Projected income statement Grade 11 PART 1
Summary
TLDRThis video script offers a detailed tutorial on creating a projected income statement for a business. It emphasizes the importance of using the previous year's income statement and balance sheet to estimate monthly figures. The script guides viewers through adjusting for changes in sales, rental charges, interest on fixed deposits, and other variable expenses, ensuring a realistic financial forecast for the upcoming months.
Takeaways
- 📈 A projected income statement is a financial tool used for estimating a business's income and expenses for a future period.
- 🔍 To prepare a projected income statement, a business needs its previous year's income statement and balance sheet.
- ⏱ The script explains the process of dividing the previous year's income statement amounts by 12 to estimate monthly figures.
- 📚 The video on the YouTube channel provides further explanation on what a projected income statement is.
- 💡 The example given involves projecting income for July, August, and September 2021 using the income statement from the year ended 30 June 2021.
- 📉 Sales for July and August are expected to remain constant at 80,000 per month, with a 10% increase in September, resulting in 88,000 for that month.
- 💰 The markup percentage is calculated by dividing gross profit by cost of sales and then multiplying by 100. In the example, it's 100%.
- 🏠 A monthly rental charge is expected to increase by 10% in August, affecting the operating incomes.
- 🏦 The firm has a mortgage with an interest rate of 15% per annum, with a portion of the principal repayable on the 1st of August, which affects the interest expense.
- 📊 Depreciation is calculated monthly and is expected to remain fixed for July and August, with an increase in September due to new equipment purchase.
- 📈 Other operating expenses such as advertising, rates, water, and electricity are expected to increase by 10% in August, except for all other expenses which are expected to increase by 20% in September.
Q & A
What is a projected income statement?
-A projected income statement is a financial statement that estimates a company's future revenues and expenses, helping to predict the company's profitability over a certain period.
Why is the previous year's income statement needed to prepare a projected income statement?
-The previous year's income statement is needed to understand the historical financial performance of the company, which serves as a baseline for estimating future income and expenses.
What is the purpose of dividing the amounts from the previous year's income statement by 12 when preparing a projected income statement?
-Dividing the amounts by 12 converts the annual figures into monthly figures, which is necessary for projecting the income and expenses on a monthly basis.
According to the transcript, how is the sales amount per month calculated?
-The sales amount per month is calculated by dividing the total annual sales by 12.
What is the expected change in sales for September compared to July and August?
-Sales are expected to increase by 10 percent in September compared to the constant sales in July and August.
What is the markup percentage calculated from the gross profit and cost of sales, and what does it indicate?
-The markup percentage is calculated as (Gross Profit / Cost of Sales) * 100. A markup percentage of 100% indicates that the gross profit is equal to the cost of sales.
How is the cost of sales for July and August determined if the markup is 100%?
-If the markup is 100%, the cost of sales is determined by dividing the sales amount by 2, since the markup is the same as the cost price.
What is the expected change in rent income for August, and why?
-The rent income is expected to increase by 10 percent in August because it is stated in the additional information that there will be an increase.
How is the interest expense on the mortgage calculated, and what changes occur in August?
-The interest expense is calculated as the mortgage amount times the interest rate divided by 12. In August, a repayment of 10,000 is made, reducing the mortgage amount and thus the interest expense for the following months.
What is the expected increase in advertising, rates, water, and electricity expenses in August, and why?
-Advertising, rates, water, and electricity expenses are expected to increase by 10 percent in August because it is stated in the additional information that these expenses will increase.
How are other operating expenses expected to change in September, and what is the reason for this change?
-Other operating expenses, such as bank charges, insurance, repairs, salaries, stationary, and wages, are expected to increase by 20 percent in September due to a general increase in expenses as stated in the additional information.
Outlines
📊 Introduction to Projected Income Statement
The speaker introduces the concept of a projected income statement, which is a financial tool for estimating a business's income and expenses. They suggest referring to a YouTube video for a detailed explanation and emphasize the need for a company's previous year's income statement and balance sheet to prepare this projection. The process involves dividing the annual figures by 12 to estimate monthly figures, which is essential for businesses that plan on a monthly basis.
🔢 Calculating Monthly Sales and Markups
The speaker explains how to calculate monthly sales from the annual figures, using the example of 960,000 divided by 12, resulting in 80,000 per month. They discuss the expected constant sales for July and August and a 10% increase in September. Additionally, the concept of markup percentage is introduced, calculated as gross profit divided by cost of sales, multiplied by 100. The example given shows a 100% markup, meaning the selling price is double the cost price.
📈 Adjusting for Changes in Rent and Other Incomes
The speaker discusses adjustments to rental income, which is expected to increase by 10% in August. They calculate the monthly rental income from the annual figure and adjust it for the expected increase. They also mention the interest on fixed deposits, which remains unchanged, and the mortgage interest, which is calculated monthly and will decrease after a repayment in August.
🛠️ Depreciation and Equipment Purchase
The speaker explains the concept of depreciation, which remains fixed for July and August at 1050 per month, calculated from the annual figure. In September, the company plans to purchase equipment, and the depreciation for this new asset is calculated at 10%, resulting in an additional 400 for the month, increasing the total depreciation to 1450.
📈 Anticipated Increase in Operating Expenses
The speaker forecasts an increase in various operating expenses in August, such as advertising, rates, and utilities like water and electricity, all expected to rise by 10%. They calculate the new monthly costs after these increases and note that all other expenses are expected to rise by 20% in September, affecting items like bank charges, insurance, repairs, salaries, and stationary.
📊 Finalizing Operating Profit and Expenses
The speaker concludes by summarizing the operating expenses for July, including the costs of sales, rent, utilities, and other expenses, to determine the operating profit. They also account for interest income and expenses. The process is repeated for August with the adjusted figures, and the speaker thanks the audience for their attention.
Mindmap
Keywords
💡Projected Income Statement
💡Business Estimate
💡Previous Year Income Statement
💡Balance Sheet
💡Monthly Sales
💡Markup Percentage
💡Cost of Sales
💡Rental Income
💡Interest on Fixed Deposit
💡Mortgage
💡Depreciation
💡Operating Expenses
💡Interest Expense
💡Operating Profit
Highlights
Introduction to the concept of a projected income statement and its importance for business planning.
Explanation of how to prepare a projected income statement using the previous year's income statement and balance sheet.
The method of dividing annual figures by 12 months to estimate monthly income and expenses for the projection.
Instructions on using the income statement for the year ended 30 June to project income for July, August, and September 2021.
Details on calculating monthly sales figures and adjusting for expected changes in sales volume.
The significance of maintaining a fixed markup percentage throughout the year for consistent pricing strategy.
How to calculate the markup percentage using gross profit and cost of sales.
Understanding the relationship between cost price, markup, and selling price in financial projections.
Projection of rental income changes, including a 10% increase in August.
The process of estimating monthly interest on fixed deposits and its role in operating profit.
Explanation of mortgage repayments and the subsequent impact on monthly interest expenses.
Depreciation calculations for equipment and its fixed monthly impact on financial statements.
Adjustment of operating expenses such as advertising, rates, water, and electricity in anticipation of a 10% increase in August.
Projection of other expenses, including bank charges, insurance, repairs, salaries, stationary, and wages, with a 20% increase expected in September.
Final calculations of operating profit by subtracting operating expenses from operating incomes.
The importance of adjusting financial projections for changes in expenses and income to reflect realistic business scenarios.
Conclusion summarizing the process and thanking the audience for their attention.
Transcripts
good day
today we are going to do
the projected income statement
so
if you don't know what is a projected
income statement
you can go
to my YouTube channel
um and then you'll find a video there
where I've explained what is a projected
income statement so actually the
projected income statement I can just
say in short
um and as well the business estimate
estimate
it's
incomes
and
expenses
Okay so
in order for the business to prepare the
projected income statement
the business will need
a
the previous year
income
statement
and also
the balance sheet
of the previous year
okay so in order for the business to
prepare the income statement
um
in order for the business to prepare the
projected income statement it will need
its previous year income statement and
also the balance sheet
okay and then
just like I said you just go to that
video and then you'll get a better
explanation okay and then after that
so
the business will need to go to the
amounts get a day in the projected
income I mean the business will need to
go to the previous year income statement
and then divide all the amounts by
um 12 months
so the reason we do that it is because
we're in the business
um
prepares the projected income statement
the business prepares the projected
income statement for months
okay four months so the income statement
the one that you will take for the
previous year it will be the income
statement of the whole year
the one that you know
the one that you know which is the
income statement it's the income
statement of the whole year that is why
we have to divide the amounts by 12 so
that you can know that how much are
these amounts per month
okay
so let's quickly go to the um
to the question okay use the income
statement for the year ended 30 June to
prepare the projected of Mark hobo a
Traders for July August and September
2021
so the year ends on 30 June 2021
so we are told to prepare the projected
for these three months
right so we are given the income
statement of the previous year
so what what you will need to do right
now is we have to divide these months by
12 so that we know that how much are
these amounts per month okay
um so let's go to the additional
information
letter A
average monthly sales are expected
to remain constant in July occurs and
will increase by 10 percent in
September now let's go to the sales
so the amount of sales here is 960 000.
960
000. so we want to know that how much
are the sales per month
how much are the sales per month
so we divide by 12.
so the sales they are 80
000 per month
okay so then here
we are told that uh average monthly
sales are expected to remain constant in
July and August so meaning that the
sales in July and August
um they will be eighty thousand
because we know that the sales they are
80 000 per month after doing this
calculation you can now know that the
sales they are 80 000 per month
but then
in September we are told that will
increase by 10 percent in September
so the sales per month there are eighty
thousand but then in September they will
increase by 10 percent
so 80 000 times
10 percent
how much is this
eighty thousand
times ten percent
so this is eight thousand
so they will increase by eight thousand
so eight thousand plus eighty thousand
that is going to give you 88
000. right
a net transaction
a fixed markup is maintained throughout
the year so the market the markup is the
same throughout the year now let's go
and look at this
so the first question is how do we
calculate the marker
percentage how to calculate the markup
percentage so to calculate the markup
percentage you must say gross profit
divide by cost of sales
and then we Times by hundreds
okay so the gross profit is four hundred
and eighty thousand
and then the cost of sales
they are for 80 000 also
times hundreds so therefore it means
that the markup is 100 in this case so
the markup is hundred percent
right so what we want right now is we
want to calculate the cost of sales for
this month so now we know that the
markup is hundred percent so what do we
know we know that cost price
plus markup
is equal to selling price right so the
markup is 100 is 100 right now
but then the cost price as you know
about the cost price is that the cost
price every time it must always be a
hundred percent
the cost price it must always be a
hundred percent
so 100 plus hundreds it is equal to 200.
so the selling price is 200 percent
right
so now let's come into the calculations
let's do the calculations
so here
for July we are going to say eighty
thousand
multiply by so
in this case we are given the sales they
are eighty thousand
so when doing these calculations every
time below you need to put what you have
so what you have in this case is the
sales they are eight thousand and the
sales they are 200 percent so below you
put what you have
and then above you put what you do what
you don't have
so what you don't have right now is the
cost of sales which a hundred percent
so this and this area is going to give
you 40 000.
so the cost of sales they are forty
thousand
okay
cost of sales forty thousand
obviously for these two they will be the
same
and then
for September
so that says for September
uh the difference so therefore let's do
their calculation
let's do their calculation for September
so September 8 is 88 000
times
uh hundreds over 200
is going to give you 44
000.
that is 44
000.
so when you take this and this it is
going to give you a gross profit 44 000.
gross profits of forty thousand
forty thousand okay
the next one
a monthly rental
charge to attendant will increase by 10
percent in August
monthly rental how much is the rent
income
the rent income given here is 38 400.
the rent income at least 88 400. this
this erase this
um 38 400.
38 400.
so we want to know that how much is the
rent per month remember I said that you
must divide these amounts of the
previous year income statement by 12.
so we have 38 100
divided by 12.
which is equal to three thousand two
hundred so this means that the rent
income
we know that the rent income it falls
under other operating incomes okay so
this means that the rent income per
month
the rent income per month it is 38 000.
but then in August we are told that
um
the rent income increased
the rent income increased
so let's see it
the rent income will increase by 10
percent in August
so right now the current income is 3.2
per month
but then from August it will increase by
10 percent
so 3.2 times 10 that is 310 20.
so this means that
from August the rent income is going to
be 3
510 20.
3520
so they did not say anything about
September
so this means there's the rent which is
going to be the same
so
uh we only have one column for the
incomes so it means that this is the
only income so obvious is going to be
the same
three thousand five twenty
eight thousand by Twenty
okay
gross profits plug are the operating
incomes that is a cross operating profit
this is a cross operating profit
so it is forty three thousand
five hundred and twenty
okay then this one
arrays 47 000. 510 20.
okay and then let's ID interest on fixed
deposit will remain unchanged so the
interest on fixed deposit will not
change
but here it is
3840.
the interest on fixed deposit is three
thousand eight foot
so we want to know that how much is the
interest on fixed deposit per month
remember we are doing the projected for
each each month okay so 3840
3840
divided by 12.
the member must divide this amount by
12.
so it is 320.
so we are told there's interest on fixed
deposit
so the interest on fixed deposit is
supposed to be here under operating
profit as the interest
income so it falls under the interest
income
so interest and fixed deposits is 320.
we are told that area is going to remain
unchanged
okay
um and then
The Firm has a mortgage of 50 000 with
the Kenny Bank
the rate of interest on this mortgage is
15 per annum ten percent of this smooth
gauge is repayable on the 1st of August
okay
um
first of August remember we are doing
for demands of July August and September
so we are told that 10 10 000 will be
paid on the 1st of August
right now let's go to the interest uh
alone
so it's given here it is 7.5
7.5
we want to know that how much
is it per month
so 7.5
7.5
divided by 12.
so it is 625.
interest expense it is 610 25.
this is the interest expense
okay the interest expense that is 625
but then
we had told you that from akas it is
going to change
okay so per month it is 625 so this one
is July
this one is before the change where it
is still 625 per month before uh the
change on the 1st of August
right
um so
it's this
um
okay
so on the 1st of August
10 000 of this mortgage will be paid
ten thousand of the mortgage will be
paid so
uh the same head
um
a mortgage of 50 000 by then on the
first of August 10 000 of 80 will be
paid so after paying that 10 000 it
means that
the remaining mortgage it is going to be
I mean forty thousand so this means that
now the business will be owing a
mortgage of 40
000. so now we have to calculate the
interest
on mortgage on the different amounts now
we are going to calculate it on the
different amount
Okay so
um
fifteen thousand I mean 15 percent
um
40 000 times
15 percent
times
okay we want to know this
and since that now the the mortgage is
forty thousand how much
is the interest on mortgage so because
we are calculating uh for for a customer
going to say times 1 over 12. remember
the 15 is the 15 p.m 15 per annum so
because we are calculating for August we
are going to say times 1 over 12.
okay forty thousand
times fifteen percent
times one divided by twelve
it is 500 front so this means that in
occurs the interest on the mortgage the
interest expense is going to be 500
range remember the interest I mean
remember the expense it must be under
brackets
okay so they did not say anything about
September so this means that it is going
to be the same
but there's no change for the interest
on September okay
um
letter f
depreciation will remain fixed for July
and August
okay let's quickly go to the
depreciation
12 600.
12600 depreciation
divided by 12.
um 12.6
divided by
12
that is 1050.
so the depreciation
per month it is
1050. and we were told
we're told that the depreciation will
remain fixed for July and August so
there is no change for July and August
that is going to be 1050.
1050.
and then
in September
The Firm will purchase equipment of 48
000 it will be depreciated at 10 percent
on Coast
Okay so
48 000
times
15 percent
yeah it's 10 percent
times ten percent times so because we
are calculating for only one month
remember this is ten percent Anna so
because we're calculating for only one
month we are going to say times 1 over
12.
so
that that depreciation for this new
equipment
it's a depreciation for this new
equipment
that is going to be how much in
September
it is going to be 400 front
so this means that now the depreciation
is increasing by 400 Trend so in
September the depreciation is going to
be for 400 plus 1050.
which is going to give you one thousand
four fifty
right
and then
letter G advertising rate water and
electricity are expected to increase by
10 in August
there is advertising
so advertising
is eighty thousand
advertising its 30 000
um okay we have the advertising
which is 80 000. in the income statement
of the previous year
advertising
so divide by 12.
30 000
divided by 12.
it is 2 500.
so the advertising per month it is two
thousand five hundredths okay
advertising per month it is two thousand
five hundred
and we are told that they are expected
to increase by 10 percent in August so
this means this
in July the advertising is going to be
2500 because there is no change
there is no change in the advertising
but then the change is going to be in
August here
so
2500
times
so it is expected to increase by 10
percent
times 10 percent
so 2.5 times 10 that is 250.
so this means that now the advertising
is going to be 2.5 uh plus 250 which is
is equal to 2750.
so obviously the one for September is
also going to be 2750 because they did
not say anything about September meaning
that and the one for August and
September they are going to be the same
okay
now the rates
the rates
the rates the
um 7 200.
the rates there are seven thousand two
hundredths
okay so we have the rates
yeah 7200
divided by two I mean twelve
seven thousand two hundredths
divided by 12.
that is 600 Rand
so this means that the rates
the r600 trend per month
they raise the assistant per month but
then in August they are expected to
increase
so this means that here in here in July
the rates there going to be 600 as we
know that there is their 600 per month
but then from a a cast They are going to
increase by 10 percent
so 600 times 10 percent
which is going to be 60 Rand
so if you add the two this means that
now the raids from occas they are going
to be 660.
per month
they are now 660.
38. and then the next one is water and
electricity
water and electricity
water and electricity
how much are they
water and electricity they are 42 000
divided by 12. 42
000
divided by 12.
there is 3.5
so this means that the water electricity
they are 3 500 per month
but then we are told that they are
expected to increase by 10 percent in
August so in July they are going to be
3.5
but then we are told that in August they
will increase by 10 percent
so times 10 percent
that there's going to be 350.
so if you add these two they will give
you 3
850. so now
um from occas
um the water electricity they are going
to be 3 850.
3810 50.
okay
and then
all other expenses I expected to
increase by twenty percent in September
all other expenses they are expected to
increase by ten percent in September
the start the first one
we have the bank charges
the bank charge use their twenty one
thousand
Bank
charges
okay
um
any churches they are twenty one
thousand
twenty one thousand six hundred
twenty one thousand six hundreds
divide by 12.
is equal to
one thousand eight hundredths
so we are told that how all other
expenses they are expected to increase
uh by 20 in September so this means that
um all attack all other expenses let's
are here that were not affected by these
adjustments
uh they will increase by 20 percent
so
we know that the bench I'll use their
1.8 per month
they are 1.8
but then we are told that in September
all other expenses they will increase by
20 percent
so 1.8 times at 20 percent
1800s
times 20 percent
it is going to be 360.
so 1800
Plus 360.
that is going to be
2000
160 so from September the bank charges
per month they are 2160.
okay
and then
um
another expense
it was not affected
as the insurance
the insurance is twenty one thousand
so we have the insurance
it is twenty one thousand
divided by 12.
21
000
divided by 12.
it is going to be one thousand seven
fifty so the insurance is one thousand
seven fifty per month
but then we are told there's all other
expenses that are expected to increase
by twenty percent in September so the
insurance here in September must
increase so 1750
times 10 percent
I mean 20 percent
1750
times 20 percent
that is going to be 350.
so if you add the two
they are going to give you
1750
plus 350
is going to be 2100.
okay
and then the next one it wasn't affected
erase the repairs which are twelve
thousand
that appears to a thousand
divided by 12 it is one thousand
right so
repairs
yeah one thousand per month
but then we are told that in September
the expected to increase by 20 percent
so you can just say that a 1000
um we can also say just times 120.
not this way
but it's we but you can just choose
which way you want to use
okay you can just say 1000 times 120
percent
is equal to
um
1200.
so if you don't get this one you get you
can just continue using the way this way
that we're using here
okay so it's 1.2
okay
after repairs
we have the salarys
which are one zero five six hundreds
thoroughly
a105 600
5 600.
divided by 12
it is equal to
8 000
800.
so the salary is per month they are 8
000 800.
800 but then we are told there's all
other expenses they are expected to
increase by
um 20 percent
in September so times 120 percent
like I said if you don't get this one
you can just continue using using this
one where we are seeing times twenty
percent and then again we add that
twenty percent
so 8.8
um times 120 percent
it is equal to ten thousand five sixty
so the salary is in September yeah ten
thousand five sixty
ten thousand five hundred ten sixty
and then
stationary
it is ten thousand six hundred
I mean stationer 10 800.
ten thousand eight sometimes
ten thousand eight hundredths divided by
12.
it is required to 900 trend
so
the stationary is
the front per month
but then it is going to increase by
twenty percent in September
so 900
times 120 percent
is equal to
is equal to one thousand and eight
one thousand and eight
so the remaining one
that is the wages
which are 62 67 800.
wages
67 800.
sixty seven thousand eight hundreds
divided by 12.
that is five thousand six fifty
the wages gas is thousand
Five Sixty
six thousand Five Sixty per month
that is 5650
5650
[Music]
650.
5650
averages per month
5650 and then the expected to increase
in September by 20 percent
so
times
120 percent
780.
that is going to pay six thousand seven
eight
okay
now let's do the calculations this
calculates all these expenses
so
5650 for July
plus 900
plus 8000 800 plus 1000
plus 3.5
plus 600
plus 2.5
plus 1050
so the operating expenses they are 27
000.
550.
so gross operating incomes minus this
so across operating comes they are 43
200.
so therefore the operating profit it is
15 650.
right plus the interest income
so fifteen thousand six fifty
plus the interest income of 320. there
is going to be fifteen thousand
nine seventh
minus the interest expense of 625
so
that is going to be
15 triple 345.
3.5
and then
a cast we are going to do the same thing
in August and then we follow the same
procedure then we get this amount
and thank you so much thank you
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