Lecture #2

Lecture #2 - BUS 210 Financial Accounting Lecture #2...

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May 13, 2009 Demerjian 1 BUS 210 Financial Accounting Lecture #2 September 2, 2008
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May 13, 2009 Demerjian 2 Agenda Review of Newspaper Route exercise Overview of three financial statements Statement Articulation Example
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May 13, 2009 Demerjian 3 Newspaper Route Each day by 2pm the newspapers will dropped at your  house by Gagnon, Inc., the distributor of the News  Tribune. Each paper costs you $0.25 per day, or $1.25 per week  per customer. The cost to the customer is $0.35 per day, or $1.75 per  week.  Additionally, there is a $0.10 weekly charge for  home delivery, so the total charge per customer is $1.85  per week. You collect money from your customers each Friday  when you deliver their last newspaper of the week. You must pay Gagnon on Saturday morning for the prior  week’s newspapers.
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May 13, 2009 Demerjian 4 Newspaper Route 1. How much money will you collect each week? 72*1.85=133.20
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May 13, 2009 Demerjian 5 Newspaper Route 2. How much money will you have to pay Gagnon each  week? 72*1.25=90.00
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May 13, 2009 Demerjian 6 Newspaper Route 3. Assuming you collect all the money due from your  customers, how much cash do you have at the end of  the week?  133.20-90.00=43.20
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May 13, 2009 Demerjian 7 Newspaper Route 4. Recall that you collect money from your customers on  Friday afternoon and pay Gagnon on Saturday morning.   Given these facts, what is your net financial position on  Friday afternoon?  That is, what do you own and what do  you owe?  Similarly, what is your financial position on  Saturday morning after making your payment?  
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May 13, 2009 Demerjian 8 Newspaper Route On Friday after collections, you have 133.20 in cash.   However, you owe 90.00 to Gagnon, so your net  position is 43.20. On Saturday after paying Gagnon, you are left with  43.20.  So even though you made a payment in cash,  your net financial position is the same—you have  less cash, but you are no longer obligated to make a  cash payment.
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May 13, 2009 Demerjian 9 Newspaper Route 5. You keep the route into the fall and it is very successful.  Due to the  completion of a new development near your route, by November,  1985 your total number of customers expands to 80.  Based on this  new number, how much do you collect each week, how much do  you pay, and what is your new net cash? 80*1.85=148.00 collected 80*1.25=100.00 paid 148.00-100.00=48.00 net cash
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May 13, 2009 Demerjian 10 Newspaper Route 6. With your expanded route, it gets more difficult to collect  all the money due to you, especially during the winter  when it is dark and you want to get home before it gets  too cold.  One Friday in February, 1986, you collect from  68 customers before you go home.  What is the total  cash collected?  How much do you owe Gagnon?  What  is your net cash?
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Lecture #2 - BUS 210 Financial Accounting Lecture #2...

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