Accounting and Financial Management: Cash Budget, Accounting Equation, Stock Exchange, Stakeholders, and Profit vs Cash Balance

This report covers two tasks related to accounting and financial management. The first task involves identifying the transactions that can be included in a cash budget and preparing a cash budget for three months. The second task defines the accounting equation and explains its correct application, lists down the benefits of listing shares in the stock exchange, detects the possible stakeholders in large listed companies like Marks and Spencer, and discusses whether profit is a reliable indicator of cash balance. The report also includes a brief introduction and a conclusion.

Question

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK- 1...........................................................................................................................................3
Identify the transactions that can be included in cash budget. Also prepare the one for three
months....................................................................................................................................3
TASK- 2...........................................................................................................................................5
Define Accounting equation along with explaining the reason behind its correct application
for every single time. Also, give example..............................................................................5
List down the benefits of listing shares in stock exchange....................................................6
Detect the possible stakeholders in large listed companies like Marks and Spenser.............7
Is the profit a reliable indicator of cash balance. Also give difference between cash and profit.
................................................................................................................................................8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Accounting stands for the procedure of recording all the financial transactions linked to
the business. There are two aspects of this process. First one is cash basis in which only those
items are given importance that have taken place in cash. The other is accrual basis. In this
system, the firm records all the proceeding of the firm whether they are on cash or credit. It
keeps track on all the profits, expenses and losses along with the assets and liabilities (Ingles,
2019). The company chosen in this report is Marks and Spencer. It is a UK based retailer dealing
in home, food and clothing products. The report is divided into two parts. First part identifies the
items of cash budget along with its preparation. The second part providing explanation of
accounting equation along with its working. It also ascertains the stakeholders of given company
and checks whether a profit is a reliable indicator of cash or not along with its difference.
TASK- 1
Identify the transactions that can be included in cash budget. Also prepare the one for three
months.
Cash budget is a statement prepared by company for anticipating all the possible inflows
and outflows of cash in a particular time period. It record only those entries which could happen
in cash and that too at that time at which it will actually incurred in money. Below are
explanations of which transaction are included or not in the statement.
1. Amount invested in business attracts the inflow of money in business, so it is a part of
cash budget.
2. A plan for drawing a fixed amount on every personal purchase would account for
recording in only that case when the it will buy any thing for itself.
3. Here, the computer is bought for personal use, the amount related t this would not be
recorded. But the planned figure of £ 800 will be treated as drawings.
4. Purchase of computer for business demands an outflow of business money so, it is also
included .
5. Buying motorcycle will also be recorded as office expense.
6. Sales limited to 30 % will be recorded in the same month and remaining would be
received in coming month, so it will recorded as receipt in that period.

8. All purchases are in cash, they will be recorded cash budget as they are linked with
company and are paid.
9. All the expenses are linked to the business and are paid in cash, so they will be
recorded in the budget.
Cash Budget for three months for the year ending 31st March, 2022
Particulars January (£) February( £) March (£)
Receipts
Capital 10000
Cash receipts from sales 1260 960 885
Receipts from credit sales 2940 2240
Total cash receipts (A) 11260 3900 3125
Payments
Purchase of computer 720
Purchases 2800 1500 1750
Electricity 285
Telephone costs 120 120 120
Fuel costs 65 65 65
Drawings 800
Motor cycle 3200
Total cash payments (B) 7705 1685 2220
Net Receipts (A-B) 3555 2215 905
Balance brought forward 3555 5770
Balance carried forward 3555 5770 6675
All the transactions will be recorded in cash budget, except the entry number 3. in this
case, Anton has purchased a computer for its personal use and for this, it has planned to

withdraw £ 800. The effect of drawings has been projected in plan, so there is no requirement for
recording this personal purchase in the books of company.
Working Notes:
As given, 30 % of the sales are on cash while the money for remaining 70 % would be
received in coming next month.
January,
Sales = £ 4200
on cash = 4200 * 30 % = £ 1260
On credit = 4200 – 1260 = £ 2940 ( to be received in next month)
February,
Sales = £ 3200
on cash = 3200 * 30 % = £ 960
On credit = 3200 – 960 = £ 2240 ( Due after this month)
March,
Sales = £ 2950
on cash = 2950 * 30 % = £ 885
On credit = 2950 * 70 % = £ 2065 ( Receivable in April)
TASK- 2
Define Accounting equation along with explaining the reason behind its correct application for
every single time. Also, give example.
Accounting equation is a sort of formula which creates relationship among the assets,
liabilities and capital of the business. It is a base of book keeping through which the whole
system of double entry works. According to this, all the debits must be equal to credits. This
means that for every entry, the sum total of assets will be equal to the summation of liabilities
and capital (Béland and et. al., 2018).
Assets = Equity + Liabilities
It is observed that Accounting equation always satisfy. This is because, it works on the
double entry system. This means that each and every transaction would have two side effect
which helps in maintaining balance at every stage. Every entry tends to put its impact on at least
two accounts which helps in creating its balance (Nyitrai and Virág, 2019).

For example,
A invested £ 10000 in business. It further purchases a chair for office use for £ 2000 on credit.
Assets Capital + Liabilities
1 10000 10000
2 10000 + 2000 = 12000 2000
120000 10000 2000
In first transaction, with introduction of equity, cash and capital both increased making
the equation balanced. Then in next entry, A bought chair on credit, which increased the asset by
£ 2000 and Liabilities also increased by £ 2000. After this, assets are £ 12000 and sum of
liabilities and capital also comes out to be £ 120000 (10000 + 2000). The formula satisfied itself
again.
List down the benefits of listing shares in stock exchange.
Listing of shares means to getting itself admitted in stock exchange associated with that
country. When a company gets itself listed then it can trade its stock with public and can raise its
capital through them. It is very important for Marks and Spencer to get itself listed up for issuing
their shares and debentures. Along with this, there are several other advantages linked to this
(Edmans, 2021).
Benefits of listing shares
 Opportunity to fund and exit- Listing of shares opens a door for investor to invest and
de-invest anytime. Through this, Marks and Spencer can attract people by offering them
good returns and informing them that they can draw their money back at any time.
 Control and Supervision of securities- Stock exchange board regulates all the securities
strictly and prevents any kind of unfair trade practices in its dealings. This increases the
confidence of investors and gives them a feeling of safety to invest in shares.
 Promotes Better practice by corporates- As per the rules of stock exchange, the
companies who violates any of the policies are subject to suspension or de-listing from
the listed firms. Because of this threat, Marks and Spencer tries its best to show fair
practice on their behalf.

 Timely and accurate disclosure of information- The listed companies are required to
file up their financial statements with the stock exchange in the limited time period and
with correct information. This will bring transparency and builds the confidence of
investor. This reliability will help the Marks and Spencer in attracting more shareholders
towards it (Shen and Qian, 2021).
 Ensures Liquidity – Listing of shares helps in recognising the liquidity position of the
firm. This will further help Marks and Spencer in sharing risk with its shareholders and
providing them benefits when the firm is earning profits.
Thus, the companies must list their shares with the stock exchange for getting confidence
of investors and arranging its funds from public. It will also help it in trading itself according to
rules.
Detect the possible stakeholders in large listed companies like Marks and Spenser.
Stakeholders are the persons who are associated with the company in one way or the
other. They are influenced with the operations and profits or losses of the business. These
persons are interested in the success and financial statements of the firm. Various stakeholders
for the firm such as Marks and Spenser are as follows:
 Employees- These are the persons who devote their time to the organisation by working
over their. They works in Marks and Spencer for earning their livelihood. Their are
around 70000 employees working in the company. They are interested in knowing that
whether their jobs and salary are secured or not. These individuals are eager to know the
profits earned as they are the people who are working for generating that profit (Kang,
Hwang and Song, 2018).
 Customers- They are the buyers of the product. They desire their good and service both
of good quality and with a wide variety at reasonable price. Marks and Spencer keeps a
track on the movement of goods and tries to anticipate the choices and demands. Through
this, they try to manufacture the product as per their desire. They also maintains contact
with buyers through their customer service facility. Thus, they are very important
stakeholders for the organisation.
 Government- These authorities provides for the rules related to the business. Marks and
Spencer has to work according to these regulations only. They make sure that all the laws
like company act, health regularities and other frameworks must are adapted in the

environment of business properly. Government is interested in company for ensuring that
company is adhering to all its rules and also that are paying all their expenses properly
(Erjiang, Yu and Peng, 2021).
 Suppliers- They provides raw material or goods to the company. Marks and Spencer
avail its suppliers from multiple firms globally. So, they demands the contracts which are
safe and can provide good quality items at lower price. So, it is important for the business
to maintain good relation with these persons. Any conflict with these parties can make
bad impact on its supplies.
 Shareholders- Those people who invest their money in company by purchasing its
shares are considered to be its shareholders. These persons are very important for Marks
and Spencer as they are the individuals on whose money the whole firm functions. They
are interested in the profits and growth if business. So, they keen to analyse the financial
performance of firm. Marks and Spencer also makes it sure that it provides desired
dividend to them. If the shareholders feel that company is performing well, then they can
ask it to change its policies and procedures. Firm also conducts meetings and AGMs
with them (McStay, 2018).
 Local communities- These authorities check out for some legalities like whether a store
can be located at particular location or not. Marks and Spencer maintains good relations
with these by conducting meetings, deals or some joint projects. They holds the power to
tarnish the reputation of company so, firm always informs all these things to these
authorities and works according to its rules and regulations.
Above are the persons who are the important stakeholders of Marks and Spencer. The
firm has to make sure that all these are properly satisfied and they is no conflict in relations with
them. These persons are interested in the accounting reports and profit generation capacity of
business (Lu, 2020).
Is the profit a reliable indicator of cash balance. Also give difference between cash and profit.
No, profits are not the reliable indicator of the cash balance. Money refers to the amount
in hands of the company in physical form and kept in bank. It is available to the business through
investment received, sales and incomes and it deceases with expenses, purchases and payments.
When all these things happen in cash or is realised in cash then, they are involved in money.
Whereas, talking about Profits, it is no dependent on cash. The profit in accrual system does not

depends on whether the things has happened in cash or not. It just gives importance to the fact
that transaction should be related to that period and is relevant to be recorded in records. The
entries which are related to cash but are not incurred in money are also accounted in it.
According to mathematical expression, profits is equal to income minus expenses. But is
does not introspect that whether all these expenses and incomes have taken place in real
monetary form or not. So, profits made by business is not a reliable indicator of cash holdings of
business. This means that firm showing high level of gains, may hot be having much amount of
money resources. This is solely due to the nature of profits to consider non-cash transactions into
it.
Difference between cash and profits
 Cash balance involves the amount held by firm after paying and receiving of money from
all activities – investing, operating as well as financing. While profits deals in only
operating actions.
 Profits includes all cash and non-cash items, while cash includes only those entries that
has took place in money only (Peng, Wang, and Chan, 2019).
 Profits does not shows the actual liquidity of business, but cash shows and presents the
money holdings of business and helps in interpreting its actual position.
On the whole, it a can be said that a business cannot rely totally on its net income, it has
to give equal importance to cash flow of its business. Ignoring this aspect can make a big distress
in the company.
CONCLUSION
From the above report, it can be concluded that dual entry system has managed the
recording of all the financial items very efficiently. It helps the companies in analysing the two
way aspects of the entries. The cash budget made under this system helps in evaluating all the
transactions which can be included in it and which not. The listing of shares helps a firm in
arranging its funds from the general public and stakeholders in ascertaining the financial position
of the business. This is because for the listed companies, it is important to file their financial
statements with the stock exchange and disclose their complete relevant information. It is also
observed that cash and profits are not one and the same thing. There is a lot of difference in both
these concepts and major one is the recording of non cash transactions in income statement.

REFERENCES
Books and Journals
Béland, D. and et. al., 2018. Instrument constituencies and transnational policy diffusion: The
case of conditional cash transfers. Review of International Political Economy. 25(4).
pp.463-482.
Edmans, A., 2021. Grow the Pie: How Great Companies Deliver Both Purpose and Profit–
Updated and Revised. Cambridge University Press.
Erjiang, E., Yu, M. and Peng, G., 2021. Intermediation in reward-based crowdfunding: a cash
deposit mechanism to reduce moral hazard. Electronic Commerce Research, pp.1-22.
Ingles, D., 2019. Improving cash flow corporate taxation (CFCT) and the Z-tax (ZT)
approach. Tax and Transfer Policy Institute-Working paper, 7.
Kang, S., Hwang, I. and Song, S., 2018. Cash hoarding: Vice or virtue. Journal of International
Financial Markets, Institutions and Money. 53. pp.94-116.
Lu, L., 2020. The regulation of the dual-class share structure in China: a comparative
perspective. Capital Markets Law Journal.
McStay, K., 2018. The Efficiency of New Issue Markets. Routledge.
Nyitrai, T. and Virág, M., 2019. The effects of handling outliers on the performance of
bankruptcy prediction models. Socio-Economic Planning Sciences. 67. pp.34-42.
Peng, X., Wang, X. and Chan, K.C., 2019. Does customer concentration disclosure affect IPO
pricing?. Finance Research Letters. 28. pp.363-369.
Shen, J. and Qian, J., 2021. The impact of insufficient cash flow on payment term and supply
chain contracts. International Journal of Systems Science: Operations & Logistics,
pp.1-17.