Manage Finances: Analysis of Cash Flow, Sales Budget, Profit Budget and Debtor Ageing Summary

This report analyzes the financial performance of Houzit Pty limited with the help of different budgets such as sales budget, profit budget, cash flow budget and debtor ageing summary. It identifies issues, variances, and provides recommendations for improvement.

Running head: MANAGE FINANCES
Manage finances
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Analysis of cash flow:................................................................................................................2
Examination of sales budget, cash flow budget, profit budget and debtor ageing summary:....2
Issues:.........................................................................................................................................2
Variances:...................................................................................................................................3
Performance:..............................................................................................................................5
Recommendations:.....................................................................................................................6
Evaluation:.................................................................................................................................6
Conclusion:................................................................................................................................7
References and Bibliography list:..............................................................................................8

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Introduction:
The report is prepared for analyzing the financial performance of Houzit Pty limited
with the help of different budgets such as sales budget, profit budget, cash flow budget and
debtor ageing summary. In this report, all the budgets are analyzed by identifying the
associated issues and the causes that have led to the occurrence of such issues. In addition to
this, variances have been identified by establishing the comparison of actual results with the
established budget. The trend of average debtor days have been analyzed along with its
impact on the cash flow of Houzit Pty ltd have been analyzed and evaluated.
Discussion:
Analysis of cash flow:
Cash flow analysis of Houzit Pty Ltd has been evaluated by considering the factor
such as tax. In this regard, total amount of GST that collected and total amount of GST that
has been paid are taken into account. Cash flow is analyzed by dividing the flow into four
periods. The total amount of GST payable increased from $ 47652 in quarter 1 to $ 100456 in
quarter 2 and further to $ 114927 in quarter 3. The total amount of GST payable in quarter 4
stood at $ 143870. Therefore, it can be concluded that the total amount of GST payable
increased quarter on quarter.

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Examination of sales budget, cash flow budget, profit budget and debtor ageing
summary:
Issues:
The sales budget depicts the total amount of sales budget that is estimated by Houzit
Pty Ltd with the total budgeted amount distributed between kitchenware, bedroom
decorative, gifts, decorative items and lighting fixtures. It can be inferred from the budget
that the maximum amount of sales are attributable from selling kitchenware items and
minimum amount of sales attributable from decorative items. If the maximum estimated
budget sales are confined to one particular items, it would be difficult to determine the
principal budget factor. A sales budget should be capable of providing realistic sales forecast.
Hence, sales budget should be prepared by determining appropriate budgetary factor
Profit budget depicts that the profits attributable from sales of product is increasing
from $ 1459527 to $ 2189289. However, the percentage of gross profit remained constant at
43% throughout different quarter. The reason for this constant percentage of gross profit is
attributable to the fact that the rate of increase in cost of goods sold is same as rate of increase
in sales amount. Therefore, the issue associated with profit budget is that the cost of goods
sold is increasing. Hence, organization should take steps to lower the cost of goods sold.
Now, looking at the aged debtor’s budget, it can be seen that the percentage of
debtor’s sales are remaining constant at 20%. Amount of total debtors is increasing from $
678850 in first quarter to $ 814619 in second quarter and further to $ 882505 in third quarter.
The amount of total debtors for 90 days period is lower as against 60 days and 30 days. The
amount of total debtors should decrease as with increasing operations of business, the
creditworthiness of organization should improve.

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Variances:
Houzit Pty. Ltd.
Variance to Budget
Actual Results Budget-Q1 Actual-Q1 $ Variance % Variance F or
U
Sales $33,94,248 $33,71,200 $23,048 0.68% U
Cost of Good Sold $19,34,721 $19,55,296 -$20,575 -1.06% U
Gross Profit $14,59,527 $14,15,904 $43,623 2.99% U
Gross Profit % 43% 42% 1.00% U
Expenses
Accounting Fees $2,500 $2,500 $0 0.00% F
Interest Expense $21,127 $28,150 -$7,023 -33.24% U
Bank Charges $400 $380 $20 5.00% F
Depreciation $42,500 $42,500 $0 0.00% F
Insurance $3,348 $3,348 -$1 -0.01% U
Store Supplies $750 $790 -$40 -5.36% U
Advertising $2,00,000 $1,50,000 $50,000 25.00% F
Cleaning $3,256 $3,325 -$69 -2.11% U
Repairs & Maintenance $16,068 $16,150 -$82 -0.51% U
Rent $6,60,127 $6,60,127 $0 0.00% F
Telephone $2,999 $3,100 -$101 -3.36% U
Electricity Expense $5,356 $5,245 $111 2.07% F
Luxury Car Tax $7,491 $12,000 -$4,509 -60.18% U
Fringe Benefits Tax $6,500 $7,000 -$500 -7.69% U
Superannuation $37,404 $37,404 $0 0.00% F
Wages & Salaries $4,15,600 $4,10,500 $5,100 1.23% F
Payroll Tax $19,741 $19,741 $0 0.00% F

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Workers' Compensation $8,312 $8,312 $0 0.00% F
Total Expense $14,53,480 $14,10,572 $42,908 2.95% F
Net Profit (Before Tax) $6,047 $5,333 $714 11.81% U
Income Tax $1,814 $1,600 $214 11.81% F
Net Profit $4,233 $3,733 $500 11.81% U
When looking at the variance to budget table of Houzit Pty Ltd that has been
constructed above, it can be seen that there is negative variance in the sales figure. This is so
because the actual amount of sales made is less than the budgeted value. Actual amount of
cost goods sold is more than the budgeted value indicating that there is negative variance.
The actual amount of net profit reported stood at $ 4233 as against budgeted value of $ 3733.
Therefore, all the elements of actual to variance budget depicts that there is unfavorable
variances in amount reported for gross profit.
The reason attributable to negative sales and cost of goods sold variances are that the
actual amount of sales made is less than the budgeted value and the actual amount of cost of
goods sold is more than the budgeted value. Therefore, it is required by Houzit Pty Ltd to
lower the amount of cost of goods sold and increase the total amount of actual sales made. In
addition to this, the actual amount of expenses is more than the budgeted amount of expenses.
This is so because the actual amount of interest expenses is significantly higher than budgeted
value. Amount of insurance paid and store supplies are also more than the budgeted value.
The actual amount of fringe tax benefits and luxury car tax is also higher than the budgeted
values (Uyar & Kuzey, 2016). It is required by management to take appropriate measures for
lowering the total amount of expenses made.

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Performance:
In this section, the trend of average debtor’s days and its impact on cash flow is
evaluated. Age analysis of debtors helps in analyzing the spread in which debtors are dealing
with company. When the debtors are due for less than six months, it is not required to make
any provision on the amount of doubtful debts. Ageing analysis helps organization in keeping
a track of outstanding debts and keeps a focus on older debts. There is increase in total
amount of debtors and all of them are falling within the time period of six months. Based on
the values of debtors using the debt ageing analysis, organization makes allowance for
doubtful debtors (Yigitbasioglu, 2015).
Recommendations:
From the above analysis, it can be seen that the net profits attributable to Houzit Pty
Ltd is negative which is illustrative of the fact that the operations of company is generating
negative returns. Any variances in budgetary values are causes due to improper budgeting or
any bad assumptions made. In the present case, it can be seen that one of the reasons
associated with poor financial performance of organization in terms of budget is the
unfavorable variances. However, expenses are budgetary variances that are somewhat
controllable, although a large part of expenses is not possible to be altered in short term as
they are committed expenses. Variances in budgets can be eliminated by having a simple
aggregation of line items in the budget (Suomala et al., 2017). Moreover, a variety of
comparison should be undertaken when performing variance analysis and there should be
proper identification of the factors that is causing variances in the budgets.
Evaluation:
The process of financial management involves effective and efficient use of
organization’s money that helps in achieving organizational objectives. It deals with

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planning, organizing, monitoring and controlling the financial resources of organization that
helps in achieving the financial management objectives having a sound financial plan. In the
case of Houzit Pty Ltd, it can be seen that the financial performance is evaluated by the
formation of different budgets such as sales budget, profit budget and aged debtors analysis.
The budget generated unfavorable values of gross profit, expenses and sales amount. Houzit
Pty Ltd has generated unfavorable variances in terms of expenses, gross profit and revenue.
However, the percentage of revenue increased quarter on quarter with continuous increase in
cost of goods sold that has resulted in offsetting the value of gross profits earned (Klemstine
& Maher, 2014).
Conclusion:
The financial performance of Houzit Pty Ltd is not favorable as the total amount of
expenses that have been incurred is offsetting the total amount of revenue generated.
Therefore, it is required by management to adopt appropriate measures for eliminating the
occurrence of unfavorable variances. Furthermore, the total amount of expenses should be
reduced to an acceptable level so that impact of unfavorable variances is neutralized.

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References and Bibliography list:
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(2015). Financial Accounting: Reporting, Analysis and Decision Making. John Wiley
and Sons Australia.
Carlsson-Wall, M., Kraus, K., & Lind, J. (2015). Strategic management accounting in close
inter-organisational relationships. Accounting and Business Research, 45(1), 27-54.
Klemstine, C. F., & Maher, M. (2014). Management Accounting Research (RLE Accounting):
A Review and Annotated Bibliography. Routledge.
Leitner, S., & Wall, F. (2015). Simulation-based research in management accounting and
control: an illustrative overview. Journal of Management Control, 26(2-3), 105-129.
Malina, M. A. (2018). Advances in Management Accounting.
Mistry, V., Sharma, U., & Low, M. (2014). Management accountants' perception of their role
in accounting for sustainable development: An exploratory study. Pacific Accounting
Review, 26(1/2), 112-133.

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Salterio, S. E. (2015). Barriers to knowledge creation in management accounting
research. Journal of Management Accounting Research, 27(1), 151-170.
Suomala, P., Lyly-Yrjänäinen, J., Laine, T., & Mitchell, F. (2017). Interventionist
Management Accounting Research: Theory Contributions with Societal Impact.
Routledge.
Uyar, A., & Kuzey, C. (2016). Does management accounting mediate the relationship
between cost system design and performance?. Advances in Accounting, 35, 170-176.
Yigitbasioglu, O. (2015). Enablers of sense-making and responding and their impact on the
effectiveness of management accounting practices.
Zaleha Abdul Rasid, S., Ruhana Isa, C., & Khairuzzaman Wan Ismail, W. (2014).
Management accounting systems, enterprise risk management and organizational
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