ngthe Future 359 11: The following statement was suppl 19. Exercise 1 Systems Ci
ID: 2568159 • Letter: N
Question
ngthe Future 359 11: The following statement was suppl 19. Exercise 1 Systems City HiFi ssets Cash at bank ed by Debbie Babb, the owner of City Hi-Fi Systems: Statement of financial position as at 30 June 2005 Liabilities 200 Accrued advertising 4 800 Creditors 200 9 200 Stock control Shop fittings less Accum. depreciation 32 000 Loan 15 000 3 00000 6 000 15,400 35 900 the month of July are expected to be: cash $15 000 and credit $5 400. All debtors usualy pay in the month are all made on credit and in July they are expected to be $11 200. All creditors are paid in the month after Proprietorshijp Capital-Babb dtitional information Sales for after sale and are granted a 2.5% discount. Purchases purchase Stock is expected to increase by $1 000 during July 2005 The regular monthly expenses of the firm include wages $1 200, office expenses $200 and advertising $200. ll these tems will be paid on time during July, along with the $200 of advertising owing for the month of June. Rent is payable on the first day of each month at a cost of $3 000 per month. Depreciation of shop fittings is charged at the rate of 20% per annum on cost. Interest on the loan is charged at the rate of 10% per annum and is payable on the last day of March, June, September ate the estined ie the aredit puand December. The principal of the loan is due for repayment in a lump sum on 30 June 2006 *A delivery van is going to be purchased in the last week of July 2005. The van is expected to cost $12 000. Half of the cost will be paid in July and the other half in August. The owner of the fim usually withdraws $500 per week from the business for personal use. a Prepare a cash budget for the month of July 2005. b Prepare a budgeted income statement for the month ending 31 July 2005. (Hint: reconstruct et to the st the stock control account to determine the cost of sales for the period.) pare a budgeted statement of financial position as at 31 July 2005. pared in a and b. is not cash. Comment on this statement and refer to examples from your budgets pre-Explanation / Answer
Debbie Babb - City Hi-Fi Systems
Cash Budget
For the month July. 2005
Cash Balance - Beginning
2,500
Add: Cash receipts
Cash Sales
15,000
Collections from Credit sales
for the month June
4,800
Less: Discount - 2.5%
120
4,680
19,680
Total cash available
22,180
Less: Cash Payments
Paid for Accounts payable
9,200
wages
1,200
Office expense
200
Advertising
400
Rent expense
3,000
for purchase of delivery van
6,000
Owner's withdrawal
2,000
Total cash payments
22,000
Cash Balance - Ending
180
Stock Control Account
Balance - Beginning
32,000
Add: Purchase for the month
11,200
Total stock available for sales
43,200
Less: Balance ending - Opening stock plus increase by $1,000
33,000
Cost of goods sold
10,200
Debbie Babb - City Hi-Fi Systems
Budgeted Income Statement
For the month July. 2005
Sales
Cash
15,000
Credit
5,400
Total sales
20,400
Expenses
Discount on credit sales
120
Cost of goods sold
10,200
Wages
1,200
office expenses
200
Advertising expense
200
Rent expense
3,000
Depreciation on shop fittings
250
Interest expense on loan
50
Total Expense
15,220
Net Income
5,180
Debbie Babb - City Hi-Fi Systems
Budgeted Balance Sheet
As on July 31, 2005
Assets
Current Assets
Cash
180
Debtors
5,400
Stock control
33,000
Total Current Assets
38,580
Property, Plant & Equipment
Shop fittings
15,000
Less: Accum. Depreciation
3,250
11,750
Delivery Van
12,000
Total Property, Plant & Equipment
23,750
Total Assets
62,330
Liabilities & Owner's Equity
Current Liabilities
Creditors
17,200
Loan
6,000
Interest payable
50
Total Current Liabilities
23,250
Owner's equity
Balance - Beginning
35,900
Add: Net income
5,180
41,080
Less: Withdrawals
2,000
39,080
Total Liabilities & Owner's Equity
62,330
d. Profit is not cash - is the statement correctly stated, as can be seen from the above statements that although the owner has earned a net income of $5,180 in the month but he has only $180 cash in hand. The difference is due to a) the change in current assets / current liabilities, b) investments in capital assets, and c) withdrawals by the owner.
Debbie Babb - City Hi-Fi Systems
Cash Budget
For the month July. 2005
Cash Balance - Beginning
2,500
Add: Cash receipts
Cash Sales
15,000
Collections from Credit sales
for the month June
4,800
Less: Discount - 2.5%
120
4,680
19,680
Total cash available
22,180
Less: Cash Payments
Paid for Accounts payable
9,200
wages
1,200
Office expense
200
Advertising
400
Rent expense
3,000
for purchase of delivery van
6,000
Owner's withdrawal
2,000
Total cash payments
22,000
Cash Balance - Ending
180
Stock Control Account
Balance - Beginning
32,000
Add: Purchase for the month
11,200
Total stock available for sales
43,200
Less: Balance ending - Opening stock plus increase by $1,000
33,000
Cost of goods sold
10,200
Debbie Babb - City Hi-Fi Systems
Budgeted Income Statement
For the month July. 2005
Sales
Cash
15,000
Credit
5,400
Total sales
20,400
Expenses
Discount on credit sales
120
Cost of goods sold
10,200
Wages
1,200
office expenses
200
Advertising expense
200
Rent expense
3,000
Depreciation on shop fittings
250
Interest expense on loan
50
Total Expense
15,220
Net Income
5,180
Debbie Babb - City Hi-Fi Systems
Budgeted Balance Sheet
As on July 31, 2005
Assets
Current Assets
Cash
180
Debtors
5,400
Stock control
33,000
Total Current Assets
38,580
Property, Plant & Equipment
Shop fittings
15,000
Less: Accum. Depreciation
3,250
11,750
Delivery Van
12,000
Total Property, Plant & Equipment
23,750
Total Assets
62,330
Liabilities & Owner's Equity
Current Liabilities
Creditors
17,200
Loan
6,000
Interest payable
50
Total Current Liabilities
23,250
Owner's equity
Balance - Beginning
35,900
Add: Net income
5,180
41,080
Less: Withdrawals
2,000
39,080
Total Liabilities & Owner's Equity
62,330
d. Profit is not cash - is the statement correctly stated, as can be seen from the above statements that although the owner has earned a net income of $5,180 in the month but he has only $180 cash in hand. The difference is due to a) the change in current assets / current liabilities, b) investments in capital assets, and c) withdrawals by the owner.
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