owner of a small business expressed surprise that the firm's cash balance had decreased during the month even though there was
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After examining the financial statements, the owner of a small business expressed surprise that the firm's cash balance had decreased during the month even though there was substantial net income. Do you think this owner is right to expect cash to increase because of a substantial net income? Why or why not?
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- Assume that you are the controller of a business that provides legal services to clients. Suppose that the company has had a tough year, so the revenues have been lagging behind, based on previous years standards. What would you do if your boss (the chief executive officer [CEO] of the company) asked to reclassify a transaction to report loan proceeds of $150,000 as if the cash came from service fee revenue from clients instead. Would following the CEOs advice impact the companys accounting equation? How would reclassifying this one transaction change the outcome of the balance sheet, the income statement, and the statement of retained earnings? Would making this reclassification change the perception that users of the financial statements would have of the companys current year success and future year potential? Write a memo, detailing your willingness (or not) to embrace this suggestion, giving reasons behind your decision. Remember to exercise diplomacy, even if you must dissent from the opinion of a supervisor. Note that the challenge of the assignment is to keep your integrity intact, while also keeping your job, if possible.Assume you are the controller of a large corporation, and the chief executive officer (CEO) has requested that you explain to them why the net income that you are reporting for the year is so low, when the CEO knows for a fact that the cash accounts are much higher at the end of the year than they were at the beginning of the year. Write a memo to the CEO to offer some possible explanations for the disparity between financial statement net income and the change in cash during the year.(essay) After examining the financial statements, the owner of a small business expressed surprise that the firm's cash balance had decreased during the month even though there was substantial net income. Do you think this owner is right to expect cash to increase because of a substantial net income? Why or why not?
- Assume you are the controller of a large corporation and the ceo has requested that you explain to them why the net income that you are reporting for the year is so low when the cell owes for a fact that cash accounts are much higher at the end of the year than they were at the beginning of the year write a memo to the ceo to offer some possible explanations for the disparity between financial statement net income and the change in cash during the yearKate has just completed her first year running Kate’s Cards. She has been preparing monthly income statements and balance sheets, so she knows that her company has been profitable and that there is cash in the bank. She has not, however, prepared a statement of cash flows. Kate provides you with the year-end income statement and balance sheet and asks that you prepare a statement of cash flows for Kate’s Cards. Additional information: 1. There were no disposals of equipment during the year. 2. Dividends in the amount of $1,300 were paid in cash during the year. 3. Prepaid expenses relate to operating expenses. Required a. Prepare a statement of cash flows for Kate’s Cards for the year ended August 31 using the in- direct method. Hint: Since this was Kate’s first year of operations, the beginning balance sheet account balances were zero. b. Prepare a statement of cash flows for Kate’s Cards for the year ended August 31 using the direct method. (Appendix 12A) KATE’S CARDS Income…Kate has just completed her first year running Kate’s Cards. She has been preparing monthly income statements and balance sheets, so she knows that her company has been profitable and that there is cash in the bank. She has not, however, prepared a statement of cash flows. Kate provides you with the year-end income statement and balance sheet and asks that you prepare a statement of cash flows for Kate’s Cards.Additional information:1. There were no disposals of equipment during the year. 2. Dividends in the amount of $1,300 were paid in cash during the year. 3. Prepaid expenses relate to operating expenses.Required. Prepare a statement of cash flows for Kate’s Cards for the year ended August 31, 2019, using the indirect method. Hint: Since this was Kate’s first year of operations, the beginning balance sheet account balances were zero. The second picture where it shows pink is what needs to be filled in.
- Your managers showed you the income statement for your company. The income statement shows a net income of 5.4%, yet your manager says the company will need to borrow money to meet their financial obligations. How is this possible? Please address the following issues in your discussion this week: How can a company make a profit and still be short of cash? In accrual accounting, we record sales when they occur, not when the cash is collected. How does this affect cash flow? How does the purchase of fixed assets or additional inventory adversely affect cash flow?Your friend, Diana Wood, recently completed the second year of her business and just received annual financial statements from her accountant. Wood finds the income statement and balance sheet informative but does not understand the statement of cash flows. She says the first section is especially confusing because it contains a lot of additions and subtractions that do not make sense to her. Wood adds, “The income statement tells me the business is more profitable than last year and that’s most important. If I want to know how cash changes, I can look at comparative balance sheets.” Required Write a half-page memorandum to your friend explaining the purpose of the statement of cash flows. Speculate as to why the first section is so confusing and how it might be rectified.There is a decrease in equity and decrease in asset in the business. Which transaction might have occurred? a. The owner withdrew cash from the business to buy a gift to his friend b. The owner purchased car to be used in the business c. The Owner received a gift from his friend d. The Owner paid the monthly salaried to the employees.
- Mr. Samir initiated a business by obtaining a loan from the bank. He did not calculate the required amount to start a business correctly and soon run short of cash. His expectations of monthly sales were also not met. As a result, he faced problems in paying employees' salaries, and utility bills. Due to this situation, he had to close the business after few months. What is the reason for the failure of his business? a. Poor cash management b. Poor customer service c. Poor business idea d. Poor salesOne of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business andits bank and finds that the business has been experiencing cash flow problems for two years. (a) Explain why determination of materiality is a matter of auditor judgment. Refer to both qualitative and quantitative materiality assessments (2 marks). (150 - 200 words)One of the clients of MMM Chartered Accountants operates a restaurant. From January of the current year, the business has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from the business. The auditor has reviewed the correspondence between the business and its bank and finds that the business has been experiencing cash flow problems for two years. Explain whether (and, if so, how) the information provided impacts on the auditor's assessment of preliminary materiality
