PFM3103 Mudharabah Musharakah FinancialStatements Cashflow

Summary

In this lecture, Norlia Mat Norwani delves into fundamental concepts related to financial statements within the framework of Mudharabah Musharakah. The talk explores core differences between traditional and Sharia-compliant financial practices, discusses key financial documents like the income statement and balance sheet, now referred to as the statement of financial position, and emphasizes the significance of cash flow statements, especially in financial planning for Sharia-based entities. Attendees gain insights into personal and business financial management, how to ensure compliance with Sharia, and the importance of understanding net worth.

Highlights

• Differentiating between traditional and Sharia financial practices is crucial for appropriate financial management 🌍
• An income statement is vital for understanding a business’s profit and loss, while statements of financial position outline assets, liabilities, and equity 📈
• Understanding cash flows is essential for evaluating a person or a business's financial health and planning future activities 💸
• Sharia compliance involves avoiding prohibited elements in financial statements; practitioners must account for assets, liabilities, and equities under Sharia guidelines 🌿
• Net worth calculations and cash flow statements are invaluable tools for financial planning, both personally and in business contexts 📐

Key Takeaways

• Understand the difference between traditional and Sharia-compliant financial practices 🌟
• Learn about key financial statements like income statements and balance sheets, now known as statements of financial position 📊
• Gain insights into the significance of cash flow management in financial planning 💰
• Explore how Mudharabah and Musharakah concepts apply to financial statements under Sharia law 📜
• Recognize the importance of avoiding prohibited elements and ensuring Sharia compliance in financial documents 🕋

Overview

Dive into the world of finance with Norlia Mat Norwani as she unpacks the essentials of financial statements through the lens of Mudharabah Musharakah. This session provides clarity on how Sharia-compliant financial practices diverge from traditional methods, ensuring students grasp the complexities involved in managing financial documents that align with religious guidelines.

Ever wonder about the importance of financial statements like the income statement or the statement of financial position? Norlia guides you through these vital documents, offering insights into their roles in reflecting a business’s profitability and revealing its financial stance. Moreover, she sheds light on why cash flow statements are a pivotal part of effective financial management.

Sharia compliance is at the forefront of this lecture, as Norlia emphasizes how to integrate religious principles into financial planning. Learn how to navigate prohibited elements, ensure proper asset, liability, and equity representation, and calculate net worth—all crucial for both personal financial health and successful business ventures.

Chapters

• 00:30 - 03:30: Introduction and Financial Statements Basics The chapter begins with the title 'Introduction and Financial Statements Basics,' setting the stage for readers to understand the core elements of financial statements.
• 03:30 - 06:30: Income Statement and Balance Sheet This chapter provides an introduction to financial statements, specifically the income statement and balance sheet. It begins with a discussion on the foundational concepts in Sharia finance, aiming to help students understand the differences between Sharingan (a fictional term, likely a misunderstanding or placeholder here) and Sharia practices. The chapter likely builds on this foundation to explain how these concepts relate to financial statements in an Islamic finance context.
• 06:30 - 13:30: Cash Flow Statement The chapter on 'Cash Flow Statement' begins with an introduction to personal financial statements, connecting back to concepts covered in a business accounting class. It prompts students to recall their prior knowledge about what financial statements entail, setting the stage for a deeper dive into the financial aspects of accounting.
• 13:30 - 21:00: Sharia Compliance in Financial Statements The chapter titled 'Sharia Compliance in Financial Statements' deals with the importance of preparing financial statements. It explains that financial statements are essential as they reveal a company's profit and its overall financial position, ensuring adherence to Sharia principles.
• 21:00 - 33:30: Mudharabah Concept This chapter explains the concept of profit and loss as it appears in financial statements, specifically focusing on the term 'Mudharabah'. It mentions that what was once commonly known as the 'income statement' is now more frequently referred to as the 'profit or loss statement' in modern business terminology. This statement is essential for evaluating a business's performance, through the profits earned or losses incurred.
• 33:30 - 47:00: Musharakah Concept The chapter titled 'Musharakah Concept' discusses the evolution and regional differences in financial terminology, particularly focusing on the term 'balance sheet.' It highlights that while 'balance sheet' is still used in some countries, in Malaysia, it has been replaced by 'financial position statement.'
• 47:00 - 62:00: Asset Types and Net Worth Calculation This chapter discusses the statement of financial position, focusing on assets, liabilities, and equity. It highlights that in business accounting, preparing these financial statements is crucial, although the cash flow statement might not always be covered.
• 62:00 - 86:00: Cash Flow Statement Details The chapter titled 'Cash Flow Statement Details' discusses the significance of the cash flow statement in business accounting. It contrasts with other financial statements like the profit or loss statement and the statement of financial position, suggesting that traditionally less focus is given to cash flow statements in basic business accounting discussions. However, the chapter aims to delve into why understanding cash flow is essential.
• 86:00 - 117:00: Cash Flow and Financial Health The chapter discusses the preparation of cash flow statements and their role in financial statements.
• 117:00 - 121:00: Sharia Perspective on Money and Commodities This chapter discusses the Sharia perspective on financial elements such as money and commodities. It emphasizes the importance of aligning financial statements with Sharia guidelines, which dictate the permissible elements and obligations, such as ensuring assets, liabilities, and equities are Sharia-compliant. Additionally, attention must be paid to Islamic obligations like zakat. This preparation is particularly important when dealing with clients.
• 121:00 - 125:00: Q&A and Conclusion The chapter discusses the issues related to incidental Haram accruals like interest income in financial statements. It emphasizes the role of financial planners in advising clients on clearing their financial records of such accruals. The chapter also touches upon different terminologies for financial statements, including balance sheet and statement of financial position.

PFM3103 Mudharabah Musharakah FinancialStatements Cashflow Transcription

• 00:00 - 00:30 foreign
• 00:30 - 01:00 foreign okay after we understand uh the concept in Sharia okay so by now you all should have been able to differentiate between Sharingan and Sharia practices
• 01:00 - 01:30 activities in on my left so now we're getting into uh the more financial aspect so we start with a personal financial statements okay from your business accounting class uh you should know what financial statements are anyone can you tell me what financial statements are reflect from your business accounting class
• 01:30 - 02:00 anyone financial statements in general why do we prepare financial statements uh it shows our profit and also our financial position
• 02:00 - 02:30 okay the profit or loss where can we find it in financial statement which financial statement income statement okay income statement or now this is more popular as a profit uh or loss statement okay it's the same thing actually during our school time it used to be called income statement so now it is uh more popular with a profit or loss statement okay that is to look whether our business is doing well or not based on the profit or loss created and the
• 02:30 - 03:00 other state when by we look at the position of our assets liabilities and Equity okay that is called what seven is it what statement is it better than balance sheet okay but balance sheet also is an old name now it is not yeah balance sheet anymore for malicious practice okay overseas maybe some countries are still using balance sheet but for Malaysia how do we address balance sheet financial position statement yeah
• 03:00 - 03:30 statement of financial position whereby we look at all the assets liabilities and Equity of a business so in general uh in your business accounting class those are the two important statements that you will need to prepare remember building business accounting uh but somehow I think in business accounting you didn't do cash flow statement I did that statement in business accounting
• 03:30 - 04:00 I remember already in financial position uh no cash flow cash flow statement that they can really do casually okay in general there's another one more statement that is important but in business accounting we didn't focus on cash flow statement we just focus on on profit or loss and uh statement of financial position so here we are going to look into the importance
• 04:00 - 04:30 of and how to prepare in general cash flow statement also okay financial statement so as the definition here fundamental information okay whereby a financial practitioner used to evaluate clients financial situation so client can be personal individuals or can be normally is for businesses okay so for Sharia based financial planning for Muslim clients so the practitioner must take care to make sure that the statements do not include a prohibited
• 04:30 - 05:00 elements okay so we know what are the prohibited elements that we have to avoid it and assets liabilities equities and all are properly reflected in line with Sharingan guidelines so normally we just look at the statement we don't think of all the things that are related to Sharia but when you prepare for your clients you have to make sure all the statements and information in the statements are Sharia base okay attention should be given to obligations such as unfit zakat if any okay
• 05:00 - 05:30 incidental Haram accruals such as interest income if there's any so uh financial planner needs to advise their clients what need to be done to clear their financial statements okay okay uh balance sheet or statement of financial position it is also popularly known as statement of financial with a statement
• 05:30 - 06:00 of net worth okay net worth is how much is your value okay so that is a balance sheet for when we look from personal uh view okay not from business perspective okay a statement of net worth or the balance sheet represents a snapshot of the client's financial position at a particular date for example if you want to know today what is the position or the net worth of our client and individuals so we can check what's this situation on this date snapshot
• 06:00 - 06:30 so it shows uh assets okay how the assets are financed which is either from his own savings and accumulations from uh sources that you have uh for example banks credit card companies okay and other loans for example so the net worth is the measure of the clients where at a certain point of time okay so the clients well so later we look at how do we calculate the wealth okay it's called net worth what's the value of the percent of the individual
• 06:30 - 07:00 order business okay type of asset when we look at asset you recall from your business accounting class uh or those who didn't have the chance to take the course but you have learned about it in your principle of accounting class during SPM for example okay so we have a cash or cash equivalence this is the most liquid assets whereby you can get money easily
• 07:00 - 07:30 from it okay for example whatever we save at a bank okay whatever we have in our current account we can just go to the bank and get the money or can write a check or just transfer to get cash from it oh okay now they will call it as liquid also fixed deposit accounts if you want the money we can close the accounts and get the money back okay for like Insurance okay the life insurance so there are cash values uh given based on when we liquidate the policy okay but
• 07:30 - 08:00 the best is we wait until the things that we are insured for happen to get the most out of the uh taka full or insurance policies that we buy okay then we have uh the less liquid assets the cash is the most liquid the less liquid or investment assets whereby we reserve we put aside okay some money for specific purpose uh for example given here retirement funding uh ought
• 08:00 - 08:30 to be accumulated for the purpose uh to increase our wealth so example of some of the assets for Investments are what we have in our EPF accounts okay for those who don't have a pension scheme for example so they have contributions in EPF so that contribution that is cut off from their face pay will be their savings for the future and then equities or shares when we buy shares we don't have the money with us
• 08:30 - 09:00 but the money is stuck in the share that we bought so if you want uh back the money you can sell up the shares but uh it has to be dependent on the current market value also if we sell this shares at the wrong time the price is low we will not be making enough cash that we want so the best is to look at what is the share prices and when the price is right then only we sell the shares but sometimes things happen we need immediate cash we will sell it no matter
• 09:00 - 09:30 what the price are right uh fixed income securities example uh bonds for the more conventional practice but for Sharia what do we have that is equivalent to one we have so cool okay is equivalent to one but fixed income securities whereby we put some money in this Securities and every year we'll be getting uh some uh for bonds we'll be getting interest out of
• 09:30 - 10:00 it so which is not a lot for sharing ah but for suku we'll be getting a little amount of uh profit agreed on in the contract okay then we have investment in real properties what are your properties um class what are real properties the real the real properties what is it example
• 10:00 - 10:30 houses okay Office Buildings uh lands agricultural lands those are properties okay so a lot of people they have money they buy these properties for investment purpose some hold it for example they buy new shop lots and so after let's say six months when the area is ready okay to be occupied by businesses and all that so they they sell it off at the time when the price has increased so
• 10:30 - 11:00 they make money that way but some people they don't sell off the properties instead they let people rent okay the space and they make money through the rental income okay so that's the income uh based on properties then we have unit trust remember units are I have explained before there's an agent okay they compile okay a few equities uh shares for example put
• 11:00 - 11:30 in one fund and and sell it like Equity to individuals who are interested in to buy to invest in you need trash so in a way you need plus uh is a quite safe because it's a combination of uh fairies medium wreaths and Loris uh Securities okay so we might not make money in certain investment but some of the investment investments in the unit trust composite uh Securities maybe make
• 11:30 - 12:00 some income for us okay so normally there's no total loss if you invest in you need trust uh delicious things that do not go the way that we expect it to go okay manage funds it is close to unit trust also something like unit trust business and business I said so if we have a business okay so income from the business will be the cash that will be getting and the business asset also it will be a source of cash for us and then
• 12:00 - 12:30 if we have January Collectibles okay for example we have a antique items that we bought for investment okay so we can hold it and sell it when the time is right home contents okay so some people like to buy expensive furniture for example so they can really sell the Furnitures okay for income later on uh then there are capital invested under this uh purely investment and Leadership
• 12:30 - 13:00 project okay contract provided normally by a financial services industry okay those are investment assets then we have personal use assets he heard this I said that generally are meant for personal use normally we don't liquidate it we don't sell it but they are still considered our assets but if
• 13:00 - 13:30 something shall happen that requires us to sell it to get cash we can do it but normally we don't sell it for example at the house that we're staying in okay so the house we need the house to stay in so normally we didn't sell the house but maybe after we die our children might sell it because they have their own house elsewhere okay a car or any type of Transportation house content okay something like that the above but the birth was meant for investment but this
• 13:30 - 14:00 is uh for personal use so even it's for personal use some are very valuable that can be sold for cash delivery also okay that we use daily can be sold so collectible okay these are things that are expensive uh that we buy for Personal Pleasures that can be self-location okay any questions
• 14:00 - 14:30 the type of essence so these are just a few uh that I list in here there are a lot more okay for businesses of course there are a lot more assets involved but I think uh we focus on for more on a personal uh use what are the type of assets that we might be involved in um it came from the phrase the rubber field art it means to make a journey and it is
• 14:30 - 15:00 called this because the agent or the entrepreneur gets profit by which of his hard work and fit in performing long Journeys here the business Journeys the The Venture that they are in to make the profit okay so technically it's a contract or partnership where one provides the capital and the other the entrepreneurship with the profit being shared among them with a predetermined condition
• 15:00 - 15:30 provides the label okay or the management to manage the fund that we contribute to the uh partnership okay so it's a contract is a contract one person provide to find the other person the entrepreneur will run the business okay to make profit for the venture
• 15:30 - 16:00 Okay so thank you okay the nature of uh okay classically it's known as Perot and mukharoda okay they are related uh different name from Buddha rabba the terms are derived from the word which
• 16:00 - 16:30 means to cut off or I'll cut because the capital provider or the robalma cuts off some of his money to be utilized by the entrepreneur okay in the business activities okay because the uh the percent the fund provider need to give some office money okay for the purpose of the Venture so it doesn't have to be individuals it can be financial institutions like when we get loan from the bank but we use them
• 16:30 - 17:00 with the rubber concept uh so Imam now we said the joint stock company is called create yeah it exists between a two percent or one supplies fund for the other to trade with on condition that the former has a share in that profit so the mudari will also get some profit out of the profit that is made from The Venture even
• 17:00 - 17:30 though he doesn't come up with a fund but he is still present the entrepreneur will use the fund to make the profit so he will get some sort of profit as agreed on in the contract foreign according to the terms of their agreement so they will discuss and agree on some portion for example uh maybe 50
• 17:30 - 18:00 50 okay or maybe uh the mudari get 60 percent uh the rubber Market 40 so it depends okay what is agreed on between the parties involved okay but the losses will be born by the capital provider alone who is the financier social anything happen to the Venture it doesn't make profits so the laws uh the loss of the money that has been put in the business will be born by the rubber Mall the capital provider
• 18:00 - 18:30 okay but of course provided that the entrepreneur or the model have done the best thing possible to make sure uh the business goes well if the loss is due to the negligence of the uh then uh the rubber Mall can probably Sue and try to get back the money that has been contributed okay so uh if things are okay the entrepreneur has done his
• 18:30 - 19:00 part well but still uh profits uh are not created so the entrepreneur on the Southwest the frustration okay of his fruitless effort okay condition of Buddha rabba okay though business venture okay must be conducted by the entrepreneur okay it is not legal if the capital provided it's required to conduct the daily
• 19:00 - 19:30 operation okay the project must be legal and permissible of course it has to be Halal expenses will be taken from the capital provided that is not more than the Justified expense expenses required in the Venture so whatever is expenses are required will be purely based on the need of the business so the mudari can simply use the money provided for the Venture as he wishes okay he cannot spend things unjustly okay he has to do
• 19:30 - 20:00 the best possible way so that whatever happened uh he will not be blamed for it it's all stated in the conflict that they have to sign okay uh must be in the form the capital provider in the form of money and not Commodities okay you cannot put in an asset uh as your Capital yeah it's a big cash that
• 20:00 - 20:30 can be used immediately uh to render business because why Community is not now the value fluctuate okay it's not static in price and cause uncertainty and ignorance okay so maybe in the end if they use communities the mood are get only less than the amount that is required for the business okay it might happen that way because of the fluctuation okay the capital must be clearly specified now how much is needed for the Venture determined and known at the time
• 20:30 - 21:00 of the contract okay for example agreed to put in 500k so that will be specified and stated in the contract to be signed uh it must be available the cash available present during the conclusion of the contract okay you can design the contract and the money he doesn't know yet where to get it from cannot be that way uh it must be delivered to the possession of the mood or entirely okay the capital provided
• 21:00 - 21:30 must be available for the mother or the entrepreneur okay conditions of profit uh distribution of profit must be determined uh proportionally between Capital provider and the entrepreneur so they have to agree on what is the question so the predetermined profit must be in ratio form or percentage and not in fixed a month uh we cannot say that okay uh whatever happened the modern
• 21:30 - 22:00 entrepreneur will get 100 000 okay after at the end of the contract and you cannot be put a specific amount but instead as a ratio or percentage because it depends of how much profit has been created if a lot of profit uh were created that means that the Buddha will get uh quite a lot of amount as his portion of the profit okay but if not much profit has been created so he will also get less as well as their
• 22:00 - 22:30 a lot to be different ratios at different situations based on their agreement maybe they had they decide that for the first two years this is the ratio okay for the third fourth and fifth years that would be the ratio it is different in different situations so it depends what's stated in the contract any questions so far
• 22:30 - 23:00 okay do you understand concept of okay one party contribute the capital the other one will run the business okay the manager the management of it so far okay good uh there are issues though in profit uh there cannot be a distribution of profits until the losses have been
• 23:00 - 23:30 written off and the equity of robal man has been fully restored okay so the distribution of profits will not take place for example the first two or three years they make losses that is normal for a business businesses they don't make immediate profit uh during the few beginning few years okay so for example for the first three years they make losses so when they start to make profit for example in year four so they have to wait until the profit covers all the
• 23:30 - 24:00 losses and the equity put in by Rob balma okay uh that means if the uh the amount of equity put in has been covered the losses have been fully uh covered then they can start Distributing the profits they extracts from it so normally this occur after year five like that for four businesses yeah small business it might be earlier for big businesses it's not going to take a few years to make profit
• 24:00 - 24:30 okay distribution of profits before the conclusion of the conflict needed as an advance okay if they said need one party maybe due to personalization need some of the money earlier so it's like a loan given to them okay so it will be considered as advanced that would be deducted later from the profit uh that is distributed later ordinary course of business must be charged against profits before they can
• 24:30 - 25:00 be charged against the equity so that means that the profits will cover all losses first before the Cavalier Equity uh put in the business okay if it has been agreed that the entire profit will be taken by the Rob balma uh the modern will be entitled to the customary remuneration okay in this case uh that means hundred percent of profit goes to robalma they agreed that way this means that the mudari or the
• 25:00 - 25:30 entrepreneur will get some sort of uh benefit okay or remuneration like salary and borders and things like that which is called that means they don't get part of the profit but they will get benefit from other ways they have the salary maybe they have some bonus given at the end of the year okay so it depends on what uh is agreed on between them during the signing of the contract okay so it can be hundred percent
• 25:30 - 26:00 foreign okay so they will discuss uh between them and agree on something if it has been agreed that entire profit will be taken by the modari the other way around okay the Rob balma is a creditor emulator is a adapter okay cannot claim any periodical salary fee
• 26:00 - 26:30 or remuneration for the work done by him for the mudaraba in case everybody agreed on certain profit uh no in general they cannot claim periodical salary or fee but it's just based on what has been agreed on in the contract normally they get something like uh bonus okay or benefit or grants yeah things like that okay termination when can it be stop the contract uh unilateral agreement okay
• 26:30 - 27:00 between uh both are involved on the date of maturity if they agree to set a time for the contract for example for 10 years so after that 10 years the contract will terminate or when the fund of mudaraba has been exhausted or have suffered losses okay they finish there's no more fun even before the 10 years uh is over after five years they have no more money to operate of course in that case they have some food losses then when they don't have any more money to
• 27:00 - 27:30 put in the business they can of the contract or the death of the mudhary all liquidation of institution that acts as moderate so the moderate dies okay the contract was between the rubber Mass so if the mother dies of course the the contract will terminate so they might renew the contract with other person as mudhari Insanity of any parties to the modaraba
• 27:30 - 28:00 country okay anyone becomes insane and then of course it's better to terminate the contract and create a new one with someone who can understand what the business is all about foreign
• 28:00 - 28:30 the capital is provided by all shareholders the people involved in the Venture according to the proportion agreed upon by all parties for example three people agreed to start a venture uh through the concept of musharaka so
• 28:30 - 29:00 all three will provide the capital okay uh the capital must be in the form of cash okay money it can be any type of property that could normally be assessed and have certain commercial value that could be considered acceptable as source of capital okay and it can also be Intel intellectual Capital what is
• 29:00 - 29:30 intellectual capital what is intellectual Capital copyright of theft okay uh that is copyright I didn't maybe he has already product patented patented somewhere right so this partner wants to join in this new Venture and he really have a copyright for certain product that he can bring in uh to be used in The Venture okay maybe another two partners bring in a capital in the
• 29:30 - 30:00 form of cash okay another partner bring in some sort of commodities okay or a piece of land so it can be different properties okay unlike for the rubber it has to be cash yeah uh okay entrepreneur will be the one that will contact the business Capital provider in general is not allowed to join with the entrepreneur provider or rubber man only provide the
• 30:00 - 30:30 fund the form of sharaka okay like the name how the name is mentioned together okay all shareholders have the right to work and contribute their skills knowledge experience and expertise in the company okay so they all have an agreed on what contribution can be made by each partner Okay and like with that rubber okay foreign
• 30:30 - 31:00 entrepreneur will not have to bear with the capital losses as long as he does his part well there's no manipulation there's no cheating anywhere yeah monetary laws will be jointly born by shareholders according to the ratio and proportion of the respective share in the partnership okay let's say for people involved so the ratio is two
• 31:00 - 31:30 three one and four so their losses our profit also will be based on the ratio agreed on okay okay so application of both it can be in Project financing okay important financing working capital financing saving current investment accounts internet lending or borrowing
• 31:30 - 32:00 also cool so all these are what you use in businesses uh that are based on Sharia okay for personal uh where they sell them okay we use a Search application unless we want to get loan forces and purpose okay my net worth is okay how do we get your net worth what is net worth I mentioned earlier what is net worth
• 32:00 - 32:30 what is that with the value okay of an individual and monetary value or businesses okay how do we get the value of net worth okay remember we talked about assets earlier uh in business accounting remember we uh categorized assets to Karen and non-current assets what are
• 32:30 - 33:00 current assets that's what our current assets okay so the form of the value change very rapidly normally in less than one year in change value what are examples of current asset okay uh this is the most liquid okay cash then
• 33:00 - 33:30 what do we have after cash in hand we have savings at the bank for example okay then we have debtors two adapters who are adapters our receivable people who owe us money
• 33:30 - 34:00 they have to pay us later on normally in less than one year in two months three months time you have to pay yeah what are other current assets event oh Bentley okay what are you mentally our goods for sale okay Goods that we have to be sold for business yeah okay how did it
• 34:00 - 34:30 for personal what kind of assets we have personal computers for cash okay it can be cash it can be savings also sometimes we have that test again sometimes that we have that there's people who always okay other than that what are other personal assets foreign
• 34:30 - 35:00 [Music] [Music] uh-huh super Investments it depends on how you categorize it it
• 35:00 - 35:30 might be in non-current okay but uh but nankara normally we look more on the things that we can keep a long time but this was these two also can be kept for a long time right what are other uh you might have an investment as you mentioned earlier what sort of investment I shot them shot them investment yeah
• 35:30 - 36:00 color long term equals uh uh to nnam Karen I said okay foreign buildings that we can use for a long time Machinery machines and then
• 36:00 - 36:30 hmm then yeah okay those are other assets how do we get these assets how do we get this assets oh my power is okay how do we get those success
• 36:30 - 37:00 how do you buy a vehicle normally using loan right building so normally alone sometimes we we use a catch for example we buy used vehicle maybe we use cash let's see also we use some sort of load
• 37:00 - 37:30 okay land or so okay so it says how do we Finance them we Finance them it can be either through short-term liability or long-term liability okay short-term liabilities uh obligations they must be settled within one year okay for example income tax that we need to pay uh okay we have to pay within the year uh credit card bills okay all those
• 37:30 - 38:00 short term in less than one year we need to pay from time to time depending on when we use them or when do the tax or the cut incurred long then we have long term liabilities these are obligations that can be settled outside the realm of one year it can be more than one year for example loans for the houses okay for the cars Education Loans also more than one year okay renovation of properties okay development of building
• 38:00 - 38:30 of properties so no normally it work long term liabilities so how do we get the assets can come from the liabilities that we have yeah the cash that we have uh the uh the inventory that we bought so it can come from the liabilities or from a different source that we call question I really it's not mentioned here it can be from I said it goes to what liability Plus
• 38:30 - 39:00 plus Equity I said equals liability plus Equity yeah this is probably a business accounting client so whatever assets we have it must be financed through something so how we Finance it can be through the shutdown or long-term liability and the second part is to the equity what is equity
• 39:00 - 39:30 what is it pretty a capital from the owner ah capital from the owner okay it can be in the form of cash right uh [Music] what else so cool
• 39:30 - 40:00 building okay when he started the business he already has some buildings that can be used land okay this is that is a different form okay but automatically the equity that that is in the form of building and land will be our asset for the business and so I said to be uh subsidized or Finance availability plus the equity so the total must be the same except must always be equal to liability plus Equity so we have learned that earlier in the
• 40:00 - 40:30 business accounting class okay now this is what we did not cover in business accounting class but is it is it is equally important especially in financial planning for business accounting the focus was on businesses so there's uh we do not look so much on casual statement but if you have to take a financial accounting one and two so the cash flow statements are discussed in that class you don't have to take fa1 I think I didn't pay e14
• 40:30 - 41:00 you'll take that everyone I think you only take business accounting the basics of counting okay cash flow statement provide information of the client's movement of cash okay the changes in the value of the cash uh which is based on cash receipt okay the cash that you receive and cash disbursements the payment that
• 41:00 - 41:30 you made over the past one year period normally we prepare it for one year at the end of the year but of course prior to that end of the year normally we have monthly cash flow statement also same like our financial statements okay Allah statement and uh statement of financial position we can also prepare it on a monthly basis so it identifies sources of income how do you get our cash and the pattern of this visiting we spend it
• 41:30 - 42:00 on what okay okay types of cash we have cash inflows sources of cash either in the form of actual receipts or credits to his account actually he received the cash uh credits mean it goes directly into the savings account for example he doesn't receive a cash in hands okay for example employment income matured endowment policies we have some
• 42:00 - 42:30 sort of investment so when it is mature we get the cash rental and dividend income okay if we have shares we get dividend normally the dividend will be transferred straight into our accounts a rental so normally is straight away accounts process from sale or personal assets if we sell something you will get the cash grantuities for those who work for governments so once I think on Wednesday we get some sort of a graduate
• 42:30 - 43:00 thesis sort of sort of uh one is during our retirement it comes at the end of our working time credit so account employees contribution to clients retirement account or like the EPF contribution your English credit to the account okay cash outflow okay all disbursements the payments yeah they provide a pattern of spending savings and investment activities so in that case we have a fixed up flows
• 43:00 - 43:30 which is equal in amounts or variable or flows which is not equal okay fixed outflows when we buy family taka for the amount that we have to pay everyone is the same normally here mortgage payments when you buy houses you will pay equal amounts every month car loans also and other loads only it is designed so that we pay equal amount except for maybe the last payment now sometimes it's not the same the last payment is to adjust for the difference okay the last payment the
• 43:30 - 44:00 variable it depends income tax it depends on how much income that we make this year and how much a deduction that we can make before we count that income tax so it'll be different every year food and groceries of course it will be different if we do it monthly that's pretty sure for food and grocery during the Ramadan time and shower world is very high okay compared to other months utilities okay what we pay for elasticity water bills are not the same
• 44:00 - 44:30 every month credit cards expenditure also the savings though sometimes we don't save equally every month okay what we deduct to save in the accounts is different okay so I send the concept of influence cash inflows and cash outflows thank you hello yes okay so okay I have some notes uh in what fire uh I'll put it in my Guru
• 44:30 - 45:00 later on you can notice about cash flow and net worth okay uh statement of financial position so I discuss more in there so you can read it through later on here I will discuss it in class okay statement of cash flow oh maybe I have to show you see wanna appreciate it
• 45:00 - 45:30 okay I just show a little bit
• 45:30 - 46:00 okay cash flow and at which statement okay these documents tell whether a person or family is operating in a financially healthy manner financially healthy okay not medically healthy but normally if you are financially healthy you'll be sort of uh medically healthy okay psychologically yeah okay if you are not financially okay A lot of times
• 46:00 - 46:30 people are not uh healthier they have difficulties in health due to the insufficiently in their financial my test okay cash flow is not static it doesn't uh freeze at one free girl okay for a long time okay it tells us where the cash is moving to okay the cash flow statement the terms that you need to be aware of cash inflow as I mentioned earlier cash outflow and another one is net cash flow so this is the difference
• 46:30 - 47:00 between cash inflow and cash outflow this I deduct inflow from outflow we get net cash flow so the net cash flow it can be positive or negative so of course we want to have a positive cash flow not negative okay so inflows it can be what we earn not the income uh side hustle like tuition if you give tuition somewhere you get some money you can draw okay uh what you have in your
• 47:00 - 47:30 savings account stocks bonds business and all that uh reimbursements are from your employees or what your employers give you uh friends will lend you money okay that will include cash to you give time maybe you receive a cash as a gift from somewhere yeah you get bonus from somewhere okay cash outflow it goes to other people they are spending on your family on yourself money that you lend to others okay these are some of the examples on here
• 47:30 - 48:00 okay net refers to the aggregate of your influence minus cash outflows okay so if uh net a cash flow is positive in general it's a good situation okay if it's negative there are some personal money management problem that you need to resolve yeah um these are examples of activities involved involving influence or outflows okay companies doing business and needs
• 48:00 - 48:30 to publish Financial reports to indicate their performance so for companies this is important especially if they want to get for example loans from financial institutions they have to prove that they can afford to pay the loans they're going to get okay so last time in business accounting you focus only on financial statements uh the prophet Allah statement and the statement of financial position okay to be prepared for the banks for example to get loans but
• 48:30 - 49:00 another statement that is important is this cash flow statement what is the difference between cash flow statement and income statement our statement of profit and uh our loss what's the difference anyone you have to think back from your business accounting class
• 49:00 - 49:30 okay in uh profile statement we are concerned about that by the profit of the business right there okay okay what's the difference with a cash flow statement the cash flow is about the cash the cash movements only okay in profit Allah and profit or lost uh the profit that that been generated by the business yeah sometimes it doesn't involve cash yet remember yeah a lot of times I remember
• 49:30 - 50:00 uh one of the concepts that we apply in recordings and sections the matching principle matching principle what is matching principle and one must be created I'm pretty much yeah hello
• 50:00 - 50:30 entry yeah and three principle match look you mine hey though it's okay what is matching principle
• 50:30 - 51:00 we have to match member revenues and incomes based on the time it occurs remember we have to include it in the statement based on the time it occurs no matter we receive cash or not we close our accounts uh let's say on 31st December 2021
• 51:00 - 51:30 okay we have a transaction whereby we sell on credit goods for 1000 on uh 10 December 2021 on credit that means we haven't received cash yet can yeah so metric means we match the revenues and expenses based on the time when it
• 51:30 - 52:00 occurs so even though the the transaction that I mentioned that they do on the 10th of December we sell goods for 1000 on 10 December on credits but we still record it in the transaction for our appropriate order statement but for cash flow do we include it for cash flow statement no doctor no we don't include because cash doesn't transfer yet we haven't received the money yes huh that's the main difference so financial
• 52:00 - 52:30 statements or profile statement is based on accrual basis when it happened but cash flow statement is based on you receive or let go of the cash or not during that time okay this way for financial institution purposes to get loan for example we have also we need to show our cash cash flow statement so that they can look at whether the cash is coming no not fault is to pay them back and then I think okay
• 52:30 - 53:00 if it's okay I can get the loan that means we can afford to pay and sometimes when they just look at a income statement uh profit but there's no cash coming in yet again it's in your profit question yeah sorry do you understand classical again
• 53:00 - 53:30 five reasons it shows us information where we spend our money in Canada so from the information we can make a decision like for personnel for example could we afford to bring in a minute so look at my cash flow patterns
• 53:30 - 54:00 okay could we afford to purchase a vehicle if you want to buy a new car which grade of vehicle could we affordable how much down payment can we afford here are there some spending that my family have not consumed for a long time for example can we afford it to go for vacation okay can I save some cash outflow we have some cash outflows can we save it and not not paying for it should I spend it on something more meaningful okay when
• 54:00 - 54:30 we look at the info and outflow we can make other decisions can I increase my cash flow to my wealth machine for this wealth machine to accelerate my plan to Financial Security for this wealth machine in here so the color machine gun machine what does it mean s we have machine here anyway
• 54:30 - 55:00 foreign increase my plan for Financial Security to increase my money so where can I spend mostly where can I invest my money
• 55:00 - 55:30 what sort of machine must you can believe machine do how can I generate more income more cash in this expect we want more cash okay how your net worth is affected by cash flow if positive or of course it improves a network scan network will increase negative will reduce a net worth issues our financial state of health in terms of asset liability and Equity
• 55:30 - 56:00 remember I said will always equal a recent liability plus the equity so the things are in there some of the examples later you can read it Equity ownership of the assets by a group of people or individuals okay all right okay yeah uh personal net worth uh equals to I said minus liability yeah
• 56:00 - 56:30 your Equity your network is equal to your Equity you just minus uh I said with liability to get the value okay here this is statement saying just because your friend lives in a condo and drives a car not necessarily he is automatically High net worth not necessarily he could be in a stage where his liabilities are filled up about goods and that is uh actual Equity build up it's rather small so how does your cash flow affect your networks and Financial Health okay your cash flow is
• 56:30 - 57:00 really compared to your networks which is a static snapshot of what you own afterward you own okay so how you want to look at net worth okay we want positive cash flow net to increase Excel negative will decrease our asset okay for liabilities also uh negative increase uh negative net cash flow increase liabilities positive decreased liability okay opposite for
• 57:00 - 57:30 Equity positive net cash flow increase ownership negative net cash flow will decrease our ownership yeah I think you have to read through again to really understand it yeah the reason why a strong personal cash flow indicates uh to us or others whether you are worth something or not okay what does personal cash flows say about yourself okay if I give myself 10 years these are some of the questions uh that will come to you when you prepare all
• 57:30 - 58:00 this right would I be interested to okay acquire myself as a producing asset if if you somebody you are some somebody to join your business would somebody want to join you based on your cash flow statement okay you dare to lend yourself more money if you are a bank would you then loan the money to you based on your cash flow statement based on the questions it will be interesting whether you can be harshly
• 58:00 - 58:30 critical of yourself for example if even here okay for five years okay normally we look at the pattern okay we just don't look at the statement for one year because for one year it doesn't get much information for us to compare okay so we need information from other years or so for example given here this is a growing net cash flow inflow increase you see that outflow
• 58:30 - 59:00 mix a mixture of increase and decrease but quite constant not much change so the net cash flow increase or decrease increase or decrease so is this pattern good or not it's a good nap it looks good yeah it looks good so it says here uh I know personal cash flow statement profile of someone managing their cash flow well okay in
• 59:00 - 59:30 the scale is good in this example so your next cash flow is increasing possibly I do too good performance okay Museum of cash flow for investment inside jobs this is if we talk from the personal viewer uh your cash outflow is maintaining okay after two years of stabilization okay see it's small it's quite quite stable it doesn't increase much so it looks
• 59:30 - 60:00 good yeah okay this is similar to business where the business and the good spirit of investment we should result in low of net cash flow for business right during the earlier years when they start investing normally they don't have much cash inflow but when these Investments start producing results it improves the current and future cash flows so the business might not need to put in more investment so for business also okay for
• 60:00 - 60:30 a few years they might not make some uh much money okay example here ah little net cash flow but building works well okay example here okay cash inflow increase or decrease inflow increase or decrease outflow
• 60:30 - 61:00 increase also increase I also increase investment time they are putting out a lot of money for investment and at the same time their influencer is increasing so the net okay the net increase or decrease it doesn't look good it is decreased sort of decreasing right sort of decreasing but this person can
• 61:00 - 61:30 get loan from the banks because they're showing that they are putting in money for investment okay for future profit here the increase in cash outflow okay of course the bank will look at the balance sheets and all that to look at what are the things that they are investing in yeah so for example uh they look at the assets there are machines accumulated okay the machines increase from 12 000 up 227 000 so these are investments that will help this company to generate
• 61:30 - 62:00 uh cash inflow in the future so this company is doing well even though the net cash flow doesn't look good okay because there are hidden information that you have to search when you want to give loan to this sort of company okay so decrease doesn't mean it's not doing well so it depends you have to look at the information okay so from that uh case a large part of cash outflow is used to purchase
• 62:00 - 62:30 wealth machine now again it was machine camera uh what what are the wealth machines talks bonds and Investments okay to generate future return okay and they have checked that over the five years the value of their machines are growing some do not provide dividend income yet okay uh they will not show up well on his or her personal cash flow statement in the beginning they don't show up yet but they still on uh they'll be coming in order in a cash influence
• 62:30 - 63:00 okay please read uh on your own later on okay another example person with negative net cash flow foreign cash inflow increase or decrease right cash outflow
• 63:00 - 63:30 great our flow also increase okay so the net is negative okay for four years it was negative only one year positive so uh look like they will need to borrow money okay so they have to get more liabilities such as loans okay or from personal perspective for example
• 63:30 - 64:00 salary might be going up um but because your cash flow is consistently negative you will have more and more outflow so you'll need to cover for the negative net cash flow we have to cover it back so you'll get uh to bring in more cash because what you are receiving now is not enough to cover for your cash outflow okay for personal foreign from Friends okay or maybe you can get from a financial institution okay
• 64:00 - 64:30 okay casual statement also uh provides a starting state to start taking action to correct your financial mess here you'll get the position how it's going uh what can you adjust okay what is not right what is not enough what is too much okay you will tell much money buffer you have in your monthly cash flow money buffer what is money buffer okay
• 64:30 - 65:00 what did you mean here money buffer is like how much excess that you have to cover for your emergencies for example okay if you always have negative or net negative uh net worth that means you don't have a money buffer shell anything bad happen you cannot cover for the immediate need of cash okay so it is
• 65:00 - 65:30 mentioned here uh you need to have an idea how much recurring cash or flow you can take on okay maybe some of the outflows need to be controlled you cannot line it up unless it is necessary if if it is necessary and your network is negative and that means you need to get some money coming in from outside okay uh or poorly constructed constructed casual statement will give you a false sense that you
• 65:30 - 66:00 could afford to take uh on one more furniture or electronic installment when you really cannot take on any more cash outflow okay so if you have a negative uh net cash flow please don't buy a new car okay uh please don't spend money lavishly please don't go to McDonald every day things like that okay it will help you to make decisions on what you can do and you cannot do okay so the cash flow helped me to visualize
• 66:00 - 66:30 the opportunity to speed up your wealth building so you can see that achievement you can see that what you can do further to help increase your cash to come in okay for example this person who did this uh when he keeps track uh of the cash flow so he understands how to adjust uh his uh cash inflow and outflow pattern
• 66:30 - 67:00 so if you can Channel it to his or your wealth machine to reach the objective okay how to create a personal cash flow statement you need to keep track uh where the large part of your money is Flowing too identify sources of income okay your inflow where does it come from identify the categories of cash outflows cash
• 67:00 - 67:30 outflows remember there are fixed or variable outflows okay track cash inflow and cash outflows for a day and calculate the difference to get the net cash flow okay these are this is an example given so this person a cash inflows okay Insurance transport claims snack claims okay so where we want interesting business income limited income examples okay so I always might
• 67:30 - 68:00 be different okay this is created for one month only okay monthly cash flow statement or at the end of the year you can come up with a uh 12 months okay yearly cash flow statement so cash outflow for this person uh which he label it as a rich life whereby I think he give out gifts which meal so interesting and how people categorize it okay for meals survival meals groceries
• 68:00 - 68:30 the survival meals don't know for women uh maybe he gives it to somebody who needs it okay cash our flows are in terms of our personal utilities for food internet income tax and transport everyday expenses medical bills household expenses family contribution okay so a total of uh
• 68:30 - 69:00 for business investment modes don't know what it means then investment months so total cash influence okay pick up from on top 7750 total cash in outflows one nine seven five but all this sub uh offices so net cash flow is positive yeah so it looks like he has a lot of her
• 69:00 - 69:30 so that means this person is doing well that means what can he do from this information what can he do plus what do you suggest to investor I can invest more okay now the extra money to Sayang if we just let it sketch on uh make anything we just spend it finish just like that so it's better for him to invest somewhere that will give him more profit so don't leave so much ideal cash
• 69:30 - 70:00 in hands that is not good okay in businesses also we cannot save we cannot have so much cash in hand that is not good okay understand how we talk quite a lot but preparation cash flow any question
• 70:00 - 70:30 any question class just a little bit more from this later okay you can see this slide
• 70:30 - 71:00 okay uh from sharing our perspective I think we have talked about this uh early also okay Mining and Community have different characteristics okay they are treated differently how do we treat money how do we do how does sharian treats money what is it for
• 71:00 - 71:30 currency for exchange Shooters ah it's a medium of exchange it's not a commodity and that's why uh something like uh foreign money like Commodities okay so it's different from commodities okay money it has no intrinsic utility that means money itself it doesn't give any value we cannot utilize the money we cannot eat the
• 71:30 - 72:00 money unless we really don't have food we can eat a lot of people money but it has no intrinsic utility okay we cannot directly use it Commodities it has increasing utility you can directly use it yeah uh money cannot be utilized in direct fulfillment of human needs uh for communities it can be utilized directly can be consumed it can be a drink okay for for drinks that we use as a exchange material okay so Community is something that we
• 72:00 - 72:30 can use uh utilize it in it bring it if necessary money has no quality except as a measure of value or medium of exchange Community can be of different value depending on the price at the time we need it uh money cannot be identified in a transaction of exchange we cannot say my money is in exchange okay in the trading you can see my money is that one the one that one cannot okay it is simply mixed we just get the the figure on paper only okay under the document
• 72:30 - 73:00 that we are involved in when it's trading for example foreign exchange sale and purchase and sections are affected on an identified particular Community for Community where we trade commodity there are certain community that we will get in possession okay okay money of the same denomination is not helped to be uh subject matter of trade or List like Commodities okay the money is not for
• 73:00 - 73:30 trading purposes just exchange the use has been restricted to basic purpose uh that is as medium of exchange and measure of value okay trading of money is prohibited yeah and less money is traded at par at the current exchange value which is termed as ourselves in Islamic Finance any premium on the exchange of money will a Mandu Libra okay so this way foreign
• 73:30 - 74:00 of course the other medium of exchange or at the currency will be of higher value for example for this for this side uh of the person to get profit of part of the exchange okay it is all I have for the PowerPoint today any question
• 74:00 - 74:30 okay class any question no questions okay so make sure you all study the PowerPoint and I'll include uh a word file for the cash flow just now for you to read further and as I mentioned before also please Google for
• 74:30 - 75:00 more information about the topics that we have discussed okay so you will be more well voice do not depend only on the uh PowerPoint uh slides if there's no more question I will meet again next week okay I think next week I'll be in Singapore later how the class will be for next week have a good day bye
• 75:00 - 75:30 thank you thank you