The paper "Accounting Problems at Norton Company Ltd" is a perfect example of a finance and accounting case study. The attached excel sheet shows an analysis of the cash collection that the company expects to receive from its sales to the customers both using the old policy and the new or proposed policy. Using the old policy, the company expects to collect a total of $1,263,900.00 while when a new policy is introduced; the company will be able to collect a total of $1,312,600.00. This is a significant improvement. This improvement also has a significant effect on the amount of accounts receivables that the company would expect to collect from its customers by the end of June (Josephine, 2014).
Using the old policy, a total of $146,400.00 remains uncollected. This amount reduces significantly to $ 97,700.00 on introducing the new policy. This is a significant improvement of $48,700. However, the $97,700 that remains uncollected is still much and hence the company should consider tightening its credit policies further to ensure that its accounts receivables reduce significantly. This will also help it meet its financial obligations without necessarily incurring bank overdrafts since this has further cost implications in terms of bank interests. c).
The net profit before tax for the period from January to June assuming that there was no beginning or ending inventories; Norton Company Ltd Projected Income statement For the six months ending 30th June 2015 Projected revenue $1,142,000 Supplies $400,000 Projected gross profit of $742,000 Projected expenses Salaries$450,000 Selling and administration expenses$240,000 Bad debts$114,200 Loan interest $31,817 Total expenses$836,017 Projected Net income $94,017 From the above computation, the company is projected to realize a net loss of $94,017 for the six months ending 30th June 2015 d.
The steps that the manager could take to ensure that the cash balance of the store remains positive and the ways in which budgeting may assist the company i) As stated above, much of the company’ s revenue is not collected. In other words, 10% of the company’ s revenue ends up being bad debts. This is an unfortunate situation and hence the company should come up with new policies aimed at addressing this situation. This will ensure that extra cash is collected which will be used in paying for expenses instead of opting for bank overdrafts.
Some measures would include adopting a cash-only policy or cutting links with those customers who do not pay. The credit policy should also be tightened with the aim of reducing the amount of bad debt. In other words, by collecting more money from debtors, the company is likely to run positive cash balances. For instance, if the company’ s bad debts are lower to 5%, the company will be able to save $78, 350 over the period. This would have a very great effect on the company’ s cash balances since it will be used in offsetting the bank overdraft.
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