Income Statement October November December January Sales 300,000 450,000 250,000 200,000 Cost of Good Sold 210,000 315,000 175,000 140,000 Gross Margin 90,000 135,000 75,000 60,000 Operating expense Marketing expense 39,500 60,000 31,000 25,500 Admin expense 22,500 26,000 20,500 19,000 Total Operating Exp 62,000 86,000 51,500 44,500 Net Operating Income 28,000 49,000 23,500 15,500 Includes depreciation each month of 10,000 Other Cash, October 1 26,000 Merchandise inventory, October 1 42,000 Accounts payable, September 30 63,000 August sales ($) 100,000 September sales ($) 150,000 Percentage of total sales in cash 0.2 Percentage of total sales on credit 0.8 Inventory purchases paid in the month of purchase 0.5 Inventory purchases paid in the month following the month of purchase 0.5 Dividends 24,500 Land purchase 8,000 Monthly interest rate and minimum ending cash balance .01 of 20,000 Credit sales collected in the month of sale 0.3 Credit sales collected in the first month following the month of sale 0.6 Credit sales collected in the second month following the month of sale 0.1 Desired ending inventory (percentage of cost of merchandise to be sold next month) 0.12 Dividends increase 0.5 Monthly interest rate and minimum ending cash balance increase 0.015 of 25,000 Required: complete merchandise purchase budget October November December Quarter Budgeted cost of goods sold Add desired ending merchandise inventory Total needs Less beginning merchandise inventory Required inventory purchases
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.
| Income Statement |
October November December January
Sales 300,000 450,000 250,000 200,000
Cost of Good Sold 210,000 315,000 175,000 140,000
Gross Margin 90,000 135,000 75,000 60,000
Operating expense
Marketing expense 39,500 60,000 31,000 25,500
Admin expense 22,500 26,000 20,500 19,000
Total Operating Exp 62,000 86,000 51,500 44,500
Net Operating Income 28,000 49,000 23,500 15,500
Includes
| Other |
| Cash, October 1 26,000 |
| Merchandise inventory, October 1 42,000 |
| Accounts payable, September 30 63,000 |
| August sales ($) 100,000 |
| September sales ($) 150,000 |
| Percentage of total sales in cash 0.2 |
| Percentage of total sales on credit 0.8 |
| Inventory purchases paid in the month of purchase 0.5 |
| Inventory purchases paid in the month following the month of purchase 0.5 |
| Dividends 24,500 |
| Land purchase 8,000 |
| Monthly interest rate and minimum ending cash balance .01 of 20,000 |
| Credit sales collected in the month of sale 0.3 |
| Credit sales collected in the first month following the month of sale 0.6 |
| Credit sales collected in the second month following the month of sale 0.1 |
| Desired ending inventory (percentage of cost of merchandise to be sold next month) 0.12 |
| Dividends increase 0.5 |
| Monthly interest rate and minimum ending cash balance increase 0.015 of 25,000 |
Required: complete merchandise purchase budget
October November December Quarter
| Budgeted cost of goods sold |
| Add desired ending |
| merchandise inventory |
| Total needs |
| Less beginning merchandise |
| inventory |
| Required inventory purchases |
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Would the quarter total for desired ending inventory be 16,800 or the total of all 3 months?
The same question for begining inventory, would it be 42,000 or 21,000?
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