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Projection of Financial Requirements

Projection of Financial Requirements. Direct Material Direct Labor Indirect Material/Labor Fixed General/Admin Selling Profit. Prime costs. Cost of goods manufactured. Conversion cost. Factory Overhead. Selling Price. Cost of goods sold. Direct vs Indirect Costs.

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Projection of Financial Requirements

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  1. Projection of Financial Requirements

  2. Direct Material Direct Labor Indirect Material/Labor Fixed General/Admin Selling Profit Prime costs Cost of goods manufactured Conversion cost Factory Overhead Selling Price Cost of goods sold Direct vs Indirect Costs

  3. Balance Sheet • Liabilities probable future sacrifices of economic benefits as result of current obligations Current Liabilities - must be paid within 1 yr. • Owner Equity ownership right of proprietors or stockholders Changes in OE by • investment by owner • earnings from profitable operation of business • withdrawals of cash of other assets • losses from business

  4. Accounting Equation Owner Equity = Assets - Liabilities

  5. Income Statement • Projects profit/loss of an entity over a period of time • Net Sales - gross sales less returns, defects, etc. • Cost-of-Goods sold - cost of raw material & direct labor • Selling, Gen, Admin - operating expenses of an entity which do not directly contribute to product (sales people, managers, ...) • Interest Expense - interest paid on long/short term debt. • Net Income/share - net income (after tax) divided by outstanding shares

  6. Income Statement Revenues - Cost of Sales = Gross Margin - Op. Expenses = Op. Profit/Loss - Taxes = Net Profit/Loss

  7. Changes to Owner Equity • Begin Balance - last year’s ending balance • Paid-in Capital - sold 10,000 shares at $19 /share stock par value of $10 / share. common stock = 10,000 x $10 = $100,000 addition paid in =10,000 x ($19-$10) = $ 90,000 • Retained Earnings - cumulative net income which has been retained for business • Dividends - distribution of earnings to stockholders

  8. Changes to Owner Equity Balance Sheet Income Statement Balance Sheet 8/31/96 Revenues 8/31/97 - Expenses Net Income Statement of OE A =L +OE Begin Balance Paid in capital changes Retained earnings + Net Income - Dividends Ending Balances A = L + OE

  9. Retained (97) = Retained (96) + $18,000 = $93,900

  10. Statement of Cash Flows • Identify the sources and use of cash during year • Operating Activities • net income $18,000 from income statement • depreciation expense $16,400 from balance sheet added back in because it is not an actual cash outlay

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