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Conor Cunningham P2 M1
Task 1: Cash flow

Joan Thompson is very anxious about the outlook for her bank account in 2016; she is aware that a
large sum is currently owing to her wholesaler which will be payable in January 2016
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A) Use the financial data given in Appendix 1 to complete a set of briefing notes
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P2 (BA)

Task 1: Cash flow
Capital Income – This is the money invested by the owner of the business or other
investors
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It comes from wealth itself rather than a
result of direct work
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It is expenditure incurred in connection with the purchase of a fixed asset
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http://www
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org/what-is-capital-income
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These expenses are
usually classified as Property, Plant and Equipment
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accountingcoach
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For example, the scrapping of items, selling stock, providing services
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http://www
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com/id/7477449/ns/business-answer_desk/t/whats-differencebetween-revenue-income/#
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Revenue
expenditure is not for increasing the value of fixed assets
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http://accounting-simplified
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html

Conor Cunningham P2 M1

B) the cash flow forecast; prepare a memo which outlines the problems which
the business is likely to experience during 2016
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M1 (BA)

To: Joan Thompson
From: Conor Cunningham
Date: 12/11/2015
Regarding; Analysis of cash flow forecast
The data given in Appendix 1 is that of Joan Thompson’s party planning business
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A
cash flow problem arises when a business struggles to pay its debts as they become due
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00
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00
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00 set to come out of the business
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00
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00 was a lot higher than Decembers closing balance of £3,700
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Februarys credit sales dropped significantly to £5,400
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The revenue income dropped by
£16,800
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The total outflows were lower than January but they
were still too high which resulted in the closing balance falling to £10,831
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This closing
balance means that the March opening balance is going to be smaller than the previous
month
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March is predicted to see an increase in revenue income, with total inflows of £12,850
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This looks good for Joan’s business as it is an increase from Februarys total revenue income
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00 and subsequently resulted in the total
outflows increasing too with a figure of £13,862, an outflow increase of £2250
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The closing balance for March was £9,819
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A potential problem is beginning to
arise here as we see a continuous decrease in the closing balances for the first three
months
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00
of cash coming in to the business
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00, higher than March
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00, £642
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This closing
balance looks to be good and means that May starts with a higher opening balance than
April did
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00, a positive figure to start with
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00
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00
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00, a decrease from the previous month
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June is expected to have a significant decrease in credit sales when compared to the
previous month, with a figure of £5,460
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This results in the total inflows being £9,970
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Joan’s wages also increase in June to £3,000
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00, leaving a
smaller opening balance for July
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Although revenue income increases for both cash and credit
sales, the expenses of the business increase as well to £13,887
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Due to the small opening
balance for July and sales not being high enough/expenses being too high, the closing
balance resulted in an even smaller figure of £2,906
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This figure will put serious pressure
on Joan’s business in August if she is to improve her cash flow
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00
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For example, its total inflows increased to £10,570
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00
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00
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This negative figure will put pressure on Joan’s
business and sales will have to increase as well as no major increases in her expenses
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00
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00 meaning that the total outflows significant £15,022
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Due to
a low opening balance to start with and outflows exceeding inflows, the September closing
balance fell to an even lower figure of -£3,678
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October is a worrying month for Joan’s business
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00, it is clear that the outflows of the business are too great
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00 as well as advertising increasing to £345
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These additional
expenses caused the total outflows to reach a figure of £16,512
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This is a problem as the
inflows are less than the outflows of the business
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00
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00 which is worrying
for the business as the closing balances have been on the decrease for the past 6 months
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00
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However, it will depend on her
income and outflows
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00 which has
an effect on the total outflows
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00 which is too high in comparison to the total inflows in the same month
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The closing balance of November is -£9,127
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December begins with a poor opening balance of -£9,127
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However, the cash sales in
December increase to £10,360
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00, resulting in a
total inflow figure of £22,290
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00 increase from the November
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00, meaning that the total outflows in December reached £21,787
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However, for the first time in 7 months, the total inflows were higher than the total
outflows by £503
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This resulted in Decembers closing balance actually improving from its
opening balance
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00
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It’s important that Joan keeps an eye on her expenditure
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Joan
should sell as much stock as she possibly can to try and cover her outflows
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Conor Cunningham P2 M1



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