Business, 28.04.2021 21:00 alyea231

Section 1: Analyzing a Balance Sheet Omar and Janet own a small jewelry-supply business called Rings and Things. From January through April, the company generated a fair amount of business. However, Janet and Omar’s owner equity is lower than they had expected, and they seem to be losing money every month, even though sales are steady. Below is April’s balance sheet for Rings and Things.

Assets

Cash (bills and coins) $35

Bank checking account $1,997

Materials (beads and wires) $40

Finished jewelry $100

Office supplies $50

Furniture $100

Total $2,322

Liabilities

Balance on loans $925

Payroll $1,000

(1 salesperson who works 20 hours/month)

Total $1,925

Assets – Liabilities = Owner Equity

$2,322 total assets

– $1,925 total liabilities

= $407 owner equity

Based on the balance sheet for April, offer two ways in which Janet and Omar can increase their owner equity.

Review the liabilities section of the balance sheet for Rings and Things. What problem can you identify with the payroll information, particularly as it relates to how much the one employee gets paid? What solution would you offer Janet and Omar?

Section 2: Analyzing Cash Flow

After reviewing their balance sheet, Omar and Janet create a profit-loss statement to see how much money they are spending versus how much money their business is bringing in.

Below is April’s cash-flow statement for Rings and Things.

Operating Activities

Cash in

Online sales $600

In-store sales $1,000

Total operating cash in $1,600

Cash out

Supplies ($300)

Labor ($1,000)

Rent ($350)

Utilities ($100)

Net operating activities –$150

Based on the profit-loss statement, does Rings and Things have a positive or negative cash flow? Why?

Based on the profit-loss statement, name two ways Janet and Omar can improve their cash flow.

Omar and Janet decide to revise their budget for Rings and Things. What suggestions about labor costs would you make, if the goal is to improve the business’s cash flow?

Omar and Janet are also trying to forecast what their federal and state income taxes will be at the end of the year. If Rings and Things had a negative cash flow of –$150.00 per month from January through April, but a positive cash flow of $1,000.00 per month (after expenses) from May through December, on what dollar amount will they determine their income taxes? What expenses could be used for tax deductions?

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Section 1: Analyzing a Balance Sheet Omar and Janet own a small jewelry-supply business called Rin...

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