Question

. In a one-page memo, provide an explanation to the management team on July's financial performance. Please provide a one-page explanation. Thanks in advance

Ajayi Art Inc.
	Trial Balance
	Account Title & Explaination	Amt (Dr)	Amt (Cr)
	Cash	$     2,48,525
	Accounts Receivable	$           2,400
	Prepaid Rent	$           2,000
	Office Equipment	$         22,250
	Art Supplies	$           8,790
	Accumulated Depreciation		$ 371
	Accounts Payable		$ 6,800
	Salary Payable		$ 3,800
	Interest Payable		$185
	Service Revenue		$ 4,300
	Uneaned Revenue		$ 3,500
	Common Stock		$ 2,50,000
	Note Payable		$ 22,250
	Salary Expenses	$           3,800
	Misc Office Expenses	$               375
	Depreciation Expenses	$               371
	Rent	$           1,000
	Interest Expenses	$               185
	Supplies Expenses	$           1,510
	Total	$     2,91,206	$ 2,91,206
	Ajayi Art Inc.
	Income Statement		-
	Service Revenue		$ 4,300.00
	Expenses
	Salary Expenses	$           3,800.00
	Supplies Expenses	$           1,510.00
	Rent Expenses	$           1,000.00
	Interest Expenses	$               185.42
	Depreciation	$               370.83
	Misc.Office Expenses	$               375.00
	Total Expenses=(B)		$ 7,241.25
	Net Income(A)-(B)		$ -2,941.25
	Ajayi Art Inc.
	Statement of Owner's Equity
	July 31st
	Beginning Retained Earnings	0
	Add: Net Income	$         (2,941.25)
	Ending Retained Earnings	$         (2,941.25)
	Ajayi Art Inc.
	Balance Sheet
	July 31st
	Assets
	Cash	$     2,48,525.00
	Accounts Receivable	$           2,400.00
	Art Supplies	$           8,790.00
	Prepaid Rent	$           2,000.00
	Office Equipment	$         22,250.00
	Accumulated Depreciation-Office Equipment	$             -370.83
	Total Assets		$ 2,83,594.17
	Liabilities & Stockholder's equity
	Liabilities
	Accounts Payable	$           6,800.00
	Salary Payable	$           3,800.00
	Interest Payable	$               185.42
	Unearned Service Revenue	$           3,500.00
	Note Payable	$         22,250.00
	Total Liabilities		$ 36,535.42
	Stockholder's Equity
	Common Stock	$     2,50,000.00
	Retained Earnings	$         (2,941.25)
	Total Equity		$ 2,47,058.75
	Total Liabilities & Stockholder's Equity		$ 2,83,594.17

Answer 1

The company has raised $ 272,500 of finance through issuance of common stock and note payable. In spite of investing in equipment and supplies, most of the cash still remains intact. That is the good part of the story. This has been aided by spontaneous financing of $ 10,600 from accounts payable and salary payable. Also customers have paid advance of $ 3,800 for future services to be performed.

Though one expects teething problems in the initial phase of a business, the operating results for July were disappointing. The service revenue earned during the month was not enough to cover the operating expenses. Salary expense account was the main culprit. If service revenue cannot be improved in the coming months, an effort should be made to cut down on salary expense. Obviously, the company is currently operating below the break-even point.

As the company is sitting on sizeable cash, it is advisable to go for advertising, as that would help in augmenting the revenues, achieving break-even, and earning profits.