Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
There are some mistakes in the video. The Year 2 long-term debt should be the same as that of Year 1 ($3,650).
For Year 2, total liabilities and equity SHOULD NOT be equal to total assets ($13,225).
As Year 2 Long-term debt is $3,650, thus total liabilities and equity for Year 2 should be calculated as
$2,415.00 + $3,650 + $6,159.86 = $12,224.86
And, External Financing Needed (EFN) should be calculated as below.
External Financing Needed
= Projected total assets – Projected total liabilities and equity
= Year 2 total assets from the projected balance – Year 2 total liabilities and equities from the
= $13,225 – $12,224.86 = $1,000.14
Ending equity can also be calculated as below.
Ending Equity
= Beginning Equity + Addition to
= Beginning Equity + (Net Income – Dividends)
= $5,750 + ($683.10 - $273.24)
= $6,159.86
![**Income Statement and Balance Sheet Analysis**
The financial data of the company is presented through the income statement and balance sheet below. This information is essential for understanding the company's financial health and performance over a period.
**Income Statement:**
- **Sales:** $19,400
- **Costs:** $13,200
- **Taxable income:** $6,200
- **Taxes (22%):** $1,364
- **Net income:** $4,836
**Balance Sheet:**
- **Current assets:** $11,800
- **Fixed assets:** $28,350
- **Total assets:** $40,150
- **Debt:** $16,000
- **Equity:** $24,150
- **Total liabilities and equity:** $40,150
*Note:*
- Assets and costs are proportional to sales.
- Debt and equity are not proportional to sales.
- The company maintains a constant dividend payout ratio of 55%.
**Financial Analysis:**
The net income is calculated as the sales minus the costs, the resulting taxable income subtracting taxes at 22% to determine the net income.
**Internal Growth Rate Calculation Question:**
The document ends with an exercise for calculating the internal growth rate based on the provided financial data.
**Graphical Explanation:**
If there were any graphs or diagrams included in the document, a detailed explanation of each would be provided here. However, this financial data presentation does not include any visual aids, focusing instead on tabulated financial records.
**Interactive Element:**
An input field is provided for students or users to calculate and input the internal growth rate as a percentage.
**How to Calculate the Internal Growth Rate:**
1. **Retention Ratio (b):** Calculate the retention ratio, which is the complement of the dividend payout ratio. Here, it is 1 - 0.55 = 0.45.
2. **Return on Equity (ROE):** Calculate the return on equity using the formula:
\[
\text{ROE} = \frac{\text{Net Income}}{\text{Total Equity}} = \frac{4,836}{24,150} \approx 0.20
\]
3. **Internal Growth Rate (IGR):** The internal growth rate can be calculated using the formula:
\[
\text{IGR} = \frac{\text{ROE} \times b}{](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F249e3087-ac84-499e-a043-461bff034fe9%2F2dbcc795-d962-4d7a-bfa6-d1135d3c7d0b%2F09ox1uh.png&w=3840&q=75)
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