Net income of the company are defined as the profit was generated, after deducti

Question

Net income of the company are defined as the profit was generated, after deducting all expenses and taxes. By analyzing net income, which is determined income were generated and identified in which expenses were incurred, according to the basic rules of accrual accounting, not cash. Based on the above premise, consider the following scenario:

1. On March 1, 2010, the Sage Video store in Tacoma, WA, ordered 10 52-inch TVs, LCD, Sony brand. The seller gave the company 60 days to pay the cost of $ 1,200 per TV

2. On April 12, 2010, Mary Griggs entered the store and bought a Sony TV for $ 1.950. In part, Mary was motivated to buy, because there had to issue an initial payment or make payments for six months

3. if Sage finishes its first quarter on May 1, how gross company profits for the quarter, Mary's purchase affected? What is the impact of the sale on the cash flows of the corporation?

4. If Mary emits an initial payment of 10% in cash and not make payments for the subsequent six months, what is the impact of the sale on gross profit and cash flow of the firm?

Explanation / Answer

Case 1 Impact of Mary sale on gross profit Cash Sale Six month EMI sales Sale Price 1950 325 Less- Purchase Cost 1200 200 Gross Profit 750 125 IN the above case , since store quarterly accounts on May 1 , therefore only one EMI has been booked till the date of Closing of qtr. Case 2 Cash Sale Sale Price- 10% 195 Less- Purchase Cost 120 Gross Profit 75 IN the above case , since store quarterly accounts on May 1 , therefore only advance has been consider till the date of closing of qtr. As the customer not pay the EMI after the advacne , the monthly cash flow will not come to company i.e $ 292.5 per month.

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