Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2019. Watercraft Supply Company Income Statement For the Year Ended October 31, 2019 Revenues: Sales .........................................................$1,350,000 Interest ......................................................15,000 Total revenues .............................................$1,365,000 Expenses: Cost of merchandise sold ......................................$810,000 Selling expenses ..............................................140,000 Administrative expenses .......................................90,000 Interest expense...............................................4,000 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,044,000 Net income .......................................................$321,000 Suzi is considering a proposal to increase net income by offering sales discounts of 2/15, n/30 and by shipping all merchandise FOB shipping point. Currently, no sales dis-counts are allowed and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are ex-pected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2019, were as follows: Store supplies expense $12,000 Miscellaneous selling expenses 6,000 The interest revenue and expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 2019, were $12,000. 1. Prepare a budgeted Income Statement for 2020, taking into account all of the changes and expectations being made.
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.
Suzi Nomro operates Watercraft Supply Company, an online boat parts distributorship that is in its third year of operation. The following income statement was prepared for the year ended October 31, 2019.
Watercraft Supply Company
Income Statement
For the Year Ended October 31, 2019
Revenues:
Sales .........................................................$1,350,000
Interest ......................................................15,000
Total revenues .............................................$1,365,000
Expenses:
Cost of merchandise sold ......................................$810,000
Selling expenses ..............................................140,000
Administrative expenses .......................................90,000
Interest expense...............................................4,000
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,044,000
Net income .......................................................$321,000
Suzi is considering a proposal to increase net income by offering sales discounts of 2/15, n/30 and by shipping all merchandise FOB shipping point. Currently, no sales dis-counts are allowed and merchandise is shipped FOB destination. It is estimated that the new terms will increase sales by 10%. The ratio of the cost of merchandise sold to sales is expected to be 60%. All selling and administrative expenses are expected to remain unchanged, except for store supplies and miscellaneous selling expenses, which are ex-pected to increase proportionately with increased sales. The amounts of these items for the year ended October 31, 2019, were as follows:
Store supplies expense $12,000
Miscellaneous selling expenses 6,000
The interest revenue and expense items will remain unchanged. The shipment of all merchandise FOB shipping point will eliminate all delivery expenses, which for the year ended October 31, 2019, were $12,000.
1. Prepare a
2. Identify and describe the pros and cons of the proposed changes. What concerns should the company have?
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