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A. ‘Although the statement of financial performance is a record of past
achievement, the calculations required for certain expenses involve estimates
of the future.’ What is meant by this statement? Can you think of examples
where estimates of the future are used?
B. Your company’s inventory turnover has increased from 25.5 days to 28.6 days
when you compare last year’s results to the current year. Is this good? Discuss.
C. Briefly describe each of the main categories of financial ratios. Which category
of ratios is the most important in your opinion? Why?
D. Jennifer Hodges, the owner-manager of a small business, had carefully
monitored her cash position over the past financial year, and was pleased to
note at the end of the year that the cash position was strong, and had shown a
healthy 50% increase over the year. When presented with the income
statement for the year, she was dismayed to note that the profit earned in the
last year had deteriorated significantly and had become a loss for the current
period. In her anger, she accuses you of having made errors in the accounting
since ‘such a silly situation could not possibly exist’.
Required: Draft a response to Jennifer.
Question 2
The following list of items relate to the business of Jay Street Wear:
1. cash paid into the business by Jay to begin operations
2. racks purchased to display merchandise to customers
3. building leased for 2 years, with rent payable monthly in advance
4. streetwear items purchased from a manufacturer
5. amount owing to the manufacturer for merchandise purchased
6. insurance premium on the merchandise paid in advance
7. cash withdrawn by Jay for personal use
8. wages paid to casual employee
9. amount borrowed long-term from the bank
10. cash sales of merchandise to customers
Required
A. Identify the elements of the financial statements (asset, liability, income,
expense and equity) impacted by each of the transactions.
B. List the cash flow classification
