Week 13 — Profit on Paper, Cash in the Drawer: A Plant Nursery's Year — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 12 of the term — read a small business's year from its statements, compute its net income and current ratio, and explain why profit is not cash.

This week you learned what accounting is for and who reads it; how the accounting equation holds on every balance sheet; how an income statement works down from revenue to net income; why owner withdrawals reduce equity and are never an expense; how the statement of cash flows shows where cash went; and how four ratios read the statements from named lines. In this assignment you read one small plant nursery's year, compute two figures, check that its balance sheet balances, and explain the difference between profit and cash to someone who has never studied business. This week's lecture tutorial, quiz, discussion, and Business Case Workshop practise the same ideas from other angles.

The task

The case is illustrative, built for this course and not real data. A small neighborhood plant nursery has finished a year of business. Like the coffee cart in this week's chapter, the case has no named people.

The nursery's figures, line by line, for the year and as of its year-end:

• Revenue for the year: 90,000 dollars from plants, pots, and soil sold.
• Cost of goods sold: 36,000 dollars, the direct cost of the plants, pots, and soil sold.
• Operating expenses: 41,000 dollars, including 3,000 dollars of depreciation on the greenhouse benches.
• Interest expense on the bank loan: 2,000 dollars.
• Owner withdrawals during the year: 8,000 dollars, and 2,000 dollars of the loan's principal was repaid.
• Year-end assets: cash 9,000 dollars, inventory 9,000 dollars, greenhouse equipment 22,000 dollars.
• Year-end liabilities: accounts payable 5,000 dollars and a bank loan of 15,000 dollars, 3,000 dollars of it due within the coming year.
• Year-end owner's equity: 20,000 dollars.

Work these two problems, showing every step of the arithmetic:

1. What was the nursery's net income for the year, in dollars?
2. What is the nursery's current ratio at year-end?

Beside each answer, add a brief interpretation:

• Problem 1: say which statement the figure belongs to and whether that statement covers one date or a span of time; explain why the owner's 8,000 dollars of withdrawals are not subtracted to reach net income; then use two items from the case to explain why the nursery's cash could rise by less than its net income.
• Problem 2: name the two lines the ratio divides and say the ratio in words; write out the check that the year-end balance sheet balances, assets = liabilities + owners' equity; then say whether you judge the ratio comfortable for a lender, labelling that view as a judgment.

Explain it to a non-expert

A friend who works at the nursery asks you, "The owner says we made a profit this year, so why does the owner also say money is tight?" Write a 3–5 sentence message that explains the difference between profit and cash in everyday words, answers the question from the case, and names one limit, including that the nursery is illustrative and that nothing here is tax, lending, or investment advice for a real business. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a neighbor who runs a weekend craft stall and asks why every balance sheet has to balance. Model answer: "Everything the stall owns, like its tent, its table, and the cash box, was paid for by someone. Either somebody lent the money, or you put it in yourself. So if you add up what the stall owns, it has to equal what it owes plus your own share. If the two sides don't match, a line is missing or wrong somewhere, and that is the signal to look again. This is a general idea about how the statements work, not advice about your own taxes."

Use that pattern for your friend, with your own wording and evidence.

Show your work. A reader should be able to rebuild every figure you report from the nursery's lines without guessing which numbers you used.

Deliverables

Submit a single report containing:

• the two answers, each with every step of the arithmetic shown and the interpretation the task names for that problem;
• your message to your friend, explaining the difference between profit and cash, answering the question from the case, and naming one limit; and
• a short list of the nursery's figures, giving gross profit, operating income, net income, current assets, current liabilities, total assets, and total liabilities plus owner's equity, so your amounts can be checked.

Keep it to roughly one page. Clear and correct beats long.

Choose how you show it. Present your report as written text, or as a recorded audio or video explanation of about three minutes with a transcript, or as a labelled sketch of the nursery's statements with a short note. Every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

This version is designed to be completed without AI: do the arithmetic, the interpretations, and the writing yourself, without a chatbot or other AI tool. You may use a free spreadsheet to lay out the nursery's figures. Submitting AI-generated work as your own, or copying another student's work, is an integrity violation under the course policy.

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