You are provided with the following information taken from Larkspur, Inc.’s March 31, 2022, balance sheet. Cash $ 12,060 Accounts receivable 23,980 Inventory 37,450 Property, plant, and equipment, net of depreciation 121,200 Accounts payable 22,760 Common stock 152,100 Retained earnings 11,630 Additional information concerning Larkspur, Inc. is as follows. 1. Gross profit is 24% of sales. 2. Actual and budgeted sales data: March (actual) $47,400 April (budgeted) 73,000 3. Sales are both cash and credit. Cash collections expected in April are: March $18,960 (40% of $47,400) April 43,800 (60% of $73,000) $62,760 4. Half of a month’s purchases are paid for in the month of purchase and half in the following month. Cash disbursements expected in April are: Purchase March $22,760 Purchase April 28, 880 $51,640 5. Cash operating costs are anticipated to be $12,110 for the month of April. 6. Equipment costing $2,850 will be purchased for cash in April. 7. The company wishes to maintain a minimum cash balance of $12,010. An open line of credit is available at the bank. All borrowing is done at the beginning of the month, and all repayments are made at the end of the month. The interest rate is 12% per year, and interest expense is accrued at the end of the month and paid in the following month. Prepare a cash budget for the month of April. Determine how much cash Larkspur, Inc. must borrow, or can repay, in April
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
You are provided with the following information taken from Larkspur, Inc.’s March 31, 2022, balance sheet.
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Cash |
$ 12,060 |
|
|
Accounts receivable |
23,980 |
|
|
Inventory |
37,450 |
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|
Property, plant, and equipment, net of |
121,200 |
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|
Accounts payable |
22,760 |
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|
Common stock |
152,100 |
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|
|
11,630 |
Additional information concerning Larkspur, Inc. is as follows.
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1. |
Gross profit is 24% of sales. |
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2. |
Actual and budgeted sales data: |
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March (actual) |
$47,400 |
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April (budgeted) |
73,000 |
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3. |
Sales are both cash and credit. Cash collections expected in April are: |
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March |
$18,960 |
(40% of $47,400) |
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|
April |
43,800 |
(60% of $73,000) |
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|
$62,760 |
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4. |
Half of a month’s purchases are paid for in the month of purchase and half in the following month. Cash disbursements expected in April are:
Purchase March $22,760 Purchase April 28, 880 $51,640
|
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5. |
Cash operating costs are anticipated to be $12,110 for the month of April. |
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6. |
Equipment costing $2,850 will be purchased for cash in April. |
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7. |
The company wishes to maintain a minimum cash balance of $12,010. An open line of credit is available at the bank. All borrowing is done at the beginning of the month, and all repayments are made at the end of the month. The interest rate is 12% per year, and interest expense is accrued at the end of the month and paid in the following month. |
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