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

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