Page 16 - How To Avoid Going Bust In Business
P. 16
Total debts $6000
Cash Assets
Cash at the bank $1500
Accounts receivable $2500
Total $4000
Balance $-2000
Summary – this business is in trouble. It owes more than it can pay.
The owner goes to a finance company and gets a loan of $3000 which he uses to
pay his creditors.
Next month here’s how his accounts might look:
Money Owed To
Alpha Supplies $1000 Bravo
Corporation $ 500
Charlie Brown $ 1500
Total debts $3000
Cash Assets
Cash at the bank $1500
Accounts receivable $2000
Total $3500.
Balance $ 500 CR
From this summary it looks as though he has managed to get back into good shape.
Wrong. What’s not showing in these numbers is the $3000 owed to the finance
company. Bring that into the picture and it shows that the business is descending
further into the abyss.
The true picture looks like this:
Money Owed
