Introduction to Accounting: Balance Sheet, Cash Flow Statement and Profit and Loss

This report covers accounting process and functions of a business. It includes detailed description regarding financial statements such as balance sheet, profit and loss statement and cash flow statement in order to evaluate net earnings of the organisation. Grenco Plc. is taken into account to know the financials of the business concern.

Introduction to
Accounting
Component

Executive Summary
The following report covers accounting process and functions of a business. Accounting is
helps in analysing and identifying the Quantitative data. Profit and loss for the specified time
period is calculated by the firm with the help of the accounting. It helps in determining the nature
of a particular component. This report includes detailed description regarding financial
statements such as balance sheet, profit and loss statement and cash flow statement in order to
evaluate net earnings of the organisation.

Contents
Executive Summary.........................................................................................................................2
INTRODUCTION...........................................................................................................................4
MAIN BODY..................................................................................................................................4
1. Explain balance sheet, cash flow statement and statement of Profit and Loss. Also explain
the relationship between three.....................................................................................................4
2. Compute P & L Account and also comment on it...................................................................6
3. Analyse the Balance Sheet of previous year and comment on the financial statement...........7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
APPENDIX....................................................................................................................................10

INTRODUCTION
` The foremost step in associated with the accounting is identifying the nature of
transaction, then recording the transaction into the books of accounts. Process of accounting also
involves examining and summarising of financial report to get a picture of the business concern
(Ozdil and Hoque, 2019). In the following report, Grenco Plc. is taken into account to know the
financials of the business concern. In the following situation it consists of different financial
accounts such as Balance Sheet, cash flow statement and Statement of Profit and Loss. It also
explains in brief the integration of theses financial accounts. Moreover, Comment on the
financial health of the organisation.
MAIN BODY
Grenco Plc. is company which is based in UK which deals in retail products such as general and
grocery goods. Its headquarter is situated in Manchester. The organisation was established in the
year 1998 and covers a large market share of the country. Company has diversified its product
and now deals in products such as, electronics, financial services, petrol, telecoms, internet
services, toys, furniture and books. Company has grown over the year and an investment firm
wants to invest in the organisation. Durwent and Company financial services wants to invest in
the firm (Phan, Joshi and Tran-Nam, 2018).
.
1. Explain balance sheet, cash flow statement and statement of Profit and Loss. Also explain the
relationship between three.
Financial Statement are the final accounts of an organisation which are prepared by using
different business transactions. These statements are used to Analyse the Financial Statement of
the business concern. One the main purpose of financial is to view the actual picture of the
business organisation to user of information and helps in comparing the past performance with
the present performance. A company’s financial records only comprises of data of one year,
which is specified in the principles of accounting. It also helps in determining the various aspects
such as expenses, revenue, profitability of an organisation. Financial statement are mainly of
three types namely:
Income Statement: It helps in determining the income generated and expenses incurred
during the year. It helps in ascertaining the whether the business is earning profits and incurring
losses. Managers uses this information in order to use in reference to decrease the cost incurred
in the process of manufacturing and also helps in increasing the profits of the organisation. It
also studies the impact of increase or decrease in the profit of the organisation. In case of Grenco
Plc. the manager determines the profits by subtracting cost of goods sold from the revenue

earned by the company during the year. Further non-operating income is added to the operating
profit to determine the actual Net Profit of the organisation. This statement includes costs,
revenue, selling and administrative expenses as well as other expenses associated with it. The
statement also includes incomes, tax paid, net profit earned by the organisation(Madsen,
Nørmark and Hansen, 2018).
Balance Sheet: It is considered as the most significant among the financial statement as
it helps in determining the actual position of a business. It helps stakeholders to know the
outcome of business as well as the activities performed by the business is profitable or not. It
shows liabilities in one side which comprises of current liabilities, noncurrent liabilities,
shareholder’s funds. Asset side of balance sheet comprises of current assets and non-current
assets. It provides data in monetary terms which can be analysed and interpreted according to
need of the stakeholders. It provides a brief regarding the working of the organisation and the
assets and liabilities associated with the organisation. It context of Grenco Plc. helps in
determining the assets and liabilities that are procured from various sources. This thoughtful of
fiscal report can be said as a declaration of net worth or a fiscal position statement. It is based on
the monetary equation in which the total assets of the company are balanced with the total
liabilities of the corporation along with the owner's fund (Ballou, Heitger and Stoel, 2018).
Cash Flow Statement: This kind of monetary statement, dealings that are linked to the cash
arrivals as well as cash discharges are documented. Cash Flow Statement helps in making an
analysis of cash position of the company. It also enables in investigating how well a corporate is
supervision its cash and cash equivalents in order to pay the obligation as well as operating
expenditures. The cash flow statement of Grenco Plc enables the company in following the cash
dealings that are done by it in the three main segments. These three main divisions of the cash
flow report are described as under:
 Operating Activities: This is the first section of the cash flow report in which all the
operational expenses as well as working incomes of the corporate are included. The cash
movements from this type of action starts from the net profit or the net income and after
that it adjusts all the operating expenditures and profits (Tieghi, Padovani and Orelli,
2018).
 Investing Activities: This is the second section after making adjustments regarding the
operating activities. Within this section, the cash invest on assets of company, loss or

gain concerned with investments are recorded. Optimistic cash flow from this kind of
activity is measured as a good pointer as investors would prefer those groups which are
creating cash movements from its operating activities not from financing and capitalising
activities (Liu and Thorup, 2022).
Financing Activities: It is the last section of cash flow report in which the administration
ascertains the procedure of how the company can increase the cash for its operational growth and
success. When cash movements from such kind of activity is indicating positive value then it is
measured as there are more cash inflows in judgement to cash outflows of the company. When it
specified negative value then it is measured that the organisation is still writing off its debts as
well as duties within its business.
2. Compute P & L Account and also comment on it.
From the above explanation, Income Statement of the corporation helps in establishing the
net return of the corporate and its financial point in terms of profitability (Li, Henry and Wu,
2020). Grenco Plc prepares Income Statement because it aids the directors of the company in
determining where they can receive profits by raising revenues, dipping costs or both. The
Income Statement of Grenco Plc is given as under:
Grenco Ltd.
Profit and Loss Account
For the year ended 31 April 20xx
Particulars
Amount
(£)
Amount
(£)
Sales 395000
Cost of Goods Sold 323800
Gross Profit 71200
Operating expenses
Wages 35000
Rent 5500
Telephone Expenses 1220
Van Running Cots 200
Motor Expenses 180
Lighting and heating expenses 4000
General expenses 6000
Total Operating Expenses 52100
Operating Income 19100
Non- operating Income 0

Net Income 19100
It can be analysed from the above profit and loss account that the organisation is earning a Net
profit of £19100 which means that after generating a revenue of £395000 company is able to
generate a nominal amount of profit. Company has occurred a significant amount of cost in
whole process from manufacturing of goods to place it to the final consumer of the product. Firm
Gross Profit are excellent but the portion of operating expenses is also covers a significant
amount (Zeff, 2018).
3. Analyse the Balance Sheet of previous year and comment on the financial statement.
To analyse the balance sheet provided, some of the ratios are calculated as below:
Liquidity Ratio: This ratio describes the paying capacity of short term requirements of a
business organisation (Wells, 2019). It is studies two aspects namely current assets and current
liabilities.
Current Ratio = Current Assets / Current Liabilities
In year 2015 = 14500 / 5000
= 2.9 Times
In year 2016 = 13300 / 5200
= 2.56 Times
Quick Ratio = Liquid Assets / Current liabilities
In year 2015 = 9400 / 5000
= 1.88 Times
In year 2016 = 5400 / 5200
= 1.04 Times
Analysis: From the above calculated ratios it can be concluded that the organisations assets
have decreased from the previous year. Ideal current ratio and Liquid ratio are 2:1 and 1:1. In the
following case in year 2015 company’s liquid ratio 1.88 times which means that the company
can pay approximately twice of its current outstanding’s and Current ratio is 2.9 times which
means that the company have paying capacity of approximately 3 times than its current
liabilities. Organisation’s creditors have and increased and debtors have decreased.

Net Profit: From the Balance sheet it can be seen that the organisation’s Net Profit have
increased by 19.38 % over the previous year. In year 2015 firms Net Profit was 16000 which was
increased to 19100 in the year 2016.
Fixed Assets: Management have effectively managed its assets and acquired more assets in
the year 2016. Organisation’s long term assets have increased by 11.76% which is a significant
increase in the assets of an organisation.
Capital: Shareholders wealth have also shown an increase; it is because of the profitability
of the organisation. Increase in the wealth have positively impacted the owners of the firm which
have voluntary perused them to invest more in the firm. In 2016, Companies wealth have
increased by %.
Drawings: Owners of the organisation have made a significant amount of drawings every
year. Company. Drawing of the firm have increased by double of previous year’s drawing
amount.
CONCLUSION
From above description of the report, it has been concluded that the process of bookkeeping
has helped the firm in managing the economic transactions of the establishment. Bookkeeping
has played a key role within a corporate as it enables the managers of the concern in tracking
income as well as expenses and many more. Within this present report, the three main monetary
statements have been explained along with their interrelationships. Furthermore, there has been a
calculation of revenue or loss through Income Report in order to know fiscal Net profits of the
company. Additionally, comments on fiscal aspects of corporate have also been given within this
report.

REFERENCES
Books and Journals
Ozdil, E. and Hoque, Z., 2019. Accounting as an Engine for the Re‐Creation
Phan, D., Joshi, M. and Tran-Nam, B., 2018. The history of accounting standard setting in an
emerging transition economy: The case of Vietnam. Accounting History, 23(3), pp.379-
406.
Madsen, R.B., Nørmark, E. and Hansen, T.M., 2018, June. Accounting for Processing Errors in
AVO/AVA Data. In 80th EAGE Conference and Exhibition 2018 (Vol. 2018, No. 1, pp.
1-5). European Association of Geoscientists & Engineers.
Ballou, B., Heitger, D.L. and Stoel, D., 2018. Data-driven decision-making and its impact on
accounting undergraduate curriculum. Journal of Accounting Education, 44, pp.14-24.
Tieghi, M., Padovani, E. and Orelli, R.L., 2018. Accounting Reform in Italian Universities:
Internal Response to Accounting Change. Accounting Reform in Italian Universities:
Internal Response to Accounting Change, pp.117-138.
Liu, Q. and Thorup, K.R., 2022. Intelligent control method of accounting information based on
multi-objective evolution. International Journal of Information Technology and
Management, 21(1), pp.97-114.
Li, H., Henry, D. and Wu, X., 2020. The effects of accounting conservatism on executive
compensation. International Journal of Managerial Finance.
Zeff, S.A., 2018. Instilling historical perspective and a critical faculty in the first undergraduate
course in financial accounting. Issues in Accounting Education, 33(3), pp.95-100.
Wells, P.K., 2019. How does contact with accountants influence perceptions of
accounting?. Accounting Education, 28(2), pp.127-148.
Khalid, F.M. and et.al., 2018. Factors influencing high school students to major in
Accounting. Global Business and Management Research, 10(3), p.605.
BeU, P.W., 2018. Depreciation accounting and evaluation of decisions and performance. Toward
Greater Logic and Utility in Accounting: The Collected Writings of Philip W. Bell,
p.103.

APPENDIX