Financial Analysis: Cash Budgeting, Accounting Equation & M&S

This finance report provides a detailed analysis of cash budgeting, the accounting equation, and stakeholder identification, particularly in the context of large listed companies like Marks and Spencer. The report includes a three-month cash budget, highlighting transactions that impact cash flow, and explains the fundamental accounting equation, emphasizing its balance through the double-entry system. It further explores the benefits of listing shares on a stock exchange and identifies key stakeholders in a large corporation, examining their interests and impact. The report concludes by evaluating the reliability of profits as an indicator of cash balance, differentiating between the two concepts and clarifying that profit includes both cash and credit transactions, while cash balance reflects actual money available to the company. Desklib provides this document, among many others, as a valuable resource for students seeking to enhance their understanding of financial concepts and practices.

Finance (Distinction)

Table of Contents
TASK- 1...........................................................................................................................................3
Detect the transactions which can be involved in cash budget. Also produce it for three
months....................................................................................................................................3
TASK- 2...........................................................................................................................................5
Explain Accounting equation. Also explain the reason of its correct application every time.
Also, give example.................................................................................................................5
Mention the benefits of listing down the shares in stock exchange.......................................5
Identify the stakeholders in large listed companies like Marks and Spencer........................6
Can profits be considered as a reliable indicator of the cash balance. Evaluate along with
providing the difference among them.....................................................................................8
REFERENCES..............................................................................................................................10

TASK- 1
Detect the transactions which can be involved in cash budget. Also produce it for three months.
Cash budget refers to the statement produced by the organisation for all the expected
outflow and inflow of money that can take place in a particular time period. In this budget, only
that transactions are recorded that have happened in cash and that too at the time when it has
actually incurred in money. The entries which would be recorded in statement are mentioned
below along with their explanations.
 The amount which is invested in the business is recognised as inflow of money in
business so, it is recorded in cash budget (Bay and McGoun, 2018).
 A plan for withdrawing of a particular fixed amount on each personal use does not
attracts any money flow, so it will be given importance, only of anything it bought for
itself by the person from business money.
 In this transaction, the computer is purchased for personal use only. So their is a need of
recording planned figure of £ 800 as drawings.
 Purchasing computer for use in business should be recoded as outflow of money. Thus
this is also needed to be recorded.
 Motorcycle bought is to be recognised as a business expense.
 As per the policy, the sales of 30% is recorded in the same month and the remaining is
accounted for the next coming month. Thus, this will be recorded at that time only.
 The purchases made in cash will be given space in the cash budget as it related to the
business and is paid.
 All the expenses are joint with the company and should be recorded in this budget only.
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
Except entry number 3, all other transactions are recorded in cash budget. This is the
personal purchase of Anton and should not be projected in the budget of company. But as per the
plan, a drawing of £ 800 is showcased in the books for the personal purchase of computer.
Working Notes:
As specified, 30 % of sales are in cash while the remaining amount of 70 % would be
received in coming next month.
January,
Sales = £ 4200
on cash = 4200 * 30 % = £ 1260
On credit = 4200 – 1260 = £ 2940 ( Due after this month)
February,
Sales = £ 3200
on cash = 3200 * 30 % = £ 960
On credit = 3200 – 960 = £ 2240 ( to be received in next month)

March,
Sales = £ 2950
on cash = 2950 * 30 % = £ 885
On credit = 2950 * 70 % = £ 2065 ( Receivable in April)
TASK- 2
Explain Accounting equation. Also explain the reason of its correct application every time. Also,
give example.
Accounting equation can be defined as a type of formula that helps in creating relation
among the capital, liabilities and assets of the corporation. It is the ground on which the system
of double entry are performed. As per this, it is necessary that the amounts of debit is equal to
the value credited. This simply means that the total of assets must be equal to the addition of
equity and debts (Gupta and Kumar, 2020).
Assets = Equity + Liabilities
This is analysed that the accounting equation always satisfy. The reason behind this
conformance is that it is processed according to the basic principle of double entry. All the
transactions in this process has two sided effect which helps in maintaining the balance for every
single entry. This means that all the entries have affect on minimum tow accounts which aids in
nurturing this balance (Bond and et. al., 2021).
For instance,
John invested £ 150000 in business. It then purchased furniture for office use amounting £ 5000
on credit.
Assets Capital + Liabilities
1 150000 150000
2 150000 + 5000 = 155000 5000
155000 150000 5000
In beginning, the investment made by John brought cash in the business and it also
increased the capital in the firm. Rise in both assets and equity balanced the equation. In next
entry, purchase of furniture on credit, raised the holding of assets by £5000 and liabilities too

with the same amount. After this entry, the sum of liabilities and capital became £ 155000
(150000 +5000) and assets equal to £ 155000. This again satisfied the whole equation.
Mention the benefits of listing down the shares in stock exchange.
It means to list up the shares of the company in the stock exchange for trading it
officially with the public and in the proper market. It is important for those companies that are
desires to issue their shares and debentures to the general public and can satisfy its need of
money by arranging from them. Marks and Spencer has also listed up itself in London stock
exchange and also has to follow all the rules and regulations implemented on it (Hao and Maksy,
2019). Their are various benefits adjoint with this listing which are discussed below:
Advantages of listing of shares
 Open Opportunity- Through this the investors can anytime invest their amount with the
business along with the facility of de-investment whenever they want so. With the help of
this, Marks and Spencer is attracting more and more people for investment by offering
them attractive returns and communicating them that they can withdraw their cash
anytime.
 Control over securities- Stock exchange controls the securities of all the companies with
great supervision and protects the market from any type of unfair trade practice in the
dealing of the shares. This security provides confidence to the investors and provides
them a safe feeling while investing in shares.
 Liquidity- This helps in ascertaining the financial position of the business. This is
beneficial for the company as the time of crises, Marks and Spencer can share the risk of
low liquidity by arranging money form them and providing them benefits at the time of
profits (Lael and et. al., 2018).
 Motivates for better practice- According to the rules of stock exchange, the firms who
do not follow the policies of stock exchange are punished in the form of suspension or
removing them from the listing. Due to this reason, Marks and Spencer always adhere to
these rules and showcase fair practice of trading.
So, the companies are always advised to list their shares in stock exchange so that they
can deal with general public and can also gain the confidence of investors. This will also help
them in managing its stocks according the rules and regulations (Marrone and et. al., 2020).

Identify the stakeholders in large listed companies like Marks and Spencer.
These people are linked with the organisation either directly or indirectly. They are
affected by the incomes, losses and operations of the business. They takes high interest in the
financial reports and the success of the company. Their are number of stakeholders of Marks
and Spencer which are discussed below:
 Employees- They give their own time to the firm by working their for the purpose of
earning salary and increasing their reputation. Their are near about 70000 workers in
Marks and Spencer. These people are interested in generating information about the
profits earned by the firm, through which they can assure that of their jobs are secure
with the company. They also wants to know that whether their efforts are generating
profits for the corporation or not.
 Customers- These are the consumers of the products sold by Marks and Spencer. They
want the firm to provide them good service and products with high quality along with
reasonable prices. Business keeps an eye on the movement of goods and attempts to
guess out the change in demand and choices of the customers. This helps them in
constructing the good as per the desired of the client along with maintaining contacts with
them. This also helps them in providing better after sale services (McMillan and Casey,,
2018).
 Government- they are the regulating authorities that specifies the rules related to the
concerned business. Marks and Spencer is required to perform as per these rules. They
keeps this thing in mind that they follow all the regulations mentioned in health
regularities, company act and all the other frameworks in the business. Government also
seeks to know that the organisation is accomplishing with all the rules and paying its
taxes correctly without any evasion.
 Suppliers- These are the people who sells goods and raw material to Marks and Spencer .
Their are number of suppliers for the company at global level. So, the company is in
desire of such contractors who can avail them good quality product at reasonable price
and with full safety. Thus, it is mandatory for them to maintain quality relations with
these persons or businesses. They holds the power of affecting the business at large scale
for it tries to avoid any kind of conflict with them (Ng, 2018).

 Shareholders- They are the investors of Marks and Spencer on whose money the whole
firm runs its operations. They purchase the shares of the firm so they are interested in
knowing that whether the business is earning profits or facing losses. They desire that the
company earns more and more profits so that they can earn dividend from them. Marks
and Spencer makes sure that they distribute adequate amount of profits because on the
basis of this, further investors decide that whether they should invest in the organisation
or not. The company also conduct meeting with these shareholders and makes
discussions about the changes required in the business.
All the persons mentioned above are equally important stakeholders for Marks and
Spencer. The firm has to satisfy all of them by addressing to their demands and maintaining good
relation with them. All these stakeholders are very much interested in the financial statements of
the company so they have to they present the report without any type of error or fraud, so that
correct decision can be taken by users of these reports.
Can profits be considered as a reliable indicator of the cash balance. Evaluate along with
providing the difference among them.
No, profits are never the trustful indicator of cash hold by the company. Money is defined
as the amount present with the firm in its physical format or in the bank. It is received by the
business through sales, investment made in the business or any other income and decrease
through payment made for expenses and purchases. But these things are included in cash only at
the time when they are actually realised in money format. But when talking about the profits, it
does not depends on cash. This is because, profits includes all the transactions whether they have
taken place in cash or credit basis. The profits works on the accrual system where income earned
but not received is also included in it, while it is not considered in cash calculation. The profits
gives importance to all the transactions which took place in that accounting year irrespective of
the fact that it is realised in money or not (Secinaro and et. al., 2021).
Looking at the mathematical expression, profit is the difference between the incomes and
expenses. But it does not go in detail that whether that entries have happened in monetary format
or not. Thus, it is very much clear that the profit earned by business is not a reliable indicator of
the cash possess by the firm. It also means that if the firm is earning high level of profits, then it
will also be having hold on huge level of cash. This is because of the nature of profits to
recognise non cash transactions in it.

Comparison among the cash and profits
 Cash comprises of money held the business after settling down all its debts and expenses
and receiving money form operating, financing and investing activities. On the other
hand, profits accounts for only operating activities.
 Profits comprises of cash as well as non cash entries while cash does not involve any
transaction which has not happened on money in actual.
 The later one does not holds the power to show the liquidity position of the firm but the
former one represents the cash held by it which helps in knowing the liquidity condition
and analysing the performance of the firm.
On the whole, it can be concluded that the business should never rely only on profits for
checking the cash balance available with it.

REFERENCES
Books and Journals
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Bay, T. and McGoun, S., 2018. Critical Finance Studies–Editorial. Critical Perspectives on
Accounting. 52. pp.1-3.
Bond, D. and et. al., 2021. Research productivity of Australian accounting
academics. Accounting & Finance. 61(1). pp.1081-1104.
Gupta, C.M. and Kumar, D., 2020. Creative accounting a tool for financial crime: a review of the
techniques and its effects. Journal of Financial Crime.
Hao, Q. and Maksy, M.M., 2019. Factors Associated with Student Performance in Advanced
Accounting: An Empirical Study at a US Residential Public University. Journal of
Accounting and Finance. 19(4). pp.162-180.
Laela, S.F. and et. al., 2018. Management accounting-strategy coalignment in Islamic
banking. International Journal of Islamic and Middle Eastern Finance and
Management.
Marrone, M. and et. al., 2020. Trends in environmental accounting research within and outside of
the accounting discipline. Accounting, Auditing & Accountability Journal.
McMillan, G.S. and Casey, D.L., 2018. Examining the scope of the accounting literature: a
bibliometric review of a decade of research. International Journal of Bibliometrics in
Business and Management. 1(2). pp.147-159.
Ng, A.W., 2018. From sustainability accounting to a green financing system: Institutional
legitimacy and market heterogeneity in a global financial centre. Journal of Cleaner
Production. 195. pp.585-592.
Secinaro, S. and et. al., 2021. Blockchain in the accounting, auditing and accountability fields: a
bibliometric and coding analysis. Accounting, Auditing & Accountability Journal.