Overview

Question 1

Profit and Loss

Answer 1

Shows what has happened over a given time period to profit.

Video

Question 2

Balance Sheet

Answer 2

Shows a snapshot in time of assets and liabilities.

Question 3

Cash flow

Answer 3

Flows of cash in and out of a business.

Directly related to profit but not the same thing.

Question 4

Accrual accounting

Answer 4

Rather than just recording cash in/cash out, accrual accounting records;

• sales/revenues
• costs/expenses
• profit/income

Question 5

Management accounts - how is it best to manage accounts?

Answer 5

Have separate budgets and P&Ls for different divisions.

for each division track;

• gross margin
• net profit margin
• costs against sales

When making comparisons, look at the actual cost vs. budget and reference points of previous years.

Question 6

Combining forecasting and budgeting

Answer 6

Forecast a P&L

Freeze the budget and keep rolling forecasts on a monthly basis. This is then a live document that predicts the year end result and cash flow.

This can also form the basis of next years’ forecast!

Question 7

Trailing 12 month graph

Answer 7

Very useful. Gives early warnings of problems.

It works for most indicators and eliminates seasonality by showing an annual total figure entered monthly.

Meaning that when it increases, it’s good. When it falls, its bad.