Question

Below is April's cash-flow statement for Rings and Things.

Operating Activities

Cash in
Online sales $600
In-store sales $1,000
Total operating cash in $1,600

Cash out
Supplies ($300)
Labor ($1,000)
Rent ($350)
Utilities ($100)
Net operating activities (-$150)
Review the liabilities section of the balance sheet for Rings and Things. What problem can you identify with the payroll information, particularly as it relates to how much the one employee gets paid? What solution would you offer Janet and Omar?

Answer 1

The issue with Rings and Things' cash-flow statement is the high labor cost of $1,000 in relation to an operating cash inflow of $1,600. This has resulted in a negative net operating activity. A solution would be to reassess labor costs and find ways to reduce them.

Step-by-step explanation:

The student is asking about a cash-flow statement for a business named Rings and Things. After examining April's cash-flow statement, it is evident that there is more cash flowing out than in, particularly in labor costs. The cash-flow statement shows that labor costs are $1,000, which leads to a negative net from operating activities of $150.

If we review the liabilities section of the balance sheet and compare it with the payroll information, it seems there may be an issue with how much the employee is being paid relative to the cash flow and profits of the business. If Rings and Things has just one employee and is paying $1,000 in labor, this could be quite substantial given the total operating cash inflow is $1,600, and the employee salary represents a significant portion of that.

A potential solution for Janet and Omar would be to reevaluate their labor costs. They should consider if the business can sustain such high labor expenses or if there are ways to reduce labor costs without compromising the quality of service. This might include renegotiating the employee's wage, reducing hours, finding more cost-effective ways to operate, or investing in technology that increases efficiency.

Answer 2

The cash-flow statement indicates a problem with the payroll information for Rings and Things, specifically in terms of the negative net operating activities (-$150). This suggests that the company is spending more on operating activities, including payroll, than it is generating in cash from its sales. To address this issue, Janet and Omar should consider reviewing their labor expenses and potentially adjusting the employee's salary or working hours to align with the company's financial capabilities.

Step-by-step explanation:

The negative net operating activities (-$150) on the cash-flow statement indicate that Rings and Things is experiencing a cash shortfall in its operating activities. One potential source of this shortfall is the labor expense, which includes payments to employees. To identify the problem with the payroll information, Janet and Omar should scrutinize the amount paid to the one employee against the company's overall financial health.

In this scenario, a potential solution would be for Janet and Omar to reassess the labor expenses, including the salary paid to the employee. They might consider adjusting the employee's salary or working hours to better align with the company's cash-flow situation. This adjustment can help control costs and improve the overall financial health of Rings and Things.

In conclusion, a careful review of the payroll information is essential for Rings and Things to address its negative net operating activities. Adjusting the labor expenses, including the employee's compensation, can be a strategic solution to bring the company's cash flow into a more positive and sustainable position.