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Assignment 19 Pro forma profit and loss statement - Pg. 219

219 assignment 19 Pro forma profit and loss statement y ou may by now be concerned about the financial situation at High Note as revealed in the preceding chapter. After all the business has sold £/$/60,000 worth of goods that it only paid £/$/30,000 for, so it has a substantial profit margin to play with. While £/$/39,108 has been paid to suppliers only £/$/30,000 of goods at cost have been sold, meaning that £/$/9,108 worth of instruments, sheet music and CDs are still in stock. A similar situation exists with sales. High Note has billed for £/$/60,000 but only been paid for £/$/48,000; the balance is owed by debtors. The bald figure at the end of the cash-flow projection showing High Note to be in the red to the tune of £/$/4,908 seems to be missing some important facts. The profit and loss account, the subject of this assignment, and the balance sheet that follows in the next assignment, will complete our picture of this business's financial situation. In practical terms, the cash-flow projections and the profit and loss account projections are parallel tasks which are essentially prepared from the same data. They may be regarded almost as the `heads' and `tails' of the same coin ­ the profit and loss account showing the owner/manager the profit/loss based on the assumption that both sales income and the cost of making that sale are `matched' together in the same month; and the cash-flow statement looking at the same transactions from the viewpoint that in reality the cost of the sale is incurred first (and paid for) and the income is received last, anywhere between one week and three months later. Obviously, the implications for a non-cash business of this delay between making the sale and receiving the payment and using a service/buying goods and paying for them are crucial, especially in the first year of the business and when your business is growing quickly.