Introduction to Accounting: Components of Financial Statements, Income Statement Preparation, and Financial Analysis of Grenco Plc

Introduction to Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
Three components of financial statement....................................................................................3
Preparation of Income Statement and Comment on it.................................................................4
Comment on Financial aspects of Grenco Plc.............................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Accounting is a system of recording, summarizing, analysing, verifying and reporting
business and financial transaction via following the principles, concepts and procedure of
accounting (Puri, Singh and Chakrabarti, 2022). This report is based on Grenco Plc, a grocery
and general merchandising retailer of UK. The report will discuss the three component of
financial statement with describing what information they provide or lined with each other.
Further, the report will prepare income statement of Grenco plc in order to identify the profit and
loss earn or incur by company. Lastly, the report will comment on the financial aspects of
company so that Durwent & Co financial service can make decision regarding investment in
Grenco plc.
Three components of financial statement
The three most significance components of financial statement along with the information
they provided and link they have with another component are as follows:
Balance sheet: This is a part of financial statement of company which state the financial
position of business at a particular point of time. That’s why it is also known as statement of
financial position. This report basically shows the list of fixed assets, current assets, current
liabilities, non-current liabilities and equities. There are generally two sides of balance sheet that
is assets side and other one is equity and liability side which must be balance at the end of year.
In simple term, the balance sheet provides the information regarding how the money is made
available in company and how the company employs the money (Kulkarni, 2020). This is linked
to income statement because the profit earned by company is recorded in retained earning section
of equity side of balance sheet. Not only that, balance sheet is also linked with cash flow
statement because in order to prepare cash flow statement, the company need to use the
information provided on balance sheet of company.
Income statement: This is another most crucial part of financial statement which provide
the profitability position or information to the users of financial statement. The income statement
basically provides the financial performance of the business over the period of time along with
the list of revenue or expenses. The income statement is basically linked with both balance sheet
as well as cash flow statement. It is because revenue comprises of all cash inflows from
manufacturing of goods and expenses comprises of cash outflows incurred during the

manufacturing of goods and rendering of services (Huang and Yan, 2020). The linkage between
income statement and balance sheet is such that balance sheet is basically completed via
including the net profit or loss which is computed from income statement. The income statement
report basically provides the information regarding the profit resulting from excess of revenues
over expenses and losses resulting from excess of expenses over revenue. As per International
Financial Reporting Framework (IFRS), other comprehensive income is also cover in statement
of comprehensive income. This forms part of statement of change in equity.
Cash flow statement: This is a statement shows movement of cash within the organization
such as cash inflow into the business and cash outflow from the business. The main purpose
behind the preparation of cash flow statement within the organization is such that it is
supplement of income statement or balance sheet. The cash flow statement basically states the
closing cash balance within the organization which they can use it in the situation of emergency.
The cash flow statement of company such as Grenco plc provides the information regarding the
cash come in and cash goes out from the three most important activities such as operating
activity, investing activity and financing activity. All these three areas are most significant
activities of an organization with the help of which stakeholders can understand the sources of
cash and utilization of cash within the organization (Anggraini, 2022). The cash flow statement
is also linked with balance sheet and income statement because it uses the information provided
by both this statement. For example, cash flow statement uses the net profit information from
income statement which is basically a base of calculating net cash flow from operating activities.
While on the other hand, they also use the information related to assets and liabilities from
balance sheet to identify cash flow from investing and financing activities.
Preparation of Income Statement and Comment on it
Income Statement
For the year ended 2016
Particulars Details Amounts (£m)
Sales Revenue 395000
Less Cost of Sales -323800
Gross Profit 71200
Less Operating expenses: