Let’s say that during your first month, you sell one hundred play packs. Thus your total monthly costs will amount to $300 ($20 + $240 + $40). Finally, you’ll run ads in the college newspaper at a monthly cost of $40. Wages, therefore, will cost you $240 a month (2 hours × 5 days × 4 weeks = 40 hours × $6). each weekday, and you’ll pay them $6 an hour. They’ll be on duty from noon until 2:00 p.m. Because your own grades aren’t what your parents and the dean would like them to be, you decide to hire fellow students (trustworthy people with better grades than yours) to staff the table at peak traffic periods. Renting the table will cost you $20 a month. You plan to sell each Stress-Buster Play Pack for $10 from a rented table stationed outside a major dining hall. Each plastic chest will cost $1.00, and you’ll fill each one with a variety of five of the following toys, all of which you can buy for $1.00 each: After that, you’ll use the cash generated from sales of Stress-Buster Play Packs to replenish your supply. And that’s when the idea hits you: Maybe you could make some money by selling a product called the “Stress-Buster Play Pack.” Here’s what you have in mind: you’ll buy small toys and other fun stuff-instant stress relievers-at a local dollar store and pack them in a rainbow-colored plastic treasure chest labeled “Stress-Buster.”Īnd here’s where you stand: You have enough cash to buy a month’s worth of plastic treasure chests and toys. Sometimes you wish you could just lie back between meals and bounce a ball off the wall. You’ve noticed that with homework, exams, social commitments, and the hectic lifestyle of the average college student, you and most of the people you know always seem to be under a lot of stress. Your first task is to decide exactly what you’re going to sell. It also refers to the money that you have in checking and savings accounts and includes items that you can deposit in these accounts, such as money orders and different types of checks. In accounting, however, the term cash refers to more than just paper money and coins. ![]() You probably have at least a little cash on you right now-some currency, or paper money, and coins. Your business will involve selling stuff to other college students, and to keep things simple, we’ll assume that you’re going to operate on a “cash” basis: you’ll pay for everything with cash, and everyone who buys something from you will pay in cash.Ī Word about Cash. So let’s assume that you need to earn money while you’re in college and that you’ve decided to start a small business. Is there any way to bring this lesson a little closer to home? Besides, while knowing what financial statements will tell you is one thing, you want to know how to prepare them.Īgreed. We know what you’re thinking: It’s nice to know that accounting deals with real-life situations, but while you wish Connie the best, you don’t know enough about the confectionary business to appreciate either the business decisions or the financial details. ![]() To put it another way (and to switch metaphors): if he didn’t understand the financial statements issued by the company’s accountants, an executive would be like an airplane pilot who doesn’t know how to read the instrument in the cockpit-he might be able keep the plane in the air for a while, but he wouldn’t recognize any signs of impending trouble until it was too late. For another thing, top managers need to know if the company is hitting on all cylinders or sputtering down the road to bankruptcy. In a business environment tainted by episodes of fraudulent financial reporting and other corporate misdeeds, top managers are now being held accountable (so to speak) for the financial statements issued by the people who report to them. For one thing, the law no longer allows high-ranking executives to plead ignorance or fall back on delegation of authority when it comes to taking responsibility for a firm’s financial reporting. We hope that, so far, we’ve made at least one thing clear: If you’re in business, you need to understand financial statements. Understand the function of the statement of owner’s equity. ![]() Understand the function of the balance sheet.Understand the function of the income statement.
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