Week 4 EOC: Chapter 5 Question 2

a. Did the change in Cash reflect a Source or a Use of funds? What was the amount of that change?
b. Did the change in Net Receivables reflect a Source or a Use of funds? What was the amount of that change?

c. Did the change in Notes Payable reflect a Source or a Use of funds? What was the amount of that change?

d. Did the change in Retained Earnings reflect a Source or a Use of funds? What was the amount of that change?

e. What was the total amount of Sources and Uses of Funds?

Answers:

a.  The change in Cash reflected a use of funds. The amount of change was $14,000 from cash. This is designated as a use because it is an outflow of cash "Sources represent inflows and uses represent outflows of funds for the hospitality business." (Dopson 147). 

b. The change in net receivables reflected a use of the funds. The total amount changed was $40,000 from net receivables.

c.  The Change in Notes Payable reflected a use of funds. The total amount changed was $44,000 in notes payable.

d.  The change in retained earnings reflected a source of funds. The total amount changed was $104,000 in retained earnings. The distinction of whether it was a use or source comes down to "Retained earnings represent the accumulated account of profits over the life of the business that have not been distributed as dividends. If your retained earnings increases, that means you have increased your net income for the year, thus providing a source of funds." (Dopson 152). 

e.  The total amount of sources and uses balanced out, with each having $743,000 in their respective categories. "If a business is not considered by lenders and investors to be a going concern, that business will likely find that its ability to borrow money is severely diminished."(Dopson 147).

Work Cited: 

Dopson, Lea R. Managerial Accounting for the Hospitality Industry. Wiley, 09/2008. VitalSource Bookshelf Online.