Esc-Clermont Sup de Co

2^nd years, 1^st semester

Course : Corporate finance (with a review of accounting)

Teacher : André Cabannes

Please write your name in this box :

Mid course exam

October 23^rd, 2007

1 hour and 30 minutes. Write your answers on this document in the blank space below each question.

Question 1: A man, named Tim, decides to found a firm, that he names TimCo. He start his business putting 10 000 euros of his own money in cash into TimCo’s cash box.

What are the two accounts of TimCo involved? And what are the debit and credit for this transaction?

Credit the Capital account: 10 000

Debit the Cash account: 10 000

Question 2: Tim, who is the owner of TimCo, decides to be also the manager of his firm. He opens a bank account for his firm, and takes 8000 euros from the cash box to the bank account.

What are the two accounts involved? And what are the debit and credit for this second transaction?

Credit the Cash account: 8 000

Debit the Bank account: 8 000

The journal of TimCo’s first month of activity is this

TimCo's journal
	Date	Transaction	Amount (€)
	01-janv	Tim puts initial cash into his business	10 000
	03-janv	Takes cash to bank	8 000
	06-janv	Buys a delivery van on credit from Perkin's	3 000
	09-janv	Rents premises. Pays one quarter by cheque	1 000
	12-janv	Buys goods on credit from Roy Ltd	4 000
	15-janv	Pays shop expenses by cheque	1 500
	18-janv	Sells goods to Scott & Co on credit	3 000
	21-janv	Settles Perkin's account by cheque	3 000
	24-janv	Receives partial payment from Scott (cash)	2 000
	24-janv	Takes Scott & Co's cash to bank	2 000
	27-janv	Sent cheque to Roy Ltd	1 000
	31-janv	Purchases goods on credit from Roy Ltd	3 000
	31-janv	Cash sales	6 000

Question 3: In the following space, this page and next page, write all the accounts you need (plan more space for the bank account than the other account), and post each of the entries.

(post again entries 1 and 2, treated in the previous questions).

Use http://www.lapasserelle.com/clermont/corporate_finance/Lesson2/Mini_accounting.xls to see all the accounts.

For instance:

Cash account
Date	Description	Debit	Credit
01-janv	Tim puts initial cash into his business	10 000
03-janv	Takes cash to bank		8 000
24-janv	Receives partial payment from Scott (cash)	2 000
24-janv	Takes Scott & Co's cash to bank		2 000
31-janv	Cash sales	6 000
	Balance c/d	0	8 000
	Balance b/d	8 000	0

Question 4: Fill in the trial balance

Trial balance
Account	Debit	Credit
Bank	3 500
Capital		10 000
Cash	8 000
James (supplier of machinery)
Long term loan (from bank)
Machinery
Perkin (supplier of transp. equip.)
Purchases (goods to be sold)	7 000
Rent	1 000
Roy (supplier of goods to be sold)		6 000
Salaries
Sales		9 000
Scott (a client)	1 000
Shop expenses	1 500
Van	3 000
Total	25 000	25 000

(beware that some accounts are empty)

Question 5: What is the main difference between accounting and finance?

Accounting doesn’t take into account “the time value of money”. This means, more explicitly, that an IOU from a client specifying that he owes us money and will pay in, say, two months, is recorded today in our accounting system at its face value (simply the amount due), disregarding the fact that the money will be paid only in two months.

On the contrary, in Finance, a security held by us today, specifying that the signatory will pay us a certain amount of money at date T in the future, has a value today (a price at which we could sell it today to somebody else) and this value is not the amount of money to be paid. It is less. We must apply a discounting factor, which depends on the period of time to wait, and on the creditworthiness of the signatory. For instance, as of December 2007, a promise by the French government to pay us 1000 euros in one year, has a value today of 1000/(1+4%) = 962 euros.