures