Lisa Smith has recently set up her own online business supplying leisure wear and home fitness accessories to fast fashion retailers such as ASOS and Missguided. Lisa does not possess a background in finance but has been preparing her accounts, cashflows and budgets herself. In the past 12 months, she has generated turnover of £100,000 and profits of £25,000. However, her business has no cash and she is significantly overdrawn. An accountant friend glanced over her books and concluded that Lisa is overtrading. Lisa has employed you to advise her going forward. Requirement: Write a report to Lisa defining 'overtrading', analysing how this situation has arisen and how she should best manage and monitor her working capital going forward.

Lisa Smith has recently set up her own online business supplying leisure wear and home fitness accessories to fast fashion retailers such as ASOS and Missguided. Lisa does not possess a background in finance but has been preparing her accounts, cashflows and budgets herself. In the past 12 months, she has generated turnover of £100,000 and profits of £25,000. However, her business has no cash and she is significantly overdrawn. An accountant friend glanced over her books and concluded that Lisa is overtrading. Lisa has employed you to advise her going forward. Requirement: Write a report to Lisa defining 'overtrading', analysing how this situation has arisen and how she should best manage and monitor her working capital going forward.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Anne earned emoluments as a marketing manager with Jabem Chocolate Ltd. Jablem did not have an ESOP plan. In 2008 as a member of the management team she was offered shares in jablem which she could purchase at 50%of their marketable value. She borrowed the money from her credit union and paid for the shares in full. In 2009 jablem paid a dividend which Anne brought to account in her annual return. In 2010 and 2013 Anne received no dividends in respect of the jablem shares. In filling her returns for these years, Anne claimed deductions for the interest paid on the money she had borrowed from her credit union. Discuss whether it is likely that the interest expense will be allowable by the commissioners in the years when no dividends were earned. In your answer make reference to Thwaites v CIT{Jamaica, 1973}; woodroffe v CIT (Grenada, 1966), wharf properties limited v commissioners of inland revenue (Hong Kong 1997).
Jones is suspected of carrying out a fraud while working for his employer. Jones has worked for the employer for several years. The fraud is suspected to have begun in 2013 and possibly continued in 2014. As part of the investigation, the following financial information has been collected concerning Jones.In 2012, Jones was able to document he had $800 cash on hand and $1725 in a checking account. He also had a student loan on which he owed $8000.In 2013, Jones paid off his student loan. He also purchased a new car for $22,000. During the same year he purchased a condominium priced at $128,000. He placed $38,000 down and financed the remainder with a non-interest mortgage of $90,000. In addition, Jones had documented expenses of $12,000 for 2013 and according to his W-2 earned $55,000 in net wages. He has a zero balance in his bank account at year-end, no cash on hand, and made no known mortgage payments.During 2014 Jones had no cash on hand but $5,000 in his banking account. He…
Imagine that you have worked every summer for the last four years in order to save money to buy a car. You have $23,000 deposited in a savings account at your local bank. One day, you turn on the news and discover that the stock market is crashing and people are rushing to banks to withdraw all of their money. Your best course of action is to:
Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his most recent year. Cost of goods sold represents the cost paid for the merchandise he sells, while operating costs represent rent, insurance, and salaries, which are entirely fixed. Sales $ 740,000 Cost of merchandise sold 407,000 Contribution margin 333,000 Operating costs 153,900 Operating profit $ 179,100 Required: What is Harold’s margin of safety (MOS) in dollars? (Do not round intermediate calculations.) What is the margin of safety (MOS) ratio?…
Ima Broake is trying to expand her small business, Ima Fun Caterer. She has taken out a $10,000 loan for kitchen equipment and her company is currently worth $15,000. As her accountant, she has asked you about whether she can take on a new loan that the bank says she must have at least 25% equity in her business to obtain. The best response that you can give Ima is:
You are the chief financial officer (CFO) of Gaga Enterprises, an edgy fashion design firm. Your firm needs $11 million to expand production. How do you think the process of raising this money will vary if you raise it with the help of a financial institution versus raising it directly in the financial markets? ... The process of raising the money will vary if you raise it with the help of a financial institution versus raising it directly in the financial markets. Select all the statements below which support this statement: (Select all the answers that apply.) A. Raising the money directly in the financial markets will allow the Gaga Enterprises CFO to avoid the investment bank's commissions and thus raise more money at a lower cost per dollar raised. B. The investment banking institution will allow the Gaga Enterprises CFO to raise more money at a lower cost per dollar raised. C. Financial institutions, such as investment banks, provide expertise in the acquisition of funds. D.…
Kenneth, 32 years old, is a business development manager working for a 2-year-old start-up company running a cryptocurrency exchange. He is paid a monthly salary of $5,000 and an additional business allowance of $1,000 per month. While the company is well-funded by a private equity fund from China, he does not get any bonus as the company is still in the red. His boss has told him that the company will start making money once the MAS approves their application for a Payment Services License. He was also told that the odds of getting the license is 50%. Although he knows his career and income is not very secured in the short run, he does not see the need to manage his spendthrift lifestyle. This is because he is single, and his parents are financially independent and they are happy to allowed him to stay with them as he is the only son. Kenneth does not own any property or a car now, hence he does not have a mortgage or car loan. The only debt that he is repaying every month now and for…
Tory invested $600 a year for three years, then $700 a year for an additional four years. In year 9, she withdrew $1,500. She withdrew the entire investment in year 11. Which statement correctly applies to the time line for this problem? Multiple choice question. The withdrawal in year 11 is a negative cash flow. The timeline has a total of nine time periods. The cash flow in year 4 is a negative $600. The cash flows for the first seven years are negative.