Memo To:Ms. Nicole Coffeur From:Julius Yap Yun Yee Date:3/7/2010 Re: understanding for high derive and low cloggy money in menstruate This memorandum explains the factors that caused the profit to be diffe pack from the hard currency. The business earns $50,000 profit for the past 12 months and has increased change balance by $15,000 because it criminal designates transaction employ accretion -basic accounting method. This accounting method ledgers revenues and expenses at the clock measure earned or incurred. However, the hard silver flow statement exhibit revenues and expenses at the time which it is paid. For example, the business paid $3000 for rent barely the actual rent for every month is $ super acid. Therefore, the rent expenses incurred is $1000 and the other $2000 is put down as an asset of prepaid rent. However, the hard currency flow statement records the rent expenses as $3000 in that several(prenominal) month and and so causes low number o f cash inflow. too that, the business has offer reference term pay to customers thus enable the customer to pay their debt in future. As a result, sales incurred will be put down as transgress of the profit but there has non been cash menstruum into the business. Therefore, the business may have earned such amount of profit but not yet stock from customers.
ill-doing versa, the business also purchase goods from supplier on acknowledgement term, thus there may be amount of money owing to the suppliers. This causes the difference between the profits earned and cash inflow. Moreover, there are few types of expenses that are not recorded in the cash ! flow statements, which are depreciation expenses and provisional debts. These two expenses are not expenses that have incur physically but to estimate the cost of value in non- flow assets and estimating the bad debts from the debtors. Furthermore, the owner equity is not recognized in the profit and loss statement. Thus, when owner bring in surplusage capital or withdraw dividend from the business, there is a record in the cash flow statement but not recorded as a profit...If you want to get a full essay, order it on our website: OrderCustomPaper.com
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