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The accountant of M. Albright, a sole trader in cotton materials, presents her annual balance sheets of the last two years as shown below. (All amounts in €) 2019 2020 Non-current assets 31,000 (3,000) 28,000 37,000 (3,400) 33,600 Accumulated depreciation Current assets Inventory Trade accounts receivable 6,200 7,800 3,000 11,800 6,800 Bank 17,000 45,000 18,600 52,200 Total assets Current liabilities Trade accounts payable Bank overdraft 4,000 4,400 1,800 Total liabilities (4,000) 41,000 (6,200) 46,000 Net assets Capital account 40,000 14,000 41,000 17,000 4,000 (16,000) 46,000 Balance at 1/1 Net profit for the year Additional capital introduced Drawings (13,000) 41,000 Total capital The accountant is faced with the task of explaining Mrs. Albright why she has an overdraft, despite the fact that she made more profit than the year before and has brought in capital during the year. (a) Required: Draw up a cash flow statement to help the accountant in explaining to Mrs. Albright how his overdraft has come about. (b) Based on the concepts learned in this course, explain how this company can apply the cash flow for cash management (c) With relevant principles learned in this course explain whether profit for the year is equivalent to cash and provide reasons for your answer

The accountant of M. Albright, a sole trader in cotton materials, presents her annual balance sheets of the last two years as shown below. (All amounts in €) 2019 2020 Non-current assets 31,000 (3,000) 28,000 37,000 (3,400) 33,600 Accumulated depreciation Current assets Inventory Trade accounts receivable 6,200 7,800 3,000 11,800 6,800 Bank 17,000 45,000 18,600 52,200 Total assets Current liabilities Trade accounts payable Bank overdraft 4,000 4,400 1,800 Total liabilities (4,000) 41,000 (6,200) 46,000 Net assets Capital account 40,000 14,000 41,000 17,000 4,000 (16,000) 46,000 Balance at 1/1 Net profit for the year Additional capital introduced Drawings (13,000) 41,000 Total capital The accountant is faced with the task of explaining Mrs. Albright why she has an overdraft, despite the fact that she made more profit than the year before and has brought in capital during the year. (a) Required: Draw up a cash flow statement to help the accountant in explaining to Mrs. Albright how his overdraft has come about. (b) Based on the concepts learned in this course, explain how this company can apply the cash flow for cash management (c) With relevant principles learned in this course explain whether profit for the year is equivalent to cash and provide reasons for your answer

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The accountant of M. Albright, a sole trader in cotton materials, presents her annual balance sheets of the last two years as shown below. |(All amounts in €) 2019 2020 37,000 (3,400) 33,600 Non-current assets 31,000 (3,000) 28,000 Accumulated depreciation Current assets Inventory Trade accounts receivable 6,200 7,800 3,000 11,800 6,800 Bank 17,000 45,000 18,600 52,200 Total assets Current liabilities Trade accounts payable Bank overdraft 4,000 4,400 1,800 (4,000) 41,000 (6,200) 46,000 Total liabilities Net assets Capital account Balance at 1/1 40,000 14,000 Net profit for the year Additional capital introduced Drawings 41,000 17,000 4,000 (16,000) 46,000 Total capital (13,000) 41,000 The accountant is faced with the task of explaining Mrs. Albright why she has an overdraft, despite the fact that she made more profit than the year before and has brought in capital during the year. (a) Required: Draw up a cash flow statement to help the accountant in explaining to Mrs. Albright how his overdraft has come about. (b) Based on the concepts learned in this course, explain how this company can apply the cash flow for cash management (c) With relevant principles learned in this course explain whether profit for the year is equivalent to cash and provide reasons for your answer
Transcribed Image Text:The accountant of M. Albright, a sole trader in cotton materials, presents her annual balance sheets of the last two years as shown below. |(All amounts in €) 2019 2020 37,000 (3,400) 33,600 Non-current assets 31,000 (3,000) 28,000 Accumulated depreciation Current assets Inventory Trade accounts receivable 6,200 7,800 3,000 11,800 6,800 Bank 17,000 45,000 18,600 52,200 Total assets Current liabilities Trade accounts payable Bank overdraft 4,000 4,400 1,800 (4,000) 41,000 (6,200) 46,000 Total liabilities Net assets Capital account Balance at 1/1 40,000 14,000 Net profit for the year Additional capital introduced Drawings 41,000 17,000 4,000 (16,000) 46,000 Total capital (13,000) 41,000 The accountant is faced with the task of explaining Mrs. Albright why she has an overdraft, despite the fact that she made more profit than the year before and has brought in capital during the year. (a) Required: Draw up a cash flow statement to help the accountant in explaining to Mrs. Albright how his overdraft has come about. (b) Based on the concepts learned in this course, explain how this company can apply the cash flow for cash management (c) With relevant principles learned in this course explain whether profit for the year is equivalent to cash and provide reasons for your answer
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