Case study: Maria Hernandez & Associates Group 1
Income SummaryCost of sales 1,700 47,000Rent expenses 6,000Utility expenses 33,000Depreciation expenses 1,500Interest expenses 20042,400 47,000(7) 1,3803,220Income Tax Liability(7) 1,380Retained EarningBalance 0To balance 3,220 3,220Balance 3,220
Maria started her own business with $50,000 in cash and in two months later she had only $6,600 left.There was a significant decline in cash of $45,400 because this is the first year of business and as theowner, Maria had to invest an considerable sum of money in starting up, for example Maria had topurchase equipment and software, which are extremely important tool in her industry, equip her officewith stationery and office supplies, moreover she also had to hire good designers to support her withprojects and pay them, pay all the bills including renting expenses, utility expenses But she didmanage to bring customers to company and increase the companys sales revenue, and we could saythat the company did make profit because just in two months from establishment with a great deal of investment, the company was still able to capture $3,220 as retained earnings.Besides, Maria did not depend do much on debt to run her own business and this gives her anadvantage to generate more profit as soon as she finishes the investment.However, there are a lot of risks for Maria to face. Firstly, with only $6,600 left, there is a risk that shecan or she cannot pay the salary or any extra operation cost next month, in the worst case there is noprojects coming in anymore. Secondly, with such a young business, can she borrow money from thebank, when she wants to expand her business? Finally, there is a collection risk from the customers side,can Maria manage to collect $7,000 accounts receivable fast to supply the operation. It might be verysensitive for her, because of course when she has just opened her company, every customer is veryprecious, so she cannot...
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