Hopefully, this will all help us to learn together and as our week progresses. P
ID: 2655495 • Letter: H
Question
Hopefully, this will all help us to learn together and as our week progresses. Please let me know if it does. · Briefly explain what you understand by the accruals concept. · Briefly describe the difference between a statement of cash flows and a cash flow forecast. · An organization is owed £50,000 by its trade debtors (receivables) and in relation to its credit sales on 31.12.20X4. During the year to 31.12.20X5, it makes credit sales of £750,000. At 31.12.20X5, it is owed £125,000 by its trade debtors. How much money did the organization receive from its trade debtors and in the year to 31.12.20X5? How will the above information affect the organization’s: · Opening and closing statements of financial position (as at 31.12.20X4 and 31.12.20X5); · Income statement for the year to 31.12.20X5; · Statement of cash flows for the year to 31.12.20X5 (using the indirect method)? Hopefully, this will all help us to learn together and as our week progresses. Please let me know if it does. · Briefly explain what you understand by the accruals concept. · Briefly describe the difference between a statement of cash flows and a cash flow forecast. · An organization is owed £50,000 by its trade debtors (receivables) and in relation to its credit sales on 31.12.20X4. During the year to 31.12.20X5, it makes credit sales of £750,000. At 31.12.20X5, it is owed £125,000 by its trade debtors. How much money did the organization receive from its trade debtors and in the year to 31.12.20X5? How will the above information affect the organization’s: · Opening and closing statements of financial position (as at 31.12.20X4 and 31.12.20X5); · Income statement for the year to 31.12.20X5; · Statement of cash flows for the year to 31.12.20X5 (using the indirect method)? Hopefully, this will all help us to learn together and as our week progresses. Please let me know if it does. · Briefly explain what you understand by the accruals concept. · Briefly describe the difference between a statement of cash flows and a cash flow forecast. · An organization is owed £50,000 by its trade debtors (receivables) and in relation to its credit sales on 31.12.20X4. During the year to 31.12.20X5, it makes credit sales of £750,000. At 31.12.20X5, it is owed £125,000 by its trade debtors. How much money did the organization receive from its trade debtors and in the year to 31.12.20X5? How will the above information affect the organization’s: · Opening and closing statements of financial position (as at 31.12.20X4 and 31.12.20X5); · Income statement for the year to 31.12.20X5; · Statement of cash flows for the year to 31.12.20X5 (using the indirect method)?Explanation / Answer
(1)
Accrual concept states that revenues and expenses are recognized when they are accrued, and not when cash is paid or received. Completion of transaction decides the rveenue or expense, and not the actual cash flows.
(2)
a cash flow statement shows a company's actual cash inflows and outflows during a period, and provides the net cash balance position at end of the period.
The CFS provides such cash inflows and outflows under 3 separate sections based on purpose of the cash flow, viz, operating cash flow, investing cash flow & financing cash flow.
On the other hand, a cash flow forecast provides a projected cash flow details based on the projected cash requirements and projected cash inflows.
(3)
(Figures in pounds unless mentioned otherwise)
Opening receivables = 50,000
Sales during the year = 750,000
Ending receivables = 125,000
We know that,
Cash collected from customers = Sales + Beginning receivables - ending receivables
= 750,000 + 50,000 - 125,000
= 675,000
(4)
(a) SOFP
20x4
If the receivables of 50,000 at end of 20x4 was included in balance sheet, there is no adjustment required.
But if this amount was not included in 20x4 balance sheet, then receivables for year 20x4 should increase by 50,000.
20x5
If the receivables of 125,000 at end of 20x5 was included in balance sheet, there is no adjustment required.
But if this amount was not included in 20x5 balance sheet, then receivables for year 20x4 should increase by 125,000.
(b) Income statement
20x4
The income statement for 20x4 will not be affected by these changes.
20x5 Income statement for 20x5 will reflect a sales of $750,000 only, but neither the receivables balance nor the cash collected amount.
(c) CFS
20x5
CFS will show the cash collected from customers, worth 675,000 under Cash flow from Operations segment (under indirect method).
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