Question

From the following data of ABC Enterprises, prepare statement of cash flows and balance sheet and income statement through cash basis of accounting and accrual basis of accounting and discuss the result - Invested $ 700 Equity - Purchased plain T-Shirts for $ 5 each - Fixed Screen cost $ 100 - Variable Print cost $ 0.75 per T-Shirt - Sold 25 T-Shirts at $ 10 each on cash - Sold 25 T-Shirts at $ 10 each on credit

Answer 1

"Answer on question #58857 - Economics - Accounting"

From the following data of ABC Enterprises, prepare statement of cash flows and balance sheet and income statement through cash basis of accounting and accrual basis of accounting and discuss the result

- Invested $ 700 Equity

- Purchased plain T-Shirts for $ 5 each

- Fixed Screen cost $ 100

- Variable Print cost $ 0.75 per T-Shirt

- Sold 25 T-Shirts at $ 10 each on cash

- Sold 25 T-Shirts at $ 10 each on credit

Solution

1. Statement of cash flows reports cash generated and used during the special period.

Cash receipts from customer is calculated

$$Cr = Qcash * Ps = 25 * 10 = 250$$

Cash paid for inventory purchases is calculated

$$Cp = (Qcash + Qcred) * Cp = (25 + 25) * 5 = 250$$

Company generated money from investment in equity which compensated zero results in operating activity.

Flows from operating and financing activities summary and cash at the beginning of period have summarized as cash at the end of period.

2. Cash at end of period translated to balance sheet as cash.

Accounts receivable are calculated as sales on credit

$$AR = Qcred * Ps = 25 * 10 = 250$$

Accrued expenses are current liabilities which company has incurred but hasn't paid on balance date.

Accrued expenses for ABC Company are calculated as summary total fixed and total variable costs.

$$AcExp = TFC + (Qcash + Qcred) * VC = 100 + (25 + 25) * 0.75 = 137.50 \text{ surrounded to zero}$$

3. Income statement shows how company's revenues are transformed to net income during the period time.

Revenues are included all sold T-Shirts and calculated

$$R = (Q \text{cred} + Q \text{cash}) * Ps = (25 + 25) * 10 = 500$$

Expenses included total variable costs (TVC) and total fixed costs (TFC).

$$TVC = (Q \text{cred} + Q \text{cash}) * Cp = (25 + 25) * 5 = 250$$

Net income is calculated by subtracting total expenses from total revenues

Net income = Revenue - Expenses

Net income transferred to balance sheet as retained earnings which increase owner's equity.

Answer

Statement of cash flows, balance sheet and income statement are linked together.

Cash Flows Statement shows that company generated cash only from financing activities.

But at the same time, income statement shows net income which has recoded but hasn't received as cash on account.

The balance sheet shows company's financial position at the end of a specified period and connects with other statements.

The accrual basis of accounting is required because of the matching principle and is used for preparing income statement and balance sheet while statement of cash flows is preparing for cash basis of accounting.

https://www.AssignmentExpert.com