Balance Sheet 2013 2012 2011 Assets Cash $13,000 $19,000 $18,000 A/R 3,000 1,000
ID: 2634657 • Letter: B
Question
Balance Sheet
2013
2012
2011
Assets
Cash
$13,000
$19,000
$18,000
A/R
3,000
1,000
0
Inventory
18,000
12,000
8,000
Net building/land/equipment
70,000
70,000
70,000
Total
104,000
102,000
96,000
Liabilities
A/P
$9,000
$7,000
$5,000
Notes Payable
4,000
4,000
0
Total
13,000
11,000
5,000
Capital
91,000
91,000
91,000
In talking with the current owners, they disclose the following:
They took out a $4,000 loan in 2012 in order to have enough cash to buy more inventory and create bar tabs with local customers
They increased cash by stretching their payments to suppliers to 30 days in turn losing out on a 2% discount for paying in 10 days as they always had
In 2013, they used up cash to cover increased bar tabs and to pay for more inventory.They also continued increased inventory purchases with additional purchases on account
All net income generated by the business is kept as a salary for the owners as a drawing
They have not bought any new equipment or machinery or done any maintenance on the building in the last 10 years because they knew they were going to sell the business
Balance Sheet
2013
2012
2011
Assets
Cash
$13,000
$19,000
$18,000
A/R
3,000
1,000
0
Inventory
18,000
12,000
8,000
Net building/land/equipment
70,000
70,000
70,000
Total
104,000
102,000
96,000
Liabilities
A/P
$9,000
$7,000
$5,000
Notes Payable
4,000
4,000
0
Total
13,000
11,000
5,000
Capital
91,000
91,000
91,000
Explanation / Answer
1) Cash management is not good because the cash available with the company is completely used for purchasing inventory. Hence, the company is ineffective in cash management.
2) Accounts receivables management cannot be understood because there are no supplies on credit.
3) Inventory management is very poor because they did not utilize the 3% discount and purchased more and more inventory using loans.
4) Fixed asset management is also poor because they did not brought any new machinery nor maintained the building properly for the past 10yrs.
5) Accounts payables management is not good because the company has used up all the cash and purchased inventory using purchases on account.
6) Notes management is not good because to purchase the inventory, the company has increased its debts.
7) Net income or salary for the owners is also poor because if the company would have generated net loss, then there would be no salary for the owners.
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