Principles of Managerial Finance and Business Accounting - Assignment Example

? COARSEWORK Question 3: Savannah Enterprise Balance Sheet As of December 31, Savannah Enterprise     Balance sheet (thousands)   As of December 31, 2012   Assets     Cash 28.16   Inventory 1.60   Delivery Equipment 15.00     Accumulated Depreciation (5.00) 10.00   Computer 2.00     Accumulated Depreciation (1.00) 1.00   Postage and Packing 0.35   total 41.11     Liabilities     Accounts Payable 6.00     Utilities payable 0.80     Commissions payable 1.50 8.30     Capital     Savannah, Capital beginning 35.00     Net profit 8.21     Savannah, drawing (10.40) 32.81 Total Liabilities & Capital   41.11 Balance Sheet The balance sheet is composed of several major accounts (Noreen, 2008). The assets include the resources that are owned by the business (Gibson, 2006). The above table shows that the total assets is $ 41,110 during the 2012 accounting period. The liabilities include the amounts payable to creditors (Gawthorpe, 2005). The total liabilities amount is $ 8,300 during the same accounting period. The total Capital end is $ 32,810 during the same accounting year (Black, 2009; Crosson, 2009). The balance sheet is based on the accrual basis of accounting. The accrual basis accounting states that the records its revenues or sales during the accounting period they were earned, not on the day they were paid by the customers. Consequently, the sales made to current and future customers on account are debited to Accounts receivable or Notes receivable. In like manner, the Sales or Revenue account is credited. On the other hand, the cash basis accounting records revenues or sales only during the time when the sales amounts are paid by the customers, not when the revenues or sales were earned. Similarly, the accrual basis of accounting records expenses during the accounting period when they are incurred (Nikolai, 2009). The company should not record the sales or revenue in the accounting period when they are paid to the suppliers and other creditors. Under the going concern concept of accounting, the business is assumed to continue operating until five, ten, or even more years. Thus, the business is assumed not to close shop or file for bankruptcy in the next several years. Consequently, the business is expected to sell the same products or services, receive payments from customers, pay its creditors, and do other business transactions until the next several years (Nikolai, 2009). Savannah Enterprise Income statements               Savannah Enterprise     Income Statement     For the year ended December 31, 2012 (thousands)         Sales 75.00     cost of sales     inv beg     Purchases 43.84     Goods for sale 43.84     inv end 1.60 42.24     Gross Profit 32.76     Selling & Admin Expenses     Advertising expense 2.40     Depreciation Expense (Delivery Equipment) 5.00     Depreciation Expense (Computer) 1.00     Utilities expense 4.50     Commission expense 1.50     Miscellaneous expense 4.90     Taxes & Licenses (Business rates) 1.50     Repairs & Maintenance expense 2.80     Postage & Packing expense 0.95 24.55     Net Profit 8.21               The above income statement is based on the matching concept of accounting. Under the matching concept of accounting, the costs of producing the products shall be deducted during the accounting period when the products were sold or revenues were earned (Nikolai, 2009). Under the matching principle of accounting, the cost of sales amount is deducted from the sales account. Consequently, the cost of sales $ 42,240 is deducted from the $75,000 revenue. The result of the mathematical computation is $ 32,760 gross profit under the matching principle of accounting (Weetman, 2009). In order to arrive at the accounting period’s net profit, the operating expenses are deducted from the gross profit figure. The operating expenses include the marketing expenses and the administration expenses. The marketing expenses include the advertising expense and the commission expense. On the other hand, the administration expense includes all expenses not allocated to the marketing expenses. The administrative expenses include all non-marketing expenses such as repairs and maintenance. The above expense accounts represent the amount paid for repairs, taxes and licenses, and other cash or asset outflows. Basically, expense is the outflow of cash and other assets to ensure the business continues operating (Kieso, 2011). Cash in balance Computation (Kieso 2011): In Thousands           Cash in Bank AMOUNT     Investment 28     Investment 7     Withdrawals -6.24     Purchases -10     Delivery Equipment -15     Computer -2     Advertising Expense -2.4     Cash Sales Receipts 75     Purchases -32     Utilities Expense -3.7     Taxes & Licenses -1.5     Repairs & Maintenance -2.8     Postage and Packing -1.3     Miscellaneous expenses -4.9     Balance December 31, 2012 28.16           The above table clearly shows that amounts of cash that flowed into the company’s cash on hand and cash in bank accounts (Levine, 2008). The cash inflows included the $28,000 investment, $75,000 sales, and additional investment of $7,000. The cash outflows include several accounts. The cash outflows include the $32,000 purchases, $2,800 repairs and maintenance expenses$6,240 owner’s withdrawals, $2,400 advertising expense, $2,000 computer, $3,700 utilities expense and $ 1,3000 Postage and packing. The above table clearly shows that the cash balance for the year ending December 31, 2012 is $28,160. Question 4 Activity 1                     Activity 1   Rate   4 Persons   7 Persons         17.50   70.00   122.50     Room   55.00   110.00   220.00     Meze   16.50   66.00   115.50     Wine   17.00   17.00   34.00     Food   20.00   80.00   140.00     Wine   12.50   12.50   25.00     Total   138.50   355.50   657.00                     The above activity shows that as the variable expense changes as the number of persons increase. For four persons, the meze was $66. When the number of persons were increased to seven persons, the meze increased to $115.50. For four persons, the Room was $70. When the number of persons were increased to seven persons, the food increased to $122.50. For four persons, the food was $80. When the number of persons were increased to seven persons, the food increased to $140. For four persons, the wine was $12.50 When the number of persons were increased to seven persons, the meze increased to $25. For four persons, the wine was $17. When the number of persons were increased to seven persons, the meze increased to $34.(Gitman, 2008; Glencoe, 2011). The above computation shows that the all the costs are variable because they increase as the number of persons also increase. Activity 2                     Activity 2   Rate   4 Persons   7 Persons     Petrol   30   30   60     Cottage   180   180   180     Guide   80   80   80     Food   28   112   196     Total   318   402   516                     The acitivities include the increase in the number of persons. For four persons, the Petrol was $30. When the number of persons were increased to seven persons, the meze increased to $60. For four persons, the food was $112. When the number of persons were increased to seven persons, the meze increased to $196. For four persons, the guide payment was $80. When the number of persons were increased to seven persons, the guide cost remained at $80. This cost is classified as fixed cost. For four persons, the Cottage was $180. When the number of persons were increased to seven persons, the cottage payment remained at $180. The cost is classified as fixed cost. A fixed cost represents an amount that is not directly influenced by actities. The above computation shows that the costs will increase when the number of persons increases. The above activity shows that as the variable expense changes as the number of persons increase. Activity 3                     Activity 3   Rate   4 Persons   7 Persons     Trekking   3.5   28   49     Cost   50   200   700     Lunch   9.5   38   66.5     Supper   5.5   22   38.5     Drinks   12   48   84     Total   80.5   336   938                     For four persons, the Cost was $200. When the number of persons were increased to seven persons, the cost increased to $700. For four persons, the Lunch was $38. When the number of persons were increased to seven persons, the lunch increased to $66.50. For four persons, the Supper was $22. When the number of persons were increased to seven persons, the supper increased to $38.50. For four persons, the Drinks was $48. When the number of persons were increased to seven persons, the drinks increased to $84. For four persons, the Trekking cost was $28. When the number of persons were increased to seven persons, the Trekking cost increased to $49. The above computation shows that as the number of persons decrease, the total amount paid for the vacation had similarly decreased (Levine, 2008; Horngren, 2009;) Fixed costs vs. Variable costs. There is a difference between fixed costs and variable costs. Fixed costs do not change when the volume of production increases or decreases (Warren, 2009). In the above activity 2, the fixed costs are the cottage cost and the guide costs. They both remain the same despite the increase in the number of persons. The Cottage costs remain at $180 when the number of persons was 4 persons or when the number of persons was 7 persons. Similarly, the Guide cost remained at $80 when the number of persons was 4 persons or when the number of persons was 7 persons. On the other hand, variable cost increases when activity increases or decreases when activity decreases (Sollenberger, 2011). Likewise, variables costs decrease when the volume or activity decreases (Hilton, 2011; Crosson, 2009). Since the costs of activity 2 shows that the cost of petrol increased from $30 (4 persons) to $60 (7 persons) and the cost of Food increased from $402 (4 persons) to $516 (7 persons), the two costs are classified as variable costs. References: Black, G. 2009, Introduction to Accounting and Finance, Prentice Hall, London. Crosson, S. 2009, Managerial Accounting, SouthWestern, London. Gawthorpe, C. 2005, Business Accounting and Finance for Nonspecialists, London, Thompson, London. Gibson, C. 2006, Financial Statement Analysis, Cengage Press, London. Gitman, L. 2008, Principles of Managerial Finance, Addison Wesley, London. Glencoe, O. 2011, First Course in Accounting, McGraw Hill, London. Hilton, R. 2011, Managerial Accounting, Prentice Hall, London. Horngren, H. 2009, Accounting, Prentice Hall, London. Kieso, D. 2011, Intermediate Accounting, J. Wiley & Sons, London. Levine, S. 2008, The Financial Analyst's Handbook, Irwin Press, London. Nikolai, L. 2009, Intermediate Accounting, Cengage Learning, London. Noreen, E. 2008, Managerial Accounting, McGraw Hill, London. Sollenberger, H. 2011, Managerial Accounting, SouthWestern Press, London. Warren, C. 2009, Managerial Accounting, SouthWestern, London. Weetman, P. 2009, Financial & Managerial Accounting, Taylor & Francis, London. Read More