w as its new controller. Although Harlow has had little formal accounting training, he professes to be highly experienced having learned accounting "the hard way" in the field. At the end of his first months work, Harlow prepared the following performance report: Porter Corporation Peformance report
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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Porter Corporation has just hired Bill Harlow as its new controller. Although Harlow has had little formal accounting training, he professes to be highly experienced having learned accounting "the hard way" in the field. At the end of his first months work, Harlow prepared the following performance report:
Porter Corporation
Peformance report
For the moth June, 2018
| Total Actual Cost | Total Budgeted Costs | Variances | |
| Direct Materials | 216,630 | 237,600 | 20,970 (F) |
| Direct Labor | 119,340 | 132,000 | 12,660 (F) |
| Variable |
63,000 | 66,000 | 3,000(F) |
| Fixed Overhead | 184,00 | 184,00 | |
| 582,970 | 619,000 | 36,630 (F) |
In the presentation at Porters month end management meeting, Harlow indicated that things were going "fantastically." the figure indicate, he said, "that the firm is beating its budget in all cost categories. " This good news made everyone at the meeting happy and furthered Harlow's acceptance as member of the management team.
After the management meeting, Susan Jones, Porters General mamager asked you as an independent consultant to review Harlows report. Jone's concern stemmed from the fact that Porter has never operated favorably as Harlows report seems to imply and she cannot explain the apparent significant improvement.
While reviewing Harlows report you are provided the following cost and operating data for June: Porter has a monthly normal capacity of 11,000 direct labor hours, or 8,800 units of product.
After reviewing Porters Junes cost data you tell harlow that his cost report contains a classic budgeting error, and you explain how he can remedy it. In reposne to your suggestion, Harlow revises his report as follows:
| Total Actual Cost | Total |
Variances | |
| Direct Materials | 216,630 | 216,000 | 630 U |
| Direct Labor | 119,340 | 120,000 | 660F |
| Variable Overhead | 63,000 | 60,000 | 3000 U |
| Fixed Overhead | 184000 | 184,000 | |
| 582,970 | 580,000 | 2,970 U |
Harlows revised report is accompanied by remarks expressing regret at the oversight in the original report.
Answer the following in (A, B, C etc Format) (As the consultant)
A. Verify Harlow's actual cost figures correct.
B. Identify and explain the classic budgeting error that Harlow apparently incorporated into his original cost report.
C. Explain Why Harlow's revised figures could be considered deficient.
D. Further analyze Harlows revised variances, isolating underlying potential casual factors. how do your analyses indicate bases for concern to management?
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