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BUSINESS SIMULATION :

PREPARING CLASSES

PART 1 : PRINCIPLES OF
FINANCIAL ACCOUNTING

Anne CHANTEUX
anne.chanteux@ulg.ac.be

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USE OF NORMS
Information of third parties

Structured form and valuation rules

Based on norms :
Belgium & other EU countries :
Norms based on the 4th European directive.
USA : US Gaap
World : IFRS

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Preparing class - Part 1 1


FINANCIAL STATEMENTS

Here : based on Belgian / French norms


Information of third parties

3 parts :
Balance sheet
P&L (Profit & Loss Account)
Appendix

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BALANCE SHEET

Based on the notion of net equity


a whole :
Assets (immovable property, lands, stocks,
money,...)
Rights (amounts receivable, participating
interests,...)
Debts (banks, suppliers, associates,...)
Obligations (payment on account for a
delivery,...)
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BALANCE SHEET
EXAMPLE :

House : 150.000 .
Company car : 30.000 .
Mortgage loan : future capital repayment : 100.000 .
interests for 15 years : 62.000 .
Debt to the mother-in-law : 10.000 .
Furniture : 12.000 .
Amount owed by a friend: 2.000 .
Bank account : - 500
Cash resources : 750
Balance to be paid for the furniture : 5.500 .

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BALANCE SHEET
EXAMPLE : Solution

House : 150.000 Net asset base : 48.750


Furniture: 12.000 = Net equity
Cash : 750

TOTAL ASSETS : 162.750


Mortgage loan : 100.000
Debt mother-in-law : 10.000
Owed by a friend : 2.000 Bank account : 500
Balance for furniture : 5.500
TOTAL RIGHTS : 2.000
TOTAL DEBTS : 116.000
Assets and rights : 164.750
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BALANCE SHEET
Balancesheet diagram :

Net asset base


(shareholders equity)
Assets and Rights

Debts

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BALANCE SHEET

Origin and evolution of the net asset base :

Origin :
Company : partners

Evolution :
Results (profit or loss)
Grants (subsidies)
New contributions

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BALANCE SHEET

A. Fixed assets
A. Capital and reserves
I. Creation expenses
I. Capital
II. Intangible assets
II. Share premium account
III. Tangible assets
III. Revaluation reserves
IV. Financial assets
IV. Reserves
V. Results carried forward
B. Current assets
VI. Investment grants
V. Amounts receivable long term
B. Provisions for liabilities and
VI. Stocks
charges (VII)
VII. Amounts receivable short term
C. Debts
VIII. Securities
VIII. Long-term debts
IX. Cash assets
IX. Short-term debts
X. Deferred charges and
X. Accrued charges and deferred
accrued income
income
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BALANCE SHEET
CONTENT (in details !)
Assets :
A. Fixed assets
I. Creation expenses

II. Intangible assets


Research and Development costs
Concessions, patents, licences,(acquired and created)
Businesses (acquired) GOODWILL
Advance payments (payments on account)

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BALANCE SHEET
CONTENT
Assets :
A. Fixed assets
III. Tangible assets
Lands and buildings
Plant and machinery
Furniture and vehicles
Leasing and other similar rights
Other tangible assets
Advance payments and assets under construction

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BALANCE SHEET
CONTENT
Assets :
A. Fixed assets
IV. Financial fixed assets
Shares and amounts receivable from affiliated
enterprises
Participating interests
Amounts receivable from enterprises linked by
participating interests

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BALANCE SHEET
CONTENT
Assets :
B. Current assets
V. Amounts receivable in the LONG term (>1 year)

VI. Stocks
Raw materials and consumables
Finished goods
Goods purchased for resale
Advance payments
Work & contracts in progress
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BALANCE SHEET
CONTENT
Assets :
B. Current Assets
VII. Amounts receivable in the SHORT term (<=1 year)
Of operating income (trade debtors)
Others

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BALANCE SHEET
CONTENT
Assets :
B. Current assets
VIII. Securities
Shares of companies and bonds

IV. Available financial assets

X. Deferred charges and accrued income

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BALANCE SHEET
CONTENT
Liabilities :
A. Capital and reserves
I. Capital
II. Share premium account
III. Revaluation surpluses
IV. Reserves
V. Results carried forward (profits or losses)
VI. Investment grants (subsidies)

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BALANCE SHEET
CONTENT
Liabilities :
B. Provisions for liabilities and charges (VII)
C. Debts
VIII. Long-term debts (especially towards banks)
IX. Short-term debts (banks, suppliers, workers,
state, social security, shareholders, others)
X. Accrued charges and deferred income

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BALANCE SHEET

A. Fixed assets
A. Capital and reserves
I. Creation expenses
I. Capital
II. Intangible assets
II. Share premium account
III. Tangible assets
III. Revaluation reserves
IV. Financial assets
IV. Reserves
V. Results carried forward
B. Current assets
VI. Investment grants
V. Amounts receivable long term
B. Provisions for liabilities and
VI. Stocks
charges (VII)
VII. Amounts receivables short term
C. Debts
VIII. Securities
VIII. Long-term debts
IX. Cash assets
IX. Short-term debts
X. Deferred charges and
X. Accrued charges and deferred
accrued income
income
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BALANCE SHEET
The balance sheet : resources and uses of capital
Uses Resources

Fixed Shareholdersequity
assets
Amounts payable (debts)
after more than 1 year

Current
assets Amounts payable (debts)
within 1 year
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BALANCE SHEET
Financial scheme of the balance sheet
Capital
Fixed assets Shareholders employed
equity
LT Amounts receivable LT
Assets > 1 year Provisions Liabi-
lities
Debts > 1 year
Stocks
Amounts rec. <= 1 year
Debts <= 1 year
ST Securities
Assets ST
Cash assets
Accrued charges and Liabi-
Deferred charges and
deferred income lities
accrued income

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Working Capital (WC), Working Capital
Needs (WCN) and Net Treasury (NT)

Resources which are used by a company to


finance a fixed asset, a stock or another
element in assets must stay at disposal of
the company at least as long as the
lifetime of the asset !

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Working Capital (WC), Working Capital


Needs (WCN) and Net Treasury (NT)

1) WORKING Long-term assets


CAPITAL (within amounts receivable Capital employed
> 1 year) (equity + provisions
+ LT debts >1 year)
WORKING
CAPITAL

Short-term assets
(without amounts receivable Short-term
> 1 year) liabilities
(<= 1 year)

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Working Capital (WC), Working Capital
Needs (WCN) and Net Treasury (NT)
1) Working capital

WC = LT Liabilities LT assets

If WC > 0 Surplus of fixed resources available for


financing all of part of the operating cycle (fixed stock level
(minimum stock), part of commercial receivables)
If WC < 0 LT assets have to be financed by ST resources
!!! Problematic situation (except some cases)
Liquidity indicator Current assets short-term debts
Static vision, problems concerning liquidity are dynamic
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Cash Payment
payment deferred
Disburs. Receipts

Inventory delay Payment delay


Raw materials used in manufacturing,
finished products, distribution Sale
granted to client time
Purchase

Payment delay
given by supplier
Cash Payment
payment deferred

Op. WCN = Stock + Trade debtors - suppliers

Supplier Customer
credit Bank credit credit
Without
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Working Capital (WC), Working Capital
Needs (WCN) and Net Treasury (NT)
2) Working Capital Needs (WCN)
To get a more complete point of view it is required to compare
Working Capital with money needed to finance operations (WCN).

WCN : Financial resource needs to finance the short-term cycle


To be compared to the WC

WORKING CAPITAL NEEDS


=
NON FINANCIAL SHORT-TERM ASSETS
(Stocks + Amounts receivable <= 1 year + Deferred charges and accrued income)
-
NON FINANCIAL SHORT-TERM LIABILITIES
(Commercial debts + taxes to be paid + social and wages debts + other short-term debts
+Accrued charges and deferred income)

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Working Capital (WC), Working Capital


Needs (WCN) and Net Treasury (NT)

In synthesis,
Long-term assets
(within amounts receivable Capital employed
> 1 year) (equity + provisions
+ LT debts >1 year)
1) WORKING
CAPITAL
Short-term Short-term
NON FINANCIAL NON FINANCIAL
assets liabilities
(without amounts receivable
2) WORKING > 1 year) (<= 1 year)
CAPITAL
NEEDS

ST financial assets ST financial debts


(securities + cash)
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Working Capital (WC), Working Capital
Needs (WCN) and Net Treasury (NT)

3) Net Treasury

Net Treasury
=
WC WCN OR
Securities + cash assets
- Short-term financial debts

Shows the existence of financial means to fund


operations

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PROFIT & LOSS ACCOUNT

Links between balance sheet and P&L

Assets Balance Liabilities Profit and loss

Result Charges Income


Expenses Revenues

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PROFIT & LOSS ACCOUNT
Links between balance sheet and P&L
RESULT = INCOME - CHARGES
Charges : the enterprise is poorer (costs)
Income : the enterprise is richer

Liabilities
Assets

RESULT

Income
Charges
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PROFIT & LOSS ACCOUNT


Links between balance sheet and P&L
RESULT = INCOME - CHARGES
Charges : the enterprise is poorer (costs)
Income : the enterprise is richer

Result carried
forward
Assets
Liabilities

RESULTAT

Income
Charges
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PROFIT & LOSS ACCOUNT
Structure of the P&L

Operating result

Financial result
Extraordinary result
(Exceptional)
Taxes

Appropriation
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PROFIT & LOSS ACCOUNT

ZOOM on Operating Result

Operating charges : Operating Income :

Purchase of goods and raw materials Net turnover


(including stocks increase / decrease) Increase / decrease in stocks
Other external charges of finished goods,
Remuneration and social security Own construction capitalized
Corrections of amounts Other operating incomes
(amortizations, depreciations, provisions)
Other operating charges

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PROFIT & LOSS ACCOUNT
Structure of the P&L

Operating result

Financial result Current result, before taxes

Extraordinary result Profit for the period,


before taxes
Taxes
Profit for the period
Appropriation
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PROFIT & LOSS ACCOUNT


DIFFERENCES BETWEEN P&L ACCOUNT
AND TREASURY DASHBOARD :

P&L : incomes and charges (with or without


impact on cash moves) : EXAMPLES

Treasury dashboard : cash-in and cash-out


(concerned incomes and charges + other
elements) : EXAMPLES

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