Introduction to Accounting and Finance

Introduction to
Accounting and Finance

Contents
INTRODUCTION...........................................................................................................................1
Part 1 ...............................................................................................................................................1
Income statement.........................................................................................................................2
Statement of financial position ...................................................................................................2
PART 2............................................................................................................................................3
a) calculation of contribution ......................................................................................................3
b) Calculation of break even point (BEP) and margin of safety (MOS) in terms of revenue and
units :............................................................................................................................................3
c ) Computation of profit for Stockstone Ltd when they produce 48000 electric kettle ............4
Evaluation of new strategy whether to adopt this or not for Stockstone Ltd...............................4
E ) Assumptions of break even model and analysis of the model used successfully in different
types of business :........................................................................................................................5
PART 3............................................................................................................................................6
Part C – Rockham Plc. ....................................................................................................................6
a. The calculations of various appraisal techniques.....................................................................6
b. Investment appraisal techniques ............................................................................................8
c. The advantages and disadvantages of budgets.........................................................................9
CONCLUSIONS............................................................................................................................10
REFERENCES..............................................................................................................................10

INTRODUCTION
Accounting is a method of maintaining records, classifying and summarizing transactions and
interpreting results to the interested parties and making reports. On the other hand, finance is
defined as monetary transactions which are occurred during the year. Financial accounting refers
to the particular branch of accounting system which helps in preparing financial statement which
includes income statement, balance sheet and cash flow statement (Adler and Dixon, 2021). This
report segregate into three parts in which first part consists of preparing income statement and
balance sheet. Second part involves around marginal costing in which calculation of
contribution, break even point and margin of safety. In the end, report includes calculation of
capital investment techniques and recommendations and some benefits and demerits of
investment techniques. There is key merits and limitations of budget also discussed in this
written report.
Part 1
Financial statements are the type of written records which means that activities of business and
performance of financial of an organisation. For every organisation, financial statements
comprises of statement of position, income statement and cash flow statement. The main benefits
of financial statements are to ascertaining whether a enterprise has the ability to pay its debts and
to find out the company's financial ratios through the use of financial statements. But have some
demerits also which is it can be easily manipulated which leads to false information to the
outsiders. Financial statements are based on the historical nature which might get lead to future
results of a company.
One of the economic statements is the stability sheet. It indicates an entity's belongings,
liabilities, and stockholders' fairness as of the record date. In this record, the whole of all
belongings should healthy the blended overall of all liabilities and fairness. The asset facts at the
stability sheet is subdivided into modern-day and long-time period belongings. Similarly, the
legal responsibility facts is subdivided into modern-day and long-time period liabilities

(Bradbury and Scott, 2021). This stratification is beneficial for figuring out the liquidity of a
business. Balance sheet provides an detail overview of organisation resources like assets and
shareholders equity and liabilities.
It suggests the consequences of an entity's operations and economic activities for the reporting
period. It normally includes the consequences for both the beyond month or the beyond year and
might encompass numerous durations for evaluation purposes. Its normal shape is to start with
all sales generated, from which the fee of products bought is subtracted, after which all selling,
general and administrative cost. Income statements is segregated into expenses and revenues
which will result in providing net income and earning per share.
Income statement
Income statement of Racca limited
for the year ended 31st December, 2021
PARTICULARS AMOUNT(£) PARTICULARS AMOUNT(£)
To purchases account 525000 By sales account 633000
To wages (117000+2175) 119175 By closing stock 347175
To gross profit c/d 336000
Total 980175 Total 980175
To rent account 90000 By gross profit b/d 336000
To provision for tax 5775
To depreciation on delivery van 9600
To utilities consumption 7725
To van running expenses 33600
To bad debts 1500
To discount allowed 64500
To net profit 123300
Total 336000 Total 336000