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Introduction to Accounting and finance -- Economics, Finance and Management - Assignment Example

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It has been observed that the opening balances of the company are negative for the months of July and August, 2010. This notifies that the company may have to suffer certain working capital shortcomings for two months or so. However, it may be offset by drawing money by bank…
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Introduction to Accounting and finance -- Economics, Finance and Management
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Download file to see previous pages They are very disturbed with months like September recording a high sales volume and November recording a low sales volume. This could prove to be an issue for the working capital in the long run and the concept of going concern. (Fields. E., 2002). It would be better if the manager’s focus on achieving uniform sales targets every month so that the working capital available could be more consistent giving way for better planning.
3. If the company would continue with bulk purchases and not go for investing further in machinery, there could be a possibility of maintaining obsolete machinery. As it is, the company has only machinery worth £25,000 and further non-investment may prove to be a hindrance to exploring newer avenues of market creation. (Clemmer. J., 1995).
However, it needs to understand that its retained earnings which represent the profit over the years are quite high. They almost represent double of the owner’s equity. This means that the company’s overall profitability is commendable.
Cash, on the other hand, represents the revenue or liability of that company. Revenue is generated by sales of that company. This is explained in the trading account of the firm. The other way to generate cash is to take up a liability. This is shown in the balance sheet of the firm.
In the case of Hide to seek ltd there is a negative liquidity possibility for two months. This is because the company is planning to purchase materials in bulk. These materials are further sold in the coming months. There is no incidence of purchases in the next six months. Bulk purchases ensure discounted price. That means, while cash reserves are decreasing for two months, there is an indirect increase in profits in the next 3 months. This is the strategy to withhold benefits to gain higher of them in the future. This has to be given as an explanation in the footnotes to the financial statements. (Lander. P.G., 2004).
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