Projected income statement Grade 11 PART 1

Summary

This 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.