Your company has a Net Income for the year of $0. However, your cash account has a balance of $140,000.00. Is your company profitable? Why or why not? Is your company liquid? Why or why not?
2007-03-13 16:18:54 · 4 answers · asked by Anonymous in Business & Finance ➔ Other - Business & Finance
Net income is the balance available to the owners of the business after deducting all expenses exclusively used in the production of Income.
Although expenses incured are immediately charged to the Income account, they are NOT necessarily paid out on the same date. For example salary payable by the end of the period may be paid in the subsequent period. Similarly, supplies received and charged to the Net Income Account may be actually paid for in the subsequent period and hence the liquidity of $ 140,000 in the cash account waiting to pay off creditors.
Also note that not all business running expenses are paid out as cash. This may include charging the wear and tear of your assets (Depreciation) or providing for a bad debt write off - previously shown as a sale on credit/income - or providing for stock deterioration or the revaluation of closing stocks to a value lower than actual cost price.
The above are general guidelines. To obtain a to-the-last-cent scientific explanation of the $140,000 cash balance, it is now an International Accounting Standard (IAS 7) requirement that all financial statements are accompanied by a statement of "Source and Application of Funds" which simply shows the cash you started with and where it went or additional cash came from i.e increase/decrease in stocks, Debtors,Creditors etc.
2007-03-13 21:38:03 · answer #1 · answered by victormajani 2 · 0⤊ 0⤋
With the information given it is hard to say. Did the company have any income for the year or any expenses? Did you start with $140,000 and do nothing? Was there a lot of things written off to depreciation to offset the gains? Of course somebody may have been cooking the books.
2007-03-13 23:26:14 · answer #2 · answered by don n 6 · 0⤊ 0⤋
Not profitable in the sense that any income was eaten up by expenses to the exact last penny of income. You are liquid because you have cash available. but what do I know.. I raise chickens..
Amen on Don n's answer..
2007-03-13 23:29:19 · answer #3 · answered by ricketyoldbat 4 · 0⤊ 0⤋
1) Does this company have a lot of expenses, high payroll. big salaries? Could have been very profitable, just to many expenses.
2) Liquid at least to the tune of $140,000 because you cant get more liquid than cash.
Just my thoughts, don't use my answer to invest or complete a college assignment.
2007-03-14 00:02:24 · answer #4 · answered by annigoodhere 3 · 0⤊ 1⤋