Finance and Accounting Concepts for Successful Operations

This report discusses the importance of finance and accounting in business operations. It covers topics such as the statement of profit or loss, statement of financial position, and the difference between sole traders, partnerships, and companies. It also explains the legal obligations for performing external audits.

ACCOUNTANCY AND
FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION A.....................................................................................................................................1
Question 1....................................................................................................................................1
SECTION B.....................................................................................................................................4
Question 3....................................................................................................................................4
Question 4....................................................................................................................................5
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Finance and accounting are two important aspect of the business for running the
operations smoothly and efficiently. Finance is a very broad term and involves all the activities
and transactions involving money. Management ensures that the financial resources are used by
the company in best efficient manner. Accounting on the other deals with recording the financial
transactions carried out by the organisation for preparing the financial statements to represent the
performance and position of the enterprise. Present report is based over the financing and
accounting concepts that are essential for running the operations successfully. It will provide
numerical on accounting and difference between different forms of business and the legal
requirements for external audit.
SECTION A
Question 1
a) Statement of Profit or Loss of Bogota plc for year ending 31st December 2019.
Statement of Profit or Loss
Revenues
Sales 1015400
(Less sales return)
Cost of goods sold 720500
Opening Inventory 66600
Purchases (less returns) 732400
Closing inventory 78500
Carriage Inwards 1300
Gross Profits 293600
Carriage outwards 2400
Advertising Expenses 10400
Consulting Fees 7600
Wages and salaries 4900
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Interest on overdrawn balance 5500
Interest charges 8000
Administrative cost 19300
Depreciation building @ 2% 7600
Depreciation fixtures and equipment
@ 20%
(148000-12000)*20% 27200
Loss of equipment 7200
Net Profit 193500
Dividend
Preference Dividend
(200000*5%) 10000
Less : already paid -5000 5000
Equity dividend
(500000*0.05) 25000
Less : already paid -30000
-5000
Equipment
Cost 12000
Depreciation (12000*20%)*2 4800
Carrying amount 7200
b) Statement of Financial Position of Bogota plc for year ending 31st December 2019.
Statement of Financial Position
ASSETS
Current Assets
Receivables 396100
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Inventory 69200
Bank 15000
480300
Non Current Assets
Freehold Land 231200
Buildings 380000
Fixtures and Equipment 136000
747200
TOTAL 1227500
EQUITY AND LIABILITIES
Current Liabilities
Payables 148600
Outstanding wages 4900
Outstanding interest on loan 8000
161500
Non Current Liabilities
8% long term loan 100000
Provision for depreciation – Building 107000
Provision for depreciation – Fix &
equipment 105600
(83200-4800 +27200)
312600
Total Liabilities 474100
Shareholder's Equity
Ordinary Share capital 200000
5% Preference share capital 200000
Retained Earnings
Opening 161100
Add : Profits 193500
Less : dividends -40000
Less : Personal expenses -92400
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Share premium 100000
Closing balance 322200 322200
Shareholder's Equity 722200
TOTAL 1227500
SECTION B
Question 3
Difference between sole traders, partnership and the companies
Sole Trader Partnership Company
Sole trader is person who owns
the business by himself.
Business and person are one in
sole proprietorship.
Partnership is business entity
comprising of two or more
individuals. There are two
types of partnership general or
limited liability partnership.
Company may be stated by
one or members with a
common objective.
Sole trader and business are
considered as same and it is
not regarded as separate legal
entity.
Partnership firm is not a legal
entity separate from its
partners.
Company is a separate legal
entity from its owners. All the
events and transactions are
entered in name of company.
There are no legal formalities
to follow for starting the
business.
For setting up a partnership
firm company is required to
follow stated legal formalities.
Requirements are more than
sole trader but less than
starting a company (Chapple,
and et.al., 2020).
Number of legal formalities
are required to be completed
for starting a company. This
requires the company to
comply with all the
regulations.
Liability of the sole trader is
unlimited and extends to
personal assets of the owners.
Liability of the partner is
limited to the agreed
proportion between the
Liability of the company does
not extends to owner's
personal assets. It is limited to
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partners. However in general
partnership liability of the
partners is unlimited.
the company and its assets.
Sole traders do not share the
profits with any other. They
have the sole control over the
business
Profits of the firm are shared
between the partners as per
their agreed ratio.
Profits of the company are
shared between the
shareholders in proportion to
their shareholding (Kavanagh,
and Brigham, 2019).
Question 4
Legal obligation for performing external audit.
External audit are conducted for providing the management, board of directors or
shareholders of company with unbiased accounting for financial status. External audits are
conducted for understanding as well as accurately interpreting the financial statements. External
audit is required to be conducted of the organisation whose total assets and turnover exceeds
beyond the threshold limits as per Companies Act, 2006. Company is required to get its financial
records audited every year if it is public company, subsidiary of big group, authorised company
of insurance or carrying insurance related market activity. Banking company or corporate body
whose shares are been traded in regulated market of the European state.
Purpose and the outcome of the audit.
Objective of the external audit of the financial statements is to identify that the financial
statements of company fairly represents all the material aspects of the business. It ensures that it
represents true & fair view of all the material facts related to the performance and position of the
company (Bratten, Causholli, and Sulcaj, 2020). External audit also identifies that the accounting
transactions are recorded as per the set standards and complies general reporting frameworks
given by the statute. On the basis of inspection of accounting information auditors form their
opinion over the financial statements of the company.
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CONCLUSION
From the above report it could be concluded that finance and accounting are essential for
carrying out the operations of business. Finance is essential for meeting the funding requirements
of company and accounting is required to prepare financial statements of the entity. They are
prepared for decision making for internal as well as external users of the enterprise.
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REFERENCES
Books and Journals
Chapple, E., and et.al., 2020. Company Law: An Interactive Approach. John Wiley & Sons.
Kavanagh, D. and Brigham, M., 2019. The Quakers and the Joint Stock Company: Uneasy
Bedfellows. In Quakers, Business and Corporate Responsibility (pp. 111-128). Springer,
Cham.
Bratten, B., Causholli, M. and Sulcaj, V., 2020. Overseeing the external audit function: Evidence
from audit committees’ reported activities. Available at SSRN 3314334.
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