Accounting Concepts: Impact on Account Balances

The assignment discusses the relationship between various accounts in a company's financial statements, specifically focusing on ten accounts: Cash, Inventories, Sales Revenue, Other Income, Plant and Equipment, Interest Expense, Sales and Marketing Expenses, Occupancy Expenses, Trade and Other Payables, and Borrowings. The analysis reveals how changes in one account affect other accounts, demonstrating the accounting concept of double-entry bookkeeping. The study concludes that proper analysis and application of accounting rules, concepts, and procedures are essential for understanding account balances. It is recommended that account balances be analyzed carefully to ensure accurate financial reporting.

EXECUTIVE SUMMARY
The report has been prepared for JB Hi-Fi Limited by analyzing its annual report for the year
ended on 30th June, 2017. Financial statements have been prepared by management by using the
applicable accounting standards and accounting policies. The main intent of the report is to
understand the different financial parameters by analyzing the financial statements of the
company which can affect the decision making power of the different stakeholders. The another
major objective for which the report has been prepared to analyze the impact of decrease and
increase on the account side, account balance and other accounts.
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Contents
EXECUTIVE SUMMARY.................................................................................................................................2
INTRODUCTION...........................................................................................................................................3
VALUE IN CONSOLIDATED FIANANCIAL STATEMENTS.................................................................................5
CASH (AND EQUIVALENTS)......................................................................................................................5
INVENTORIES...........................................................................................................................................6
SALES REVENUE.......................................................................................................................................6
OTHER INCOME.......................................................................................................................................6
PLANT & EQUIPMENT..............................................................................................................................6
INTEREST EXPENSE (FINANCIAL COSTS)...................................................................................................7
SALES AND MARKETING EXPENSES..........................................................................................................7
OCCUPANCY EXPENSES............................................................................................................................7
TRADE AND OTHER PAYABLES.................................................................................................................8
BORROWINGS (NON-CURRENT)..............................................................................................................8
NORMAL ACCOUNT BALANCES AND EFFECT ON DECREASE IN ACCOUNTS................................................8
CASH (AND EQUIVALENTS)......................................................................................................................9
INVENTORIES...........................................................................................................................................9
SALES REVENUE.......................................................................................................................................9
OTHER INCOME.......................................................................................................................................9
PLANT & EQUIPMENT..............................................................................................................................9
INTEREST EXPENSE (FINANCIAL COSTS)...................................................................................................9
SALES AND MARKETING EXPENSES........................................................................................................10
OCCUPANCY EXPENSES..........................................................................................................................10
TRADE AND OTHER PAYABLES...............................................................................................................10
BORROWINGS (NON-CURRENT)............................................................................................................10
EFFECT ON OTHER ACCOUNTS ON INCRAESE IN BALANCES......................................................................10
CASH (AND EQUIVALENTS)....................................................................................................................10
INVENTORIES.........................................................................................................................................10
SALES REVENUE.....................................................................................................................................11
OTHER INCOME.....................................................................................................................................11
PLANT & EQUIPMENT............................................................................................................................11
INTEREST EXPENSE (FINANCIAL COSTS).................................................................................................11
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SALES AND MARKETING EXPENSES........................................................................................................11
OCCUPANCY EXPENSES..........................................................................................................................11
TRADE AND OTHER PAYABLES...............................................................................................................11
BORROWINGS (NON-CURRENT)............................................................................................................12
RECOMMENDATION & CONCLUSION........................................................................................................12
REFRENCES................................................................................................................................................12
INTRODUCTION
The label of the report is Financial Investigation of JB Hi-Fi Limited. Financial Investigation of
the company totally dependent on different financial parameters present in the company’s
financial statement. The financial parameters are reflected by different account balances in the
consolidated Financial Statements of any company which has been derived and shown in the
Annual report by the management. The report has been prepared to assess the effect of these
account balances on the financial fitness of the company.
The report has been prepared in different sections consisting of the aims of the report. The first
section identifies the different values that have been shown in Consolidated Financial Statement
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by the company. The next section specifies the normal balances that have been presented in the
Annual Report of the company and the debit or credit effect on decrease in respective account
balances. The third section describes the effect on other account with an increase in the balances
of the respective accounts. In this manner report has been prepared considering the Annual
Report of JB Hi-Fi Limited for the year ended on 30th June, 2017.
VALUE IN CONSOLIDATED FIANANCIAL STATEMENTS
The account balances has been reflected in the Consolidated Financial Statements consists of the
balances of all the units, associates, joint venture subsidiary etc. as on year end and reflects the
total value for the company which the company owns and owes on the reporting date (Sinha,
2012). The below are certain items with the value which has been shown in the consolidated
financial statements as on 30th June, 2017:
CASH (AND EQUIVALENTS)
The cash and cash equivalents are the financial assets held by the company on a particular date
which shows the financial strength in terms of the liquidity of the company. These include highly
runny asset such as deposited in banks, paper currency, coin currency, and cash at different
places of the company petty cash, short term investment, money market accounts, and savings in
banks.
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The value of the cash and cash equivalent as per Note no 20 of the Consolidated Financial
Statements is $ 72.8 million as on 30th June 2017.
INVENTORIES
Inventories categories in Operating Assets of the company are the stock in hands of the goods in
which business traded. Inventories can be Finished Goods, Raw Material and Work in Process.
In the given company, Inventory consists of Finished Goods only and is valued as per the normal
accounting practice which states lower of cost or net realizable value.
The value of the Inventory as per Note no 7 of the Consolidated Financial Statements is $ 859.9
Million as on 30th June 2017.
SALES REVENUE
Sales revenue is regarded as the gross receipts of the company or the turnover of the company. It
is the receipts generated from the operations of the business of the company. The company has
received the revenue from three sources namely sale of goods, income from commission and
provisioning of services.
The value of the Sales Revenue as per the Consolidated Statement of Profit or Loss is $ 5628.0
million as on 30th June 2017.
OTHER INCOME
The other income is in the nature of income and is shown in the statement of profit and loss. As
per the note number 30 of the financial statements, the other income includes the gain or loss that
the company has earned on the hedging and derivative instruments. It includes two portion cash
flow hedges and investment hedges.
The value of the Other Income as per the Consolidated Statement of Profit or Loss is $ 2.0
million as on 30th June 2017.
PLANT & EQUIPMENT
Plant and equipment is the assets of the company through the utilization of which the company
will be able to perform its functions in an effective and efficient manner. Plant and equipment
are valued at cost less the depreciation and the impairment if any. Plant and Equipment is
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considered as the major part of the assets of the company. It represents the part of net worth of
the company.
The value of the Plant and Equipment as per the Consolidated Statement of Balance Sheet is $
208.20 million as on 30th June 2017.
INTEREST EXPENSE (FINANCIAL COSTS)
Interest expense represents the cost of borrowing the loan from the financial institutions or the
banks. The interest expense are generally booked when the company has borrowed the amount
for the expansion of the company, for making the investment like purchase of car, machinery or
any other similar thing. Borrowing costs which does not forms part of the noncurrent assets are
expensed in profit and loss account.
The value of the Interest Expense as per the Consolidated Statement of Profit and Loss is $ 10.70
million as on 30th June 2017.
SALES AND MARKETING EXPENSES
Sales and marketing expenses are generally incurred by each and every company for promoting
the products and services of the company across the market and also across the globe. The sales
and marketing expenses play a very important role in bringing the growth in the business. The
said expenditure is counted as the major expense head in the statement of profit and loss under
the indirect expense.
The value of the sales and marketing Expense as per the Consolidated Statement of Profit and
Loss is $ 580.10 million as on 30th June 2017.
OCCUPANCY EXPENSES
The occupancy costs are the expenses incurred for occupying any kind of space for the purpose
of the business like taking the space on rent or lease. It represents the indirect expenses of the
company and forms the major part of the expense as it depicts as to where the business is running
and how much is the cost of that premises.
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The value of the Occupancy Expenses as per the Consolidated Statement of Income Statement is
$ 248.60 million as on 30th June 2017.
TRADE AND OTHER PAYABLES
Trade and other payables represent the amount which is required to be paid to the persons from
whom the company has made the purchases of goods and services. It represents the short term
liabilities of the company and hence is recorded under the head Current Liabilities. It includes
the amount of Goods and Services tax payable to the government and other creditors and
accruals of expenses of the similar nature.
The value of the Trade and other payables as per the Consolidated Statement of Balance Sheet is
$ 647.80 million as on 30th June 2017.
BORROWINGS (NON-CURRENT)
Borrowing represents the amount that the company has obtained the loan from the financial
institutions or banks. The company’s borrowings consist of the unsecured loan obtained from the
bank to finance the acquisition of The Good Guys. The loan has been obtained for three to four
year period and from different banks in consortium. Therefore, they have been grouped under the
head Non Current Borrowings.
The value of the Borrowings Non Current Assets as per the Consolidated Statement of Balance
Sheet is $ 558.80 million as on 30th June 2017.
NORMAL ACCOUNT BALANCES AND EFFECT ON DECREASE IN ACCOUNTS
The normal account balance is defined as the assumption or the expectation that the ledger
accounts will be classified as with debit balance or credit balance. This expectation is based on
the chart of accounts and the rules of accounting. It is not fixed. There may be the changes in
account balances like the debit balance account ay have credit balance at the year end. These
changes generally happened depending upon the nature and size of the business (Ingram, 2008;
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Snyder, 2009). The following are the type of the accounts and the normal account balances that
have been mentioned.
CASH (AND EQUIVALENTS)
Cash and Cash Equivalents have the debit balance. In case to decrease the cash and cash
equivalents head, the credit side will be affected which in turn will reduce the debit balance of
the account.
INVENTORIES
Inventories in hand have the debit balance. In case to decrease the inventory head, the credit side
will be affected which in turn will reduce the debit balance of the account.
SALES REVENUE
Sales Revenue has the credit balance. In case to decrease the sales revenue head, the debit side
will be affected which in turn will reduce the credit balance of the account.
OTHER INCOME
Other Income has the credit balance. In case to decrease the Other Income head, the debit side
will be affected which in turn will reduce the credit balance of the account.
PLANT & EQUIPMENT
Plant and Equipment has the debit balance as appeared in the Consolidated Balance sheet of the
company. In case to decrease the Plant and Equipment head, the credit side will be affected this
in turn will reduce the debit balance of the account.
INTEREST EXPENSE (FINANCIAL COSTS)
Interest Expense has the debit balance and is appeared in the statement of profit and loss. In case
to decrease the interest expense head, the credit side will be affected. This in turn will reduce the
credit balance of the account.
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SALES AND MARKETING EXPENSES
Sales and Marketing Expense has the debit balance and is appeared in the statement of profit and
loss. In case to decrease the Sales and Marketing expense head, the credit side will be affected.
This in turn will reduce the credit balance of the account.
OCCUPANCY EXPENSES
Occupancy Expense has the debit balance and is appeared in the statement of profit and loss. In
case to decrease the Occupancy expense head, the credit side will be affected. This in turn will
reduce the credit balance of the account.
TRADE AND OTHER PAYABLES
Trade and Other Payables have the credit balance and are appeared in the statement of Balance
Sheet. In case to decrease the trade and other payables head, the debit side will be affected. This
in turn will reduce the credit balance of the account (Kothari and Ball, 2014).
BORROWINGS (NON-CURRENT)
Borrowings (Non Current) have the credit balance and are appeared in the statement of Balance
Sheet. In case to decrease the Non- Current Borrowings head, the debit side will be affected.
This in turn will reduce the credit balance of the account (White, Sondh, and Fried, 2005.).
EFFECT ON OTHER ACCOUNTS ON INCRAESE IN BALANCES
In case of the following accounts, the other account which will be affected are as follows:
CASH (AND EQUIVALENTS)
If cash and cash equivalent is increased then the other following accounts will be affected:
- Income will be increased
- Current Assets will be decreased
- Secured and Unsecured Loans will be increased
- Equity share capital will be increased (Bryer, 2013)
INVENTORIES
If inventory is increased then the other following accounts will be affected:
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- Purchase Accounts will be increased
SALES REVENUE
If Sales revenue is increased then the other following accounts will be affected:
- Current Assets will be increased
OTHER INCOME
If Other Income is increased then the other following accounts will be affected:
- Current Assets will be increased
PLANT & EQUIPMENT
If Plant and Equipment is increased then the other following accounts will be affected:
- Equities and Liabilities will be decreased
INTEREST EXPENSE (FINANCIAL COSTS)
If Interest Expense is increased then the other following accounts will be affected:
- Current Assets will be decreased
- Secured and Unsecured Loans will be increased (Weygandt, Kimmel, KIESO and Elias,
2010)
SALES AND MARKETING EXPENSES
If Interest Expense is increased then the other following accounts will be affected:
- Current Assets will be decreased
- Current Liability will be increased
OCCUPANCY EXPENSES
If Interest Expense is increased then the other following accounts will be affected:
- Current Assets will be decreased
- Current Liability will be increased
TRADE AND OTHER PAYABLES
If Trade and Other Payable are increased then the other following accounts will be affected:
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- Current Assets will be increased
- Purchase Accounts will be increased
BORROWINGS (NON-CURRENT)
If Borrowings are increased then the other following accounts will be affected:
- Noncurrent Assets will be increased (Phillips, and Heiser, 2011)
RECOMMENDATION & CONCLUSION
JB Hi Fi Limited is an Australia Based company and is listed in the Australia Stock Exchange.
The company has been growing since its inception and has been regarded as the strong performer
in Australia. The company is engaged in the retailing business for consumer products including
the electronic items and software. The annual report of the company contains the financial
statements of the company detailing the each account head with the corresponding balances at
the year end. The whole report has been formed on account balance of ten accounts – Cash,
Inventories, Sales Revenue, Other Income, Plant and Equipment, Interest Expense, Sales and
Marketing, Occupancy Expenses Trade and Other Payables and Borrowings which is Noncurrent
in nature. As per the above analysis made, the accountancy plays a very major role in
determining the nature of account and the normal account balance. It tells about how one account
may be affected, increase or decrease, with the change in the other account. The report has
helped in understanding the accounting concept and treatment of double accounting system as to
how changes in one account balance affects the change in other account balance. To conclude
with the study, the account balances of ten accounts have been discussed and detailed.
As per the above analysis, it is recommended that the account balances shall be analysed
properly and with proper accounting rules, concepts and procedures.
REFRENCES
Bryer, R.A., 2013. Double-entry bookkeeping and the birth of capitalism: accounting for the commercial
revolution in medieval northern Italy. Critical perspectives on Accounting, 4(2), pp.113-140.
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Ingram, R.W., 2008. A note on teaching debits and credits in elementary accounting. Issues in Accounting
Education, 13(2), p.411.
Kothari, S.P. and Ball, R., 2014. Financial statement analysis. Mcgrew-Hill Companies.
Phillips, F. and Heiser, L., 2011. A field experiment examining the effects of accounting equation
emphasis and transaction scope on students learning to journalize. Issues in Accounting
Education, 26(4), pp.681-699.
Sinha, G., 2012. Financial statement analysis. PHI Learning Pvt. Ltd..
Snyder, H., 2009. Double-Entry Bookkeeping. Library Administration and Management, 13(1), pp.23-25.
Weygandt, J.J., Kimmel, P.D., KIESO, D. and Elias, R.Z., 2010. Accounting principles. Issues in
Accounting Education, 25(1), pp.179-180.
White, G.L., Sondh, A.C. and Fried, D., 2005. Analysis of Financial Statement. Analysis.
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