Revenue stream directly effects almost every other section in the model such as profits, cash flow and so on. Therefore, entering forecast income correctly is crucial for managing the model. In this section we are going to explain these sub-topics:
After entering income items, we will be able to see the outputs in the relevant financial reports.
On FD4Cast Ribbon, click on the Forecast Income button. You will be forwarded to the screen below (we have added some demo data to illustrate how to fill in the sections. In your clean copy, you will have blank sections)
Currencies: At the top of the screen (blue region) you will see the currency ratios for each month. This section is managed from Taxation > VAT Assumptions in the model ribbon. Different currency ratios can be input for the following months for more accurate forecasts. (For more details, see: 6.1 VAT & CURRENCY ASSUMPTIONS)
Income Items: On the left hand side of the screen (orange region) we see different income items. These belong to Income Category which can be added as shown at 1.4.2 Add/Remove Category Rows and renamed as shown at 1.5 Admin Sheet.
Debtor Profiles: At this section in the middle (yellow region) we can manage the relation between payments and time delays. This will be explained below in more detail.
Standard Income Input: This is the section (green region) where income for each category and each month can be entered manually. Income forecasts should be entered net of VAT and in the month that the income is invoiced. Any timing differences for accrued/deferred income are dealt with separately (any income that was deferred or accrued on the opening balance sheet should not be entered on the forecast, as these will be unwound as explained in Sections 3.2 to 3.4).
The income forecast area also has a section for ‘Other Income’. This should only be used for income that is not subject to Corporation Tax. There is a further section for Other Financial Income, and this section is included in the Corporation Tax calculation.
Once you have input your income forecasts, you will see various tables below your forecasts. These tables are for audit purposes only, and cannot be edited. They allow you to see the figures flowing correctly through your model and the effect they have on other parts of the FD4Cast model. Other tables here will be dependent on your debtor profiles and timing assumptions (Accrued/Deferred Incomes).
Different revenue items may have different cash collection profiles. Simply enter these profiles as a percentage of debt collected each period after the revenue is invoiced (the default setting is 100% cash collected in the month of invoice).
For example, you may have retailer customers as profile 1 and wholesaler customers as profile 2. Below you can see the effect of debtor delay:
This is a simplified example of debtor delays:
Of course, in real use, more revenue items, different profiles and upcoming months are consolidated all together automatically by the model and reflected upon the reports.
To be clear on the terminology used in the model: Accrued income is earned by the company for providing a service or selling a product that has yet to be received. Deferred income is the portion of a company’s revenue that has not been earned, but cash has been collected from customers in the form of a prepayment.
Similar to the debtor invoice payment profiles (section 3.2), accrued/deferred revenues also make it easy to manage the time difference between earning the income and actually recording it. Below the standard income input fields, you will see the input regions for Accrued Income and Deferred Income. For each of these, we reverse the values to keep in balance.
A comprehensive example can be seen below:
Accrued Income: In the example above, company has 10k accrued income from April to October. This could be something like a bonus payment which will be released when a quota is reached. In November, income is reversed as 70k but not recorded into cash flow immediately due to debtor profile settings. As you can see in debtor profile settings, income item is split 50% for 30 days / 60 days. So, in the Outputs section (blue region), Cash Flow shows 42k in Dec-17 and 42k in Jan-18 (including VAT)
Deferred Income: Also in the example, this company has a deferred income of 50k in Feb-18 and reversed it in Apr-18. Note it would directly go to cash flow as 60k (incl. VAT). The same debtor profiles are applied and they are recorded as 30k in Mar-18 and 30k in Apr-18.
On the bottom left of the example, you can see Related Reports indicating to which financial report that record is sent to.
**Please note that in our examples, we simplify the view (hide some items, change the colours etc.) to make it easier to understand. Your view in FD4Cast model may be different.