Accounting Fundamentals: Income Statement, Balance Sheet, and Ratio Analysis

ACCOUNTING
FUNDAMENTALS

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1...................................................................................................................................3
a) .................................................................................................................................................3
b) Explaining reasons for why balance sheet balances ..............................................................5
QUESTION 2...................................................................................................................................5
a) Computation of ratio metrics...................................................................................................5
b) Commenting on the financial performance of Chocco plc.....................................................7
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting fundamentals provides the basic knowledge regarding recording,
summarizing, analysing and interpreting information for making strategic decision. In current
era, it is important for companies to utilize accounting fundamental for gaining competitiveness
for proper functioning of organization. The current report will comprise information regarding
income statement and balance sheet. Present report will give emphasis on explaining the reason
for why balance sheet always balances. Current case study will include ratios calculations and
their interpretation for having analysing financial position of company.
QUESTION 1
a)
Profit and loss statement for the year ended 31st December 2020
Particulars Amount
Sales 826650
Less: Cost of Sales -578650
Gross Profit 248000
(-) Administrative expenses -30000
(-) Interest paid -4000
(-) Directors remuneration -5000
(-) Distribution costs -28000
(-) Sales commission -3000
(-) Corporation tax -68000
Net Profit 110000
(-) Preference dividend -30000
Earnings available to equity shareholders 80000
(-) Ordinary dividend -20000
Retained earnings 60000

From the above table it can be articulate that net profitability of Eccles plc is 110000 which is
showing firm is performing good. In order to earn the described level of net profit organization
has incurred various expenses in turn higher gain can be achieved (Connolly and Bank, 2021).
Expenses that are conducted by specified entity includes administration, interest, distribution
cost, sales commission, etc. in addition to this, these expenses has allowed firm to have ability
to sustain in industry (Müllner,2017). On the basis of this it can be interpreted that firm is
paying larger attention on maintaining ability to have required level of profitability in respect to
make functioning efficient.
Statement of financial position as on 31st December 2020
Particulars Amount Amount
ASSETS
Fixed assets
Plant and equipment 632730
Current assets
Stock 329620
Debtors 171105
Cash and Bank 12900
Total assets 1146355
LIABILITIES
Long term liabilities
4% Debentures 100000
Current liabilities
Creditors 171355
Outstanding commission 3000