Accounting Principles: Income Statement, Balance Sheet, Financial Ratios, and Cash Budgets

This report discusses accounting principles and their application in financial statements, financial ratios, and cash budgets. It analyzes the performance of Village Wide Catering Company and explains the difference between sole trader, partnership, and non-profit organizations. It also explores the benefits of digital software for financial statement preparation. The report evaluates the profitability and liquidity ratios of the company and discusses the importance of financial statements to external users. Finally, it examines the benefits and limitations of budgetary planning and control.

ACCOUNTING
PRINCIPLES

Table of Contents
INTRODUCTION...........................................................................................................................3
INCOME STATEMENT AND BALANCE SHEET:.....................................................................3
a) Income Statement and Balance Sheet of Village Wide Catering Company.........................3
b) Difference between sole trader, partnership and non-profit organization........................3
c) Digital software for preparation of financial statements......................................................5
FINANCIAL RATIOS:...................................................................................................................6
a) Evaluation of financial ratio and limitations of ratio............................................................6
b) Financial statements importance to the external users....................................................10
CASH BUDGETS:........................................................................................................................11
a) Cash budget for 12 months its benefits and limitations......................................................11
b) Problems in budgetary planning and control and its solution.........................................14
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Accounting Principles are rules and guidelines which must be used by all the companies
and entities while preparing financial statements. The principles are made so that the statements
are prepared in standard format and can be compared (Weygandt and et.al., 2019). As the
financial statements are presented to all the stakeholders including external users so they must be
relevant, reliable, consistent, comparable and complete. Village Wide Catering Company is in
sole proprietorship. It serves with the catering services such for weddings, parties and small
events of corporate company meetings. This report will analyze the company’s performance
using financial ratios and importance of financial statements to external users. It will deal with
the computation of income statement, balance sheet and cash budget. Lastly, the report with
discuss about benefits and limitations of budgetary planning and control.
INCOME STATEMENT AND BALANCE SHEET:
a) Income Statement and Balance Sheet of Village Wide Catering Company
Above are mentioned in Appendix A.
b) Difference between sole trader, partnership and non-profit organization
The Village Wide Catering Company is a sole trader. It can take many advantages by
converting itself into a partnership as there is more than one person to handle business so
responsibility gets divided. More people in an organization means more diversification of
talent, skills and more creativity (Sole Trader vs Partnership, 2022). Obviously then profits
will be shared between two or more persons.
Basis Sole Trader Partnership Non-Profit
Organisation
Meaning When an individual
runs and owns a
particular business.
When two or more
individuals runs a
business and share
profits.
It is an organization
formed for welfare of
the society. Its aim is
not to make profits.
Income Statement In sole proprietorship
simple income
Here, also statement
of income is prepared
In non-profit
organisation instead

statement is prepared. same as sole trader. of income statement
income and
expenditure account
is prepared.
Liability It is unlimited as it is
owned and controlled
by an individual.
It is limited as the
partners share profits
as well as the losses
incurred in the firm.
If donations are not
used as per
instructions of the
donor then the
organization
Profits There are no such
differences between
income statement of a
sole trader and
partnership except
that the profits fully
belongs to the sole
trader.
The income statement
of sole trader and
partnership is similar
except the fact
relating to profit’s
division amongst the
partners.
In non-profit
organization profits
are not distributed
among the members
rather they are
reinvested in
business.
Agreement There is no need for
agreement as it is
owned by individual.
A deed is made
between the parties
regarding their profit
share and liabilities.
Trust deed is required
to be made. There is
legal framework
which is to be comply
with by the non-profit
organization.
Transfer of profits Profits are transferred
to the owner’s capital
account.
Respective partner’s
capital accounts are
credited with their
respective share of
profits.
Profits are transferred
to capital fund
account.
c) Digital software for preparation of financial statements

There are built-in reports in Digital software which gets automatically updated while
various monthly reports are fetched together by administrative assistance (Oyewo, 2021).
By using this platforms in an efficient way a lot of time can be saved and less manpower
is required. Various accounting reports like income statement, balance sheet and cash
flow statements can be downloaded in a go. The usefulness of digital software is
elucidated below:
 Another great advantage is customization of dates as per particular needs. Even
transactions of single day, particular month or year can be reviewed through this
feature for the purpose of preparation of financial statements. For instance if
Village Wide Catering Company wants to check the transactions for January
month of any particular year it can do the same by applying the first date of
January to last day of January.
 Sometimes it becomes very difficult for Village Wide Catering Company to
record each and every transaction of various accounts like company’s bank
account details, or credit card details (Zeff, 2018). Additionally it can take hours
to fetch details from various online platforms like bank account portal and record
it. But it just takes a click to sync data from these online platforms to digital
software via API.
 A software helps in presenting documents in a more presentable way. Financial
statements need to be accurate, easily understandable and in a more standardized
way in order to reach out to its various stakeholders.
 Financial statements are always ready to download once they are prepared and
saved in software.
 It automates many accounting processes. Digital software helps in reducing
manual work.
 Another advantage of using digital software is that it keeps itself updated on a
regular basis. Being humans it is very common and justifiable to not be aware of
every change in rules and regulations. Softwares are made to reduce the burden of
users. So it is their responsibility to be updated according to market changes.
 It is very common to lose data if maintained in physical terms and no backup is
created for such data. Financial statements once prepared needs to be stored

properly as it is a very tedious task to prepare them. Every software has a
specialty that it provides its users with a great feature of keeping backup of their
daily work.
For instance if Village Wide Catering Company opts for a particular software named
QuickBooks it can manage its various modules like contracts, service revenue together.
QuickBooks helps in preparation of financial statements accurately so that the company can
avoid the involvement of manual calculation as much as possible (AL-Hashimy, 2018). The
company can also adjust different items in financial statements as per its specific needs.
It can also generate statements where transactions occurred between Village Wide
Catering Company and its respective customer in previous month is shown so that company can
keep an eye over its long run customers in order to build a healthy relationship with its
customers. After considering above facts it can be clearly concluded that there are many
advantages of using digital software for the preparation of financial statements of the company.
This software has a lot of shortcuts which helps in reducing time and efforts. By using
the software burden on users get reduced. This software can be used by any business irrespective
of its size, nature, characteristics. It does not matter whether it is a company, sole trader,
partnership.
FINANCIAL RATIOS:
a) Evaluation of financial ratio and limitations of ratio
Financial ratios express the arithmetical relationship between the numerical values which
are taken from the financial statement (Financial Ratios, 2015 to 2022). Ratio analysis is
important as single accounting value does not communicate any meaningful information but
when expressed in relation to other figures than it provide more appropriate information. It is
quantitative analysis as it compare the ratio and make decisions accordingly. Ratios are classified
into different categories such as based on liquidity, solvency of the company, profitability and
performance of the company.
Financial ratios are a very important tool for measuring performances. Based on the
financial ratios various business decisions are taken regarding its investment policy, financing
policy, asset acquisition decisions. By comparing ratios of two or more years we can conclude
whether business is going in right direction or not. They are considered to be great tool because
they can be calculated and evaluated more easily as compared to other tools.

Based on the financial data of Village Wide Catering Company following ratios are
evaluated and are calculated in Appendix B:
Profitability Ratio
This ratio help in assessing the profits that can be earned by the company from sales,
investments, assets in balance sheet and by shareholder’s fund. This ratio show how company
can efficiently generate profits (Lee, 2022). The ratio when compared to the previous year then
comparison can be made to find the difference in profitability. When the ratio is high then it is
favorable for the company. Profitability ratio of Village Wide Catering Company is evaluated by
considering following ratios: Gross Profit Ratio- This ratio evaluate the profit after considering all the direct cost
relating to the product which is deducted from the revenue. High ratio is favorable for the
company as it refers to more efficient production process of the company. It helps to
compare two companies on the basis of there sales. The formula for evaluating is:
Gross Profit Ratio= (Gross Profit / Net Sales)*100
Ratio Formula Formula 2020 Formula 2021
Gross Profit Ratio Gross profit/Net Sales (110000/250000)*100 44.00% (150000/280000)*100 53.57%
After calculating it can be evaluated that Village Wide Catering Company’s gross profit
margin in previous year was 44% as compared to current year it is 53.57%. It indicates increase
in the gross profit by 9.57% in current year. It is favorable for the company as it has increased
comparatively from previous year (Al Karaawy and Al Baaj, 2018). This indicates that the
company’s production process is efficient and the direct costs are also reduced and the sales
revenue has increased.
 Net Profit Ratio- This ratio considers all the remaining cost including tax expense to
compute the company’s overall profits and financial health. It ascertain the net income or
net loss. This ratio help the external users to identify whether the company is able to
generate enough revenue to meet all the costs (Kadira, Tarmidi and Tokhidb, 2019). High
net profit ratio is favorable as it indicates that the company can sell products at high price
as the cost relating to it is low.
The formula for evaluating it is:
Net Profit Ratio= (Net Profit/ Net Sales)*100

Ratio Formula Formula 2020 Formula 2021
Net Profit Ratio Net profit/Net Sales (32000/250000)*100 12.80% (35000/280000)*100 12.50%
Village Wide Catering Company’s net profit for current year is 12.50% and it was
12.80% in previous financial year (Maheshwari, Maheshwari and Maheshwari, 2021). As
compared to the previous year the company’s net profit has reduced by 0.30% in current year.
The gross profit was high and net profit is low as compared to the previous year which indicates
that the indirect cost incurred would be high or more as compared to last year. The company
should reduce its cost by using economies of scale and reducing the unnecessary cost.
Liquidity Ratio
The term liquidity means the ability of the company to pay its debt without raising fund
from outside (Freeman, 2020). It shows the ability of the company to pay off its obligations and
short term liabilities. The short term lenders and the creditors see this ratio and then decide
whether the company would be able to pay off. To check the liquidity of Village Wide Catering
Company following ratio are considered: Current Ratio- This shows that whether the business has adequate current assets to repay
its current liabilities (Abednazari and et.al., 2018). The higher ratio denotes company’s
better liquidity position. The ideal current ratio is 2:1 which signifies that against its short
term liability the company has double the current asset. Formula of this ratio is:
Current Ratio= Current Asset/Current Liabilities
Ratio Formula Formula 2020 Formula 2021
Current Ratio Current Asset/Current Liabilities 25500/12100 2.11 30000/20000 1.5
The current ratio of Village Wide Catering Company in last year was better as compared
to the current year. As in last year the ratio was 2.11 times but in current year it reduced to 1.5
times. The ratio if falls below 1 then it indicates that the company might be not able to repay its
liabilities. As in current year the ratio reduced by 0.61 times which shows that it might have
problem in inventory and debtor management. To increase the ratio it should fast the debtor
conversion cycle by reducing the credit period allowed. Quick Ratio- As compare to the current ratio it is more exact ratio. It excludes inventory
and prepaid expenses from current assets as it concentrates on really liquid assets. The
another name of this ratio is Acid test ratio or Liquid ratio. The ideal quick ratio is
considered to be 1:1 which means that against the current liabilities the company have

equal amount of quick assets which can be readily converted into cash. Formula to
formulate the ratio:
Quick Ratio= (Current Assets – Stock – Prepaid Expenses)/ Current Liabilities
Ratio Formula Formula 2020 Formula 2021
Quick Ratio Quick Asset/Current Liabilities 14500/12100 1.20 15000/20000 0.75
Quick Asset = Current Assets - Stock - Prepaid Expense 25500-11000 30000-15000
The quick ratio as compared to last year is low of Village Wide Catering Company. As in
current year it is 0.75 times but last year it was 1.20 times. The ratio below 1 is not good as it
indicates that the company will not be able to pay its current debt as it is not able to liquidate its
quick assets. The company should increase its liquidity by cutting down costs and working on
debtor conversion cycle.
Asset Usage Ratio
This ratio measures how efficiently the company is using its assets and the profit it make
while disposing the assets. It help to measure the capacity of the asset for production. To find the
asset usage of Village Wide Catering Company following ratios are being used: Asset Turnover Ratio- It measures the assets used in relation to the sales of the company.
It indicates how the assets are used efficiently to increase the revenue in the business. The
higher the ratio it indicates more efficiently the asset is used. The formula is given below:
Asset Turnover Ratio= Net Profit / Average Total Assets
Ratio Formula Formula 2020 Formula 2021
Asset Turnover Net Profit/Average Total Asset 32000/110500 0.290 35000/{(110500+135000)/2} 0.285
The ratio of Village Wide Catering Company for last year was 0.290 and in current year
it is 0.285 there is only a slight difference while comparing both the years (Kian, Faghih and
Amiri, 2021). This indicates that the company have decent asset turnover ratio and it uses its
assets efficiently and can improve the ratio even more. Fixed Asset Turnover Ratio- This ratio indicates that how the company is using its fixed
asset to generate its revenue (Bowers, 2018). The high ratio implies that the company is
using its asset effectively. Its formula is:
Fixed Asset Turnover = Net Profit/ Average Fixed Asset
Ratio Formula Formula 2020 Formula 2021
Fixed Asset Turnover Net Profit/Average Fixed Asset 32000/85000 0.376 35000/{(85000+105000)/2} 0.368

The Village Wide Catering Company’s ratio is reduced by 0.008% as compared to last
year. In last year it was 0.376 times and in current year 0.368 times the difference may be due to
the increase in investment of fixed asset by the company.
Investment Ratio
This ratio analysis that how much return is made due to investment. The shareholders
invest in the company on the basis of this ratio (Stovall and Neill, 2017). It shows how much
return is made on the fund from the shareholders. It also calculate the return from the capital
employed in the company. The following ratios were considered for Village Wide Catering
Company:
 Return on Equity- It signifies the return which is generated on the shareholders fund. It
also indicate how the company is using the funds of the shareholders to grow its profits
and expand its business. The formula for computing it is:
Return on Equity= Net Profit/ Owner’s Equity
Ratio Formula Formula 2020 Formula 2021
Return on Equity Net profit/Owner's Equity (32000/150000)*100 21.33% (35000/185000)*100 18.92%
The ROE was 21.33% in previous year and 18.92% in current year of Village Wide
Catering Company (Weygandt, Kimmel and Kieso, 2019). The return is reduced by 2.41% in
comparison to last year. This signifies that the return on equity is less due to inefficient use of the
owner’s fund.
The limitations of using ratios: Effect of inflation- As the financial statements are made periodically so there is a time
difference in which inflation increases (Al-Obaidi, 2021). Thus, the last year statements
are not comparable as the effect of inflation is not made. Ignore Qualitative Factors- Ratio only considers quantitative factors the qualitative
factors are ignored while measuring them. There might be certain other factors which
may influence the decision making are ignored while computing the ratios. Manipulation- To show the better position of company it does window dressing and
manipulate its statements. The ratios calculated from manipulated statements will not
show correct position. Due to this the decision made taking in consideration this
statements would mislead the users.
b) Financial statements importance to the external users

As Village Wide Catering Company is a sole trader its financial statements are
important for some of the external stakeholders which are: Suppliers- They supply goods and services on credit to the company. The creditor see the
financial statement so that it can analyse that the company would be able to pay its dues
on time and the credit worthiness of the company. On the basis of the repayment the
suppliers can decide the credit period to be allowed to the company. Banks and Financial Institutions- They require financial statements so that according to
the profits of the company they can decide how much loan to be granted (Cheng and
et.al., 2022). They review the financial statements on regular basis so that they can
analyse the creditability. The cash credit limit is allowed on the basis of financial
statements. Public- The public is interested to know the profitability and position of the company so
that they can make decisions relating to business with the help of financial statements.
Which help in determining the contribution made by the company for development of the
economy. As the company uses the resources so it is the responsibility of the company to
take proper care of the environment. Government Authorities- It help the government to decide the rules and regulations on
the company. To determine whether the company had levied correct tax on the income. Researchers- They use the financial statements of the company as the basis for the
research work. They use these statements to do projects relating to the survey. Customer- Though it is not considered that financial statements are very important for
decision making by customer whether to buy the product of company or not. But these
statements can prove to be of a great help by analyzing its sales or revenue to evaluate
whether other people are satisfied with the product of the company or not.
CASH BUDGETS:
a) Cash budget for 12 months its benefits and limitations
Below are some of the assumptions taken while preparing cash budget in Appendix C:
It is assumed that owner’s capital was introduced in first month itself. The bank loan was
granted and received in first month and Machinery and equipments were assumed to be bought
in first month. Opening balance of cash is assumed to be zero.

The benefits and limitations of cash budget and budgetary control and planning are explained
below:
Cash Budget- It estimates the cash inflow and outflow of the company for specific period. It
helps to assess the company whether there is adequate cash available to fulfill the needs and help
to allocate the cash efficiently. The benefits and limitation of cash budget are explained below:
Benefits: Maintenance of cash balance- Cash budget helps to maintain the adequate cash balance
for future plans so that the company do not run out of cash. Village Wide Catering
Company prepare the cash budget on annual basis (Folsom and et.al., 2017). It help the
company to maintain its cash and forecast the future inflow and outflow of cash. Reduce Debt- Through the budget the company can easily evaluate the deficit and
surplus cash. There is no need of excess borrowings for Village Wide Catering Company
in case of emergency as it already have cash surplus. Reality check- Without budget there is no fixed direction for making expenses. With
budget company gets to know the reality where to expense out more and where to cut the
expenses. Village Wide Catering Company can create a boundary within which it has to
perform its business activities.
Limitations: Use of estimates- the whole process of budgeting relies on estimates where there is
involvement of estimate less accuracy is expected out of it. Village Wide Catering
Company also estimated that sales will increase as and whenever marketing expenses are
increased in the same proportion (The Benefits and Limitations of Budgets, 2022). It is
very rare that sales will increase at same percentage every month because it is very much
probable that there will be some or the other fluctuations in the business. It also estimated
that rent expenses will get reduced by fifteen percentage every month which might come
true only if there is some contract with the owner of the property.
 Manipulation of figures-Managers may manipulate the cash budget as per their needs
and motives. There can be involvement of personal biasness in the preparation of cash
budget. Managers can manipulate the figures of cash budget in order to show less
financing needs so that they can be praised and recognised for managing the expenses in
an effective way. In future if more cash is needed in addition to what is shown in cash

budget then company can go into deficit. Hence it is very important to prepare cash
budget cautiously.
Budgetary planning and control- Budgetary planning is the process of making budget and then
using it as a basis. It is most useful for management for setting performance standards and
comparing them by computing variance between them.
Benefits
 Expense control-budgetary planning and control is one of the best control system
through which the company can put a limit on expenses. It help Village Wide Catering
Company in creating standards and these standards can be used as a basis for
measurement for evaluating one’s performance.
 Deviation- Through budget Village Wide Catering Company can find deviations by
comparing figures of budget with actual figures and can take actions against such
deviations as it may seem appropriate.
 Efficient- Through budgetary planning and control business operations can be performed
in a more better and efficient way. Village Wide Catering Company can raise the funds as
budgets give a good idea of company’s future planning. Hence it provides a great help to
Village Wide Catering Company in attracting banking and financial institutions for
giving funds as they can review and analyze company’s future atleast on an estimated
basis.
Limitations
 Less flexible– Budget is very rigid in nature . It does not allow flexibility as it is prepared
without taking care of other external factors. Village Wide Catering Company would
require more time as it involves various preliminary steps before finalizing figures of
budget. Hence it is not a simple and quick process as it may seem. It also involves
collection of data, tools for forecasting in future.
 Use of estimates- Budget is prepared by evaluating present condition and forecasting of
future situation. Future situations can change as compared to what was estimated on date
of preparation of budgetary planning and controlling. So they need to be updated.
 Co-ordination required-Just making and publishing budget is not enough. It is also very
important to analyze the needs of business, its workers, employees, directors while

preparation of budget because they are the only ones who are responsible for
implementing budget. Hence coordination is required between the employees for
effective implementation of budgetary planning and controlling.
 Expensive process- Making budget involves a lot of expenses regarding data collection,
its evaluation. If Village Wide Catering Company is planning for expansion it may
sometimes require an expert for the purpose of analyzing and evaluating various aspects
of budget. It may involve a lot of cost to hire an expert who is specialized in the process
of making budgets.
b) Problems in budgetary planning and control and its solution
It can be seen that the closing balance of cash is increasing every month by some
percentage. But it cannot be concluded that the company is performing good in terms of
liquidity. Cash budget is just an estimate of one’s liquidity position. It is not an actual statement
of financial needs of business. Let’s analyse the cash budget of Village Wide Catering Company
in a detailed way.
As it can be seen that in first month there is additional cash inflow of owner’s capital and
proceeds from bank loan, which was assumed to be receipt of first month, due to which receipts
are more in comparison to other months (Retolaza and San-Jose, 2021). There is an additional
expenditure incurred on purchase of machinery and equipment in first month. So both revenue
and expenditure got nullified by each other. Had machinery and equipment been bought in some
other month it would have created a deficit in that particular month especially if incurred in first
few months as there is less availability of cash.
Village Wide Catering Company has estimated that as and when marketing expenses are
increased by ten percent per month sales revenue will get increased by twenty percent. The
company can plan to increase its marketing expenses but only in one case if there is sufficient
availability of funds.
The company has assumed that funds will increase by increased sales revenue which is
not correct as it is not sure that sales are going to increase. So both of these things are inter
dependent on each other. One will increase only if other increases. Here there is a need of more
reliable and independent source of income so that more cash inflow is there. This source can be
used for marketing expenses.

It is also estimated by company that they will receive cash on credit sales in month next
to the month in which sales was done. It is not probable that company will receive the cash in
next month. Bad debts happen frequently in the business due to which it cannot be concluded
that company will receive cash in due month. So it is best estimate to provide for less cash to be
received on credit sales. In case even if less cash is recovered from debtors cash budget is
reliable as already bad debts effect was given in cash budget.
Additionally company has also estimated that its rental expenses will get reduced by
fifteen percent. This estimation is justifiable if company is planning to acquire some property on
its own name or it has entered into some contract under which rates to levy rent will get reduced.
Hence company needs to be more conservatism or practical in its estimation regarding
preparation of cash budget. It needs to assess real life problems and situations also and should
give their effects too. Otherwise present liquidity position gives a good sign if this budget is
followed properly.
Appendix A
Particulars Amount
A Net Sales 1,79,200.00£
B Cost of Sales 1,55,200.00£
Opening Stock 20,500.00£
add Purchases 82,000.00£
add Wages and Salaries 65,200.00£
less Closing Stock 12,500.00£
C Gross Profit (A-B) 24,000.00£
D Selling general and administrative expenses 55,980.00£
Depreciation - Machinery and equipment £16000
- Van £3000 19,000.00£
Rents and Rates 14,400.00£
less Prepaid Rent 1,000.00£
Utility Bill 8,000.00£
add Outstanding Bill 500.00£
Interest 500.00£
Provision for doubtful debts 8,500.00£
Bad Debts 3,380.00£
Insurance Premium 2,200.00£
Petrol 500.00£
Net Income/(Net Loss) [C-D] £(31980)
Income Statement for year ended 31 March 2022

Assets Amount Liabilities Amount
Current Assets Current Liabilities
Cash in hand and Bank 27,200.00£ Trade Creditors 13,700.00£
Inventory 12,500.00£ Outstanding Utility Bill 500.00£
Debtors net (£16900-£3380) 13,520.00£ Total Current Liabilities 14,200.00£
Prepaid Rent and Rates 1,000.00£
Total Current Assets 54,220.00£ Long Term Liabilities
Bank Loan 45,000.00£
Property, Plant and Equipment Total Long Term Liabilities 45,000.00£
Machinery and equipments net
(£80000-£16000) 64,000.00£
Van net
(£12000-£3000) 9,000.00£ Stockholder's Equity
Total Property, Plant and Equipment 73,000.00£ Owner's Capital 1,00,000.00£
Less: Net Loss 31,980.00£
Total Stockholder's Equity 68,020.00£
Total Assets 1,27,220.00£ Total Liabilities and Stockholder's Equity 1,27,220.00£
Balance Sheet
March 31, 2022
Appendix B
S.No. Ratio Formula Formula 2020 Formula 2021
1 Gross Profit Ratio Gross profit/Net Sales (110000/250000)*100 44.00% (150000/280000)*100 53.57%
2 Net Profit Ratio Net profit/Net Sales (32000/250000)*100 12.80% (35000/280000)*100 12.50%
S.No. Ratio Formula Formula 2020 Formula 2021
1 Current Ratio Current Asset/Current Liabilities 25500/12100 2.11 30000/20000 1.5
2 Quick Ratio Quick Asset/Current Liabilities 14500/12100 1.20 15000/20000 0.75
Quick Asset = Current Assets - Stock - Prepaid Expense 25500-11000 30000-15000
S.No. Ratio Formula Formula 2020 Formula 2021
1 Asset Turnover Net Profit/Average Total Asset 32000/110500 0.290 35000/{(110500+135000)/2} 0.285
2 Fixed Asset Turnover Net Profit/Average Fixed Asset 32000/85000 0.376 35000/{(85000+105000)/2} 0.368
S.No. Ratio Formula Formula 2020 Formula 2021
1 Return on Equity Net profit/Owner's Equity (32000/150000)*100 21.33% (35000/185000)*100 18.92%
PROFITABILITY RATIO
Liquidity Ratio
Asset Usage
Investment
Appendix C

Months 1 2 3 4 5 6 7 8 9 10 11 12
A Receipts
Sales revenue 20,000.00£ 24,000.00£ 28,800.00£ 34,560.00£ 41,472.00£ 49,766.40£ 59,719.68£ 71,663.62£ 85,996.34£ 1,03,195.61£ 1,23,834.73£ 1,48,601.67£
Cash 16,000.00£ 19,200.00£ 23,040.00£ 27,648.00£ 33,177.60£ 39,813.12£ 47,775.74£ 57,330.89£ 68,797.07£ 82,556.49£ 99,067.78£ 1,18,881.34£
Cash received on credit sales - 4,000.00£ 4,800.00£ 5,760.00£ 6,912.00£ 8,294.40£ 9,953.28£ 11,943.94£ 14,332.72£ 17,199.27£ 20,639.12£ 24,766.95£
Proceeds from owner capital 1,00,000.00£ - - - - - - - - - - -
Bank loan 50,000.00£ - - - - - - - - - - -
Total- A 1,66,000.00£ 23,200.00£ 27,840.00£ 33,408.00£ 40,089.60£ 48,107.52£ 57,729.02£ 69,274.83£ 83,129.79£ 99,755.75£ 1,19,706.90£ 1,43,648.28£
B Expenses
Marketing exp 3,000.00£ 3,300.00£ 3,630.00£ 3,993.00£ 4,392.30£ 4,831.53£ 5,314.68£ 5,846.15£ 6,430.77£ 7,073.84£ 7,781.23£ 8,559.35£
Rent exp 11,500.00£ 9,775.00£ 8,308.75£ 7,062.44£ 6,003.07£ 5,102.61£ 4,337.22£ 3,686.64£ 3,133.64£ 2,663.59£ 2,264.06£ 1,924.45£
Purchases 3,500.00£ 3,500.00£ 3,500.00£ 3,500.00£ -£ 3,500.00£ 3,500.00£ 3,500.00£ 3,500.00£ 3,500.00£ 3,500.00£ 3,500.00£
Wages 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£ 2,500.00£
Utility expense 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£ 1,000.00£
Loan and interest payment 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£ 2,000.00£
Machinery and equipments 85,000.00£ - - - - - - - - - - -
Total-B 1,08,500.00£ 22,075.00£ 20,938.75£ 20,055.44£ 15,895.37£ 18,934.14£ 18,651.90£ 18,532.79£ 18,564.41£ 18,737.44£ 19,045.28£ 19,483.80£
C Net receipts (A-B) 57,500.00£ 1,125.00£ 6,901.25£ 13,352.56£ 24,194.23£ 29,173.38£ 39,077.12£ 50,742.04£ 64,565.39£ 81,018.32£ 1,00,661.62£ 1,24,164.49£
D Opening balance of cash -£ 57,500.00£ 58,625.00£ 65,526.25£ 78,878.81£ 1,03,073.04£ 1,32,246.42£ 1,71,323.54£ 2,22,065.58£ 2,86,630.97£ 3,67,649.28£ 4,68,310.91£
(C+D) Closing balance of cash 57,500.00£ 58,625.00£ 65,526.25£ 78,878.81£ 1,03,073.04£ 1,32,246.42£ 1,71,323.54£ 2,22,065.58£ 2,86,630.97£ 3,67,649.28£ 4,68,310.91£ 5,92,475.39£
CASH BUDGET
CONCLUSION
From the above report it can be concluded that in the current year the income statement
shows net loss of (£ 31,980). As Village Wide Catering Company is a sole trader to convert it
into a partnership firm or a non-profit organization it need to think upon the motive and liability.
As in partnership 2 or more person are required. The company if uses Quickbooks software then
its time will be saved, manual man work will be decreased and financial reports will be made
easily. Through digital software the impact of all the entries will be made simultaneously. The
financial ratios helps to identify the financial condition in comparison to two years. By
computing the company ratios it can be concluded that the gross profit margin of the company
has increased by 9.57% as compare to previous year. But it’s return on equity decreased by
2.41% which is not a good sign as it shows that the owner’s capital is not efficiently utilized. The
financial statements are very important for the company to prepare so that the external users can
use them to decide the financial position of the company. The cash budget presented shows the
cash inflow and outflow which help to identify the cash surplus and deficit during the year.

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