Maria Hernandez & Associates

Case Study #1

3/12/2012

Maria Hernandez & Associates Balance Sheets Through August 31, 2004 Cash Debit Credit 12,000 900 40,000 6,000 33,000 5,500 6,600 52,000 52,000 Balance 6,600

Notes Payable Debit Credit 0 20,000 20,000 20,000 20,000 Balance 20,000 Capital Debit 0 30,000 30,000 Credit 30,000 30,000 Balance 30,000 Equipment and Software Debit Credit 27,000 11,000 38,000 38,000 38,000 Balance 38,000

Inventory Debit Credit 5,000 900 5,900 Balance 4,200

1,700 4,200 5,900

Accounts Receivable Debit Credit 7,000 7,000 Balance 7,000 7,000 7,000

Debit

Sales Revenue Credit 47,000 7,000 47,000 47,000 47,000 Balance 47,000 Prepaid Rent

Debit 6,000 6,000 Balance 6,000 Cost Debit 1,700 1,700 Balance 1,700

Credit 6,000 6,000

Credit 1,700 1,700

Accounts Payable Debit Credit 5,500 5,500 Balance 5,500 5,500 7,000

Utility Expenses Debit Credit 33,000 33,000 33,000 33,000 Balance Adjustments Depreciation Expenses Debit Credit 1,500 1,500 Balance 1,500 1,500 1,500 33,000

Interest Expenses Debit Credit 200 200 Balance 200 200 200

Maria Hernandez & Associates Worksheet For the Month Ending August 31, 2004

Trial Balance Account Titles

Adjustments

Adjusted Trial Balance

Income Statement

Balance Sheet 6,600

Cash Notes Payable Equity Equipment and Software Prepaid Rent Inventory Accounts Receivable

6,600 20,000 30,000 38,000 6,000 4,200 7,000

6,600 20,000 30,000 38,000 6,000 4,200 7,000

20,000 30,000 38,000 6,000 4,200 7,000

Sales Revenue

47,000

47,000
47,000

Rent Expenses Cost Accounts Payable Utility Expenses Totals

6,000 1,700 5,500 33,000

102,500 102500

6,000 1,700 5,500 33,000

6,000 1,700 5,500 33,000

Depreciation Expense
Accumulated Depreciation Interest Expense Interest Payable Totals Net Income Totals

1,500 1500 200 200 200

1500 1500 200 200 104200

1,500

200

1500 200 57200 4,600 61800

1,700

104,200

42,200 4,800 47,000

47,000

61,800

47,000

61,800

Maria Hernandez Cash Flow Statement Through August 31, 2004 Cash Flows From Operating Activities Cash receipts from revenues Cash Payments for expenses Net cash provided by operating activities Cash Flows from Investing Activities Purchase of Equipment Cash Flows from Financing Activities Investments by owner 0 Drawings by owner 0 Net Decrease in Cash Cash at the beginning of the period Cash at the end of the period

40,000 -39,000 1,000

-6,400

0 -5,400 12,000 6,600

1.) Based upon these financial statements, it appears that the company, which is only in year one of operations, required a great deal of investment for start-up. Regardless of the increased investment amounts in order to compensate for new business needs, the company still managed to generate a $4,600 retained earnings from net income. Therefore, I would say despite the great reduction of the cash account of $45,400, income was still managed to be generated in the first month. The investment into the new business is required in order to grow the revenues. The expenses acquired during this period will not be seen again for some time. 2.) The company faces some risks as a result of this great decrease in the cash amount. There is only a $6,600 left in the cash account, which means that Maria may not be able to pay the required salary or any additional needs of the company over the course of the next month. There are some outstanding debts of $20,000 to her father with no interest being paid at the moment. There is also the risk of an additional $7,000 tied up in accounts receivable that will be important to collect in the future. In addition, another risk would be the possibility of actually borrowing money from the bank if Maria decided to expand her business. However, I would state that company is profitable and has potential to grow. Ms. Hernandez will need to address these risks and reduce the investment into the company in the following months and focus heavily on increasing revenues.