## Notes to Financial Statements Example SIS

SCHOLARSHIP INFORMATION SERVICES
NOTES TO THE FORECASTED FINANCIAL STATEMENTS
FOR YEARS ENDING DECEMBER 31, 200X& 200Y

The following notes have been developed to help guide readers through the 200X and 200Y forecasted financial statement section of the business plan. When reading these notes, please recall the businesses' startup date is scheduled for July 1, 200X. The first note to be addressed is the sales forecast.

NOTE 1 - SALES FORECAST:
The forecasted sales in units per year, expected selling price each year, and the anticipated total revenue from sales used in the forecasted financial statements are summarized below.

 200X 200Y Forecasted Sales in units 4000 units 8000 units Selling Price per diskette \$26.00 each \$24.00 each Total Dollar Sales per Year \$104,000 \$192,000

NOTE 2 - COST OF GOODS SOLD:
The dollar amounts appearing in the Forecasted Cost of Goods Sold account have been arrived at as follows;

 200X 200Y Beginning inventory \$ 0.00 \$2,592 Add: Purchases \$14,592 \$27,113 Goods available for Sale \$14,592 \$29,705 Less: Ending Inventory \$ 2,592 \$ 3,564 Cost of Goods Sold \$12,000 \$26,141

NOTE 3 - ENDING INVENTORY CALCULATION
The following diskettes purchased, sold and retained have been used to determine the company's ending Inventory.

 200X 200Y Beginning inventory of diskettes 0 864 Add: Number of diskettes purchased 4,864 8216 Less: Number of diskettes sold 4,000 8000 Total diskettes in ending inventory 864 1080 Cost per diskette \$3.00 \$3.30 Ending Inventory in dollars \$2,592 \$3,564

NOTE 4 - GROSS MARGIN PER UNIT:
The company's gross margin on each product sold in 200X is expected to be \$23.00, while the 200Y gross margin is forecasted at \$20.70 on each product sold. Below illustrates these calculations.

 200X 200Y Selling Price per Product \$26.00 \$24.00 Forecasted Cost per Product \$3.00 \$3.30 Gross Margin per Unit \$23.00 \$20.70

NOTE 5 - OPERATING EXPENSES:
The Company has forecasted the following Operating Expenses for its first two years of operation (200X and 200Y).

 200X 200Y Forecasted Marketing Expenses per Year \$37,998 \$48,998 Forecasted Administrative Expenses per Year \$46,173 \$92,100 Total Operating Expenses per Year \$84,171 \$141,098

NOTE 6 - MARKETING EXPENSE BREAKDOWN
The company's Marketing Budget has been forecasted as follow;

 200X 200Y Promotional Pamphlets \$ 4,000 \$ 2,000 University Newspaper Advertising \$ 8,000 \$12,000 General Newspaper Advertising \$25,998 \$34,998 Total Marketing Expense Budget per Year \$37,998 \$48,998

NOTE 7 - PERSONAL INVESTMENTS INTO THE COMPANY:
The Owner, Josh Johnston, plans to invest the following personal assets into the company. The asset items, other than cash, have been appraised by qualified businesses.

 Asset Invested Appraised Value 1 Automobile \$6,000 1 desktop computer \$1,000 1 workstation \$ 300 1 mini photocopier \$2,600 Cash Investment \$2,500 Total Personal Assets Invested \$12,400

NOTE 8 - FIXED ASSET PURCHASED EACH YEAR:
The following fixed assets will be purchased by the company during the 200X and 200Y business years.

 200X 200Y 1 Notebook Computer \$2,000 \$1,200 1 Laser Printer \$ 900 N/A 1 Fax Machine \$ 500 N/A 2 Workstations \$1,100 N/A Total Cost of Purchases \$4,500 \$1,200

NOTE 9 - TOTAL FIXED ASSETS AVAILABLE EACH YEAR:
The following note provides details regarding the company's Total Fixed Asset pool for each period specified.

 JULY 1, 200X DEC. 31, 200X DEC. 31, 200Y Automobile \$6,000 \$6,000 \$6,000 Office Equipment \$3,900 \$8,400 \$9,600

The office equipment account includes the historical cost and appraised values of the computers, printer, fax machine, workstations, and mini photocopier.

NOTE 10 - ACCOUNTS RECEIVABLE:
The company assumes NO accounts receivable during the forecasted periods. Moreover, credit terms will not be offered to our customers due to the nature of the business and the industry - customers will be ordering our product through the mail and paying in advance.

NOTE 11 - ACCOUNTS PAYABLE ON PURCHASES:
The ending accounts payable on direct materials as of December 31, 200X and 200Y are forecasted as follows.

 200X 200Y Accounts Payable on Purchases \$2,736 \$3,828

These accounts payable directly relate to the finished products purchased in the last month of the company's year end (IE December 31). Moreover, in conservation with our prospective Supplier, he had agreed to provide us with 30 day credit terms.

NOTE 12 - TAXES PAYABLE:
The forecasted financial statements assume a fixed tax rate of 30%. The company's estimated tax obligation has been calculated as follows;

 200X 200Y Net Income Before Taxes \$7,829 \$24,761 Tax Rate 30% 30% Taxes Payable \$2,349 \$7,428

Taxes have been set up as a payable on the forecasted balance sheet until they are paid in April of each following.

NOTE 13 - GOVERNMENT GRANT:
The purpose for Scholarship Information Services' application with this state government agency is to receive the \$5,000 Rural Youth Grant. The forecasted financial statements assume we will obtain this government grant in July of 200X. Moreover, the \$5,000 grant has been entered under the forecasted cashflow statement as a cash inflow as of July 200X. In addition, under the equity section of the forecasted balance sheet, you will find an entry called government grant. This entry shows the investment (grant) made by the state government. Normally a grant is amortized over a period of time, however, for simplicity, we elected to enter it as an equity item.

NOTE 14 - CASH WITHDRAWALS BY OWNER:

Josh Johnston will withdraw cash from the company on a monthly bases. He will draw \$500 and \$1,000 per month during 200X and 200Y respectively. Below depicts the total cash drawings for each forecasted business year.

 200X 200Y Cash Drawings by Owner \$3,000 \$12,000

Recall, 200X drawings begin in July and end in December (six months).

NOTE 15 - CAPITAL ACCOUNT CALCULATION:
Josh Johnston's capital account balance for 200X and 200Y are summarized below.

 200X 200Y Capital Account Balance at end of year \$19,880 \$25,213

These above ending capital account balances were calculated as follows;

 200X 200Y Beginning Capital \$12,400 \$14,880 Add: Net income after Taxes \$ 5,480 \$17,333 Less: Cash Drawings by Owner \$ 3,000 \$12,000 Ending Capital Account Balance \$14,880 \$20,213

THIS CONCLUDES THE NOTES TO THE FORECASTED FINANCIAL STATEMENTS.