Principles of Finance

Principles of Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
COMPONENT 1..............................................................................................................................1
Preparation of income statement for Laolu & Company.............................................................1
Preparation of balance sheet for Laolu & Company....................................................................2
COMPONENT 2..............................................................................................................................3
Task 1...........................................................................................................................................3
Task 2...........................................................................................................................................4
CONCLUSION................................................................................................................................5
REFRENCES...................................................................................................................................6

INTRODUCTION
Finance can be defined as the monetary resources which are required by an organisation
to execute all the operations in systematic manner. While formulating financial statements it is
very important for all the business entities to make sure that they are following all the
appropriate principles of finance (Alyousef, 2016). It will be beneficial to generate accurate final
accounts and determine actual position of enterprise. Present report is segregated in two different
components first one is based upon Laolu & company and another one is related to Kwaku Ltd.
In order to perform analysis of both the organisations different topics are discussed in this report.
These are preparation of final accounts such as income statement and balance sheet. Apart form
this, computation of marginal as well as absorption costing are also covered in this report.
COMPONENT 1
Preparation of income statement for Laolu & Company
Income statement: It is also known as profit and loss account which guides managers to
determine that the company is generating profits or losses. Main purpose of its formulating is to
analyse that profitability of a firm is high or low (Income statement, 2020). There are various
elements which are recorded in it. These are all the expenses such as administration, legal,
postage, rent, salary, wages, advertisement etc. Different types of incomes such as commission,
interest, discount etc. are also recorded in it. Expenditures are recorded on the debit side of it and
receipts are recorded on the credit side of the statement. Income statement for Laolu & company
is as follows:
Income Statement as on 31 December 2019
for Laolu & Company
Particulars Amount Particulars Amount
Opening Stock 2000 Revenues 11100
Purchase 3400 Closing stock 1500
Gross profit B/D 7200
12600 12600
Administrative expenses 505 Gross profit C/D 7200
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