A cash flow forecast is also prepared which gives an estimate of the amount of cash the company expects to flow in and out and also includes all the projected income and expenses. This will help in predicting any upcoming cash surpluses or shortages which can be used to help make the right decisions. It can help in planning new equipment purchases or identifying if the business needs to secure a small business loan. The cash flow forecast is also used to check if the company is meeting expectations. Comparing actual income and expenses with the forecasts can identify where the company is over or under performing.
Another difference between them is the time on how they can be turned into cash at a faster rate. What is the order of liquidity? Liquidity in terms of accounting means how soon or how fast an asset can be turned into cash to comply and maintain its current financial obligations toward service and material suppliers. Order of liquidity refers to the way the assets are recorder in a balance sheet in descending order of liquidity beginning with cash, current assets- accounts receivable and inventory . The common methods of a chart of accounts include Accounting types – assets, liabilities, equity, revenue, expenses and revenue, followed by order of liquidity, and the account numbers.
a) What are the consequences of telling the president of your gross miscalculation? In order to determine the sales and income projection, it is useful to forecast the budget based on prior performance of the company. The business performance of the current year will shows how the company is actually performed and this is a good indication to expect the company will perform better in future. As to obtain an accurate sales projection, we collected all the information from the company because each area of business operation might have a separate budget. For example, Fernetti Conductor has a specific budget for advertising, purchasing, sales production and cash budget.
1) What are the three sections of a Cash Budget, and what is included in each section? The three sections of a Cash Budget are; Cash receipts, Cash disbursements, and Financing. A cash budget allows you to estimate and track all of the money that comes into and leaves your business. Cash Receipts are any monies your business takes in, such as sales receipts. Cash disbursements show where you must spend some of your money, such as on employee pay, raw materials purchases, and manufacturing overhead costs Financing shows expected payments and the repayments of the borrowed funds plus interest.
It is used to ensure that the money leaving an account matches the actual money spent, this is done by making sure the balances match at the end of a particular accounting period. Account reconciliation has practices include collecting relevant account data like invoices, checking account balances, correcting these balances, finding discrepancies, controlling policy to prevent discrepancies, and more. Account reconciliation procedures can be simple or extremely complex depending on the size and scope of a company. It is important to reconcile balance sheet accounts at the end of a period as part of the closing process each month to help identify errors if any will occur before closing. Balance sheet account reconciliation is the comparison of the account’s general ledger trial balance with another source.
| The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. Provided money can earn interest, any amount is worth more the sooner it is received (“Time Value of Money,” n.d.). | Provide a real-world example for the time value of money. | An example would be depositing money into a savings account now and letting it earn interest. This amount of money will be worth more later because it will earn interest.
As for the balance sheet, it shows the assets, liabilities, and stockholder’s equity for a specified date. The balance sheet reflects the organization’s financial position. The total assets within the balance sheet must equal the total liabilities and stockholder equity. The statement of cash flow states the cash inflows as well as outflows from the operating, financing, and investing transactions during a specific period. It reports the organization’s beginning and ending cash, investing and financing
The NPV for purchasing the technologies is 94.71 million and the NPV for developing the technologies is 127.24 million. From this point, developing the technologies is a better choice. 3. IRR (Internal Rate of Return), which indicates the annual rate of return on an investment that assumes we could reinvest the cash flow at the same return. The IRR for purchasing and development are 18.88% and 24.57% respectively.
Prepaid expenses are costs that have been paid but that apply to future periods or to the production of future revenue. Examples include insurance, rent, taxes, patent, trademark and copyright. When designing the audit program the auditor should consider the nature of prepaid account balances and the risks associated with transactions flowing through the accounts. Also other assets that provide economic benefit for less than a year are classified as current assets and are called prepaid expenses. When preparing this program the auditor should consider and design audit procedures that address relevant presentation and disclosure requirements.
C. Define profit. Profit is a financial gain that a company receives when the revenue of products and services are more than the cost to provide the service and / or product. 1. Explain the concept of profit