FINANCING AND

INVESTING CYCLE
FINANCING PROCESS

 Describes how a company acquires and uses financial

resources (cash, other liquid assets and investments)
 Interfaces with the revenue, purchasing, fixed asset and
human resource processes
 Most of the organizations also acquire funds by borrowing
cash or selling shares
INVESTMENT

 Act of placing capital into a project or business with the

intent of making a profit from the initial placing of capital

 You can invest if you have excess cash.

Nature of Financing and Investing Cycle

 Uses resource and information provided by the

expenditure and disbursement cycle

 Provide resources and information to the revenue and

receipt cycle
 Objectives
 To manage cash effectively

 To minimize the cost of capital

 To invest for maximum returns

 To project cash flows

Financial Planning

 A financial plan is a comprehensive evaluation of an

investor's current and future financial state by using
currently known variables to predict future cash flows,
asset values and withdrawal plans.
 Long-term BOD 2 representatives in
Financing Plan (approved) loan aggrement

Capital Budget Creditor

Cash in
Capital bank/ Bonds/
Expenditure Bank
FS Notes

N/P Voucher Prepare & sign check, Check

B/P Package cancel documents Voucher
I/P Payable

Check
Review
Voucher Review documents
completeness
Payable countersign check
(Accounting Office)
Elements of Financial Planning

 Financial goals  Comprehensive risk

 Personal net worth statement management plan
 Cash flow analysis  Long-term investment plan
 Retirement strategy  Tax reduction strategy
 Estate plan
 In order to expand, it's necessary for business
owners to tap financial resources. Business owners
can utilize a variety of financing resources, initially
broken into two categories, debt and equity.
 "Debt" involves borrowing money to be repaid, plus interest
 “Equity" involves raising money by selling interests in the
company.
BORROWING MONEY IN BANK
COLLATERAL
 Business or personal property
you’re willing to put up against
the loan. You’ll have to submit
documents showing you own
the assets, that they are
properly titled and
unencumbered. Banks look
very carefully at these assets
to make sure they reduce the
risk.
Business Plan

 A written description of your business's future, a

document that tells what you plan to do and how you plan
to do it. the vast majority of commercial loan applications
require a business plan document.
Business plan should include:

 Executive summary
 Market analysis explaining the competition and the
opportunity
 Description of your business (what it does and what
differentiates it from any competitors)
 Information about operations and management,
including the management team’s experience
Business plan should include:

 Marketing and sales strategy

 The purpose of the loan
 Detailed financial projections and
financial statements, including a
profit and loss statement, cash
flow statement and balance
sheet
Business’ Credit Report

• The lender will also want to check your business

credit report. A good business credit score is 80
or above.

Income Tax Returns

• Lenders generally require copies of both your

personal and business income tax returns,
including schedules, for the past three years.
Financial Statements
• Generally, lenders require monthly or quarterly
financial projections for the first year, then quarterly
and/or yearly projections for the next four years.

Bank Statements
• Lenders are looking to see if your bank statements
support the claims you made in your financial
statements and projections. Typically, you’ll be asked
to provide both personal and business bank
statements for the past 12 months.
Income Statement

• It shows your Revenues, Expenses, and Profit for a

particular period.

Cash Flow Projection

• It shows how cash is expected to flow in and out of your

business.

Balance Sheet

• It presents a picture of your business' net worth at a particular

point in time. It summarizes all the financial data about your
business, breaking that data into 3 categories; assets,
liabilities, and equity.
Debt and Internal Control (Approval and Incurrence)

 All long-term debt should be authorized by the Board of

Directors
 Approval should be expressly documented in the board’s
minutes
 Treasurer of the corporation will prepare a report on any
proposed financing
 Board of Directors should receive a report stating the net
amount received and its disposition
Debt and Internal Control (Recording and Interest)

 All debt instruments should be accounted for in bond or

note registers
 Maintained by an employee not responsible for the
custody, incurrence or redemption of long-term debt
 On regular basis, independent employee should reconcile
the registers with the general ledger
 Authorize employee should calculate interest expenses in
accordance with the terms of each instrument
Types of Document and Accounting Records

 Bond Certificate
 A debt security document representing a stated amount of
corporate debt
SELLING OF STOCK

 Selling shares in a business can generate significant

cash, which can pay down debts, or be used for
investments or charitable donations. That cash can also
go back into the business, where it can fund expansion.
Likewise, selling part of a business can reduce the
owner's risk and allow them to diversify their personal
assets.
GO PUBLIC

SELL TO LARGE PRIVATE

INVESTORS

SELLING TO SMALLER
INVESTORS

SELLING TO EMPLOYEES
Types of Document and Accounting Records

 Stock Certificates
 An equity security document representing ownership of a stated
number of shares of capital stock
 Investors pay
consideration to
corporation for shares
and are issued shares of
stocks

Board of Directors
declares dividends to be Consideration becomes
paid to shareholders out capital of corporation
of corporate profits

Capital of corporation
used to generate income
and profits
 Equity and Internal Control
(Approval Issuance and Retirement)

All transactions relating to

equity securities must be
authorized by the Board of
Directors
In many small companies,
equity transactions are
usually handled internally by
the secretary of the company
Board of Directors should designate
officers who are authorized to:
• Sign stock certificates
• maintain records of
stockholders
• Maintain custody of unissued
certificates
• Sign dividend checks
Many companies enhance control over equity by utilizing stock
registrars and stock transfer agents to assure that securities are
issued and transferred properly whereas:

 Independent Stock Registrars

 avoid any issuance of stock by obtaining copies of the documents
authorizing the total shares to be issued and maintaining records of
total shares issued and cancelled
 Independent Stock Transfer Agents
 maintain detailed stockholders records and carrying out transfer
ownership
 BOD
Stockholder Consideration
(Company)

Dividend
Certificate of
Certificate of Stock
Stock

Corporate
Secretary

Stock registrar/
Stock transfer
agent
 Acquisition Cycle
purchase resources/ raw materials, inventory,
equipment

 Production & Payroll Cycle

convert resources into products/services

 Revenue & Collection Cycle

deliver goods and services, bill customers, collect
MERGERS AND ACQUISITIONS

 Mergers
 two companies combine and create a new company

 Acquisitions
 one company purchases another and absorbs them into
operations
MERGERS AND ACQUISITIONS

 Horizontal
 two companies that sell simiar products and serve similar
customer

 Vertical
 two companies operate at different stages of the production
cycle
Accounts/Records:

 Consolidations
 to combine assets, liabilities and other financial items of two or
more entities into one.
 Goodwill
 is an intangible asset that arises when one company purchases
another for a premium value.
 Intangibles
 assets that lack physical sustance.
Accounts/Records:

 Deferred Charges
 is a long-term prepaid expense that is treated as an asset on a
balance sheet and is carried forward until it is actually used.
INVESTMENT OF EXCESS CASH
 The control and proper use of cash is an important aspect of cash
management.
The entity must maintain sufficient cash for use in current operation.

Excess fund/cash
 An additional amount of cash beyond what a company
normally needs to have on hand.
 Excess cash may be invested in time deposits, money
market instrument and treasury bills for the purpose of
earning interest income.
Investment in time deposit, money market instrument
and treasury bills should be classified as follows:

a. if the term is three months or less, such instrument

are classified as cash equivalent and therefore
include in the caption “cash and cash equivalents”.
b. if the term is more than months but within one year
such investment are classified as short-term
financial assets or temporary investment and
present separately as current assets.
c. if the term is more than one year, such investment
are classified as noncurrent or long-term
investment.
however, if such investments become due within one
year from the end of the reporting period , they are
reclassified as current or temporary investment.
The Business Functions of the Financing and
Investing Cycle
SOURCES

 https://www.investopedia.com/terms/f/financial_plan.asp
 https://www.investopedia.com/terms/c/cfo.asp
 https://quickbooks.intuit.com/r/loans/what-documents-do-
i-need-to-get-a-business-loan/
 https://articles.bplans.com/10-things-the-bank-will-ask-
when-you-need-a-business-loan/
 https://www.investopedia.com/articles/stocks/12/how-to-
sell-company-stock.asp
 https://prezi.com/qplsgif53l0i/audit-of-the-financing-and-
investing-cycle/
 https://prezi.com/99ck3foyox08/financing-cycle/