Utilizing the Bombay Stock Exchange (BSE) for Transaction Recording and Financial Statement Preparation

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2. Utilizing the Bombay Stock Exchange (BSE) for Transaction Recording and Financial Statement Preparation Welcome to this comprehensive sample assignment from DoMyAccountingAssignment.com, your go-to platform for tackling accounting assignments with ease. This example will guide you through a detailed analysis of TIM, Inc.’s transactions from July 1, 2003, to December 31, 2003.

3. We'll demonstrate how to prepare a tabular analysis using the Balance Sheet Equation (BSE), followed by creating a balance sheet and an income statement for the specified period. Additionally , we'll analyze the cash flows, distinguishing operationally relevant cash movements, and compare these with the net profits to understand any discrepancies. Finally, we'll categorize the accounts into temporary and permanent, explaining their differences and implications. This assignment not only highlights key accounting principles but also offers a practical approach to financial analysis, helping you understand the nuances of recording transactions and preparing financial statements. Dive into this detailed example to enhance your accounting skills and see how DoMyAccountingAssignment.com can assist in simplifying your academic journey.

4. On July 1, 2003, TIM, Inc. started as a business entity. A summary of transactions through Dec. 31, 2003 is presented below. Stockholders invested $50,000 in cash in the business. New computer equipment is purchased for $6,000 in cash. Equipment will be used for 3 years. Office rent for half a year is paid in advance, $8,000. Use of the BSE to record transactions, and preparation of financial statements

5. Dividends of $500 paid to existing shareholders. Paid $10,000 to employees for services provided. Paid utility bills, $2000. Provided (and completed) design services on account to customers, $30,000. Collected cash of $2,000 for services billed in 7).

6. a) Prepare a tabular analysis of the transactions by using the Balance Sheet Equation (BSE) through December 31, 2003. Be sure to label your transactions. Question:

7. You can stop here and still get full credit for part a) of this problem set. Note that: Both utilities and wages were paid out, so they are charged immediately to equity (in particular, against retained earnings as an expense). There is no liability created when the employees have done their work and got paid, and when utilities are used and paid. Dividends are paid out, charged against retained earnings. It is highly for dividends to be paid out before there are retained earnings, but hey, this is just a problem set. Very similar to what we did in class (firm sold widgets, here TIM renders services), revenues are recognized as an increase in retained earnings, while account receivables go up.

8. A more complete answer has the following two additional events: These two events do not have explicit transactions, but they are necessary to account for the use of resources (staying in the office, using computers for half a year) over time. They are examples of “adjusting entries” which we will discuss in the next class session.

9. b) Prepare the balance sheet as of December 31, 2003. From what part of the BSE table did you get the information to prepare the balance sheet? Answer: The Balance Sheet information as of transaction 8) can be obtained from the row denoted EB in the table above. The Balance Sheet information as of transaction 10) can be obtained from the row denoted EB’. My answers below will be based on including events 9) and 10). You will get full credit if your answers are based on transactions up to 8) only. Question

10. c) Prepare the income statement for the period from July 1, 2003 through December 31, 2003. From what part of the BSE table did you get the information to prepare the income statement? Answer: Question:

11. Note that dividends are not part of the Income Statement. Also, since the income statement is supposed to denote what happened between two snapshots, it is important to label it appropriately: “for the period from July 1, 2000 though December 31, 2000”. Looking at the cash column, cash inflow is 52,000, and cash outflow is 26,500. However, we exclude the 50,000 inflow because it is a financing (raising capital) transaction, not directly related to operations. We also exclude 500 of dividends from cash outflows because dividend payments are also financing. You will learn later on that long-term investments like PPE do not properly belong to operations, but "investing". For now, let's ignore this detail.

12. d) How much cash flowed in and out of TIM, Inc. in the period from July 1, 2003 through December 31, 2003? How much of this cash inflow or outflow do you consider relevant to TIM. Inc’s operations? Profits equal 9,000, even though net cash flow (operations and investments) is 2,000 – 26,000 = -24,000. TIM is still profitable despite a negative cash flow. TIM has Accounts Receivables of 28,000, and a computer worth 5,000, both of which have the capacity to generate cash in the future. Question: Answer:

13. e) Compare the net cash flow that is considered relevant to operations (from d) above) and TIM, Inc’s profits in the same period. What transactions and events account for the difference? Permanent accounts are cash, accounts receivables, PPE, contributed capital and retained earnings. Note that even though prepaid rent got zeroed out, it is still considered a permanent account. Permanent accounts tend to maintain non-zero balances over fiscal periods. They are reported in the Balance Sheet. Question: Answer:

14. f) Which of the accounts you created in the BSE table are considered “temporary”, and which ones are considered “permanent”? Briefly explain the difference. Temporary accounts are Revenues and Expenses under Retained Earnings. They are temporary because whatever their balances are, they are always combined with Retained Earnings at the end of the fiscal period. Temporary accounts are created to facilitate the preparation of the Income Statement (since we need to separately report Revenues and Expenses). Question: Answer: