Analyzing Financial Performance of a Firm

This assignment tasks students with analyzing the financial performance of a hypothetical firm using provided income statement data. Students are required to break down changes in revenue, costs (including administration and wages), and net profit over time, identifying potential reasons for these fluctuations. They must also evaluate the overall financial health of the firm and suggest strategies to enhance profitability.

Finance

Table of Contents
Task 5.............................................................................................................................3
Main sources through which trial balance is prepared...............................................3
Format of Trial Balance.............................................................................................3
Task 6.............................................................................................................................3
Task 7.............................................................................................................................4
Task 8.............................................................................................................................5
References......................................................................................................................9

TASK 5
Identify the main sources through which a trial balance can be prepared. Explain
what these sources are in detail. Then explain the format of the trial balance i.e. the
structure of the trial balance (Hint: Explain what is recorded on the left hand side
and the right hand side of the trial balance)
Main sources through which trial balance is prepared
A trial balance is prepared after all the journal entries for the period have been
recorded.The main source of trial balance is ledgers while ledgers are prepared by
taking journal entries from journal. So, we can say ledgers are obtained after passing
journal entries in journal and then posting it in ledgers.
A trial balance is a statement of ledger account balances within the ledger at a
particular instant (Mohantyand et. al., 2012).And, if we all the ledger accounts at a
particular instance and then prepare a statement of balances then we get the trial
balance.
The purpose of trial balance is also to check the arithmetic accuracy of
accounting. If there exists an error in balancing debit or credit side then it means that
there is some error either in journal or in ledger or trial balance also.
In the debit side of trial balance we record all the expenses and assets. For
instance: Debit side of the trial balance includes information about advertisement and
other miscellaneous expenses etc. Besides this, it also contains amount regarding the
land, machinery, furnitures, cash etc. On the other side, credit side of trial balance
furnishes information pertaining to profit and liabilities. For instance: GP, NP, bank
overdraft, issue of shares, bank loan, overdraft etc. In this way, trial balance helps in
preparing further financial statements to the large extent.
Format of Trial Balance
Trial Balance of M/s ABC Company as on December 31, 2015
Particulars L/
F
Amount (Dr.) Amount (Cr.)
Cash - 10,000
Capital - 100,000

Furniture - 15,000
First column is for particulars used for title of accounts or ledger title, second
for L/F that is reference No. of ledger, third is for debit balances of ledgers and fourth
is used for credit balances of ledgers.
TASK 6
Discuss the types of accounts that needs to be prepared at the end of each
accounting year. Explain the differences between profit and loss
account and balance sheet account.
Why are the adjustments/notes required for these business accounts?
Now a days, all transactions are recorded in form journals by using vouchers
of all types (Journal, cash and Bank). And passing entries in these journals these
vouchers are posted to their respective ledgers and then to trial balance. So, most of
the companies prepare profit and loss statement / income statement, cash flow
statement and balance sheet specifically on yearly, monthly or quarterly basis.
The Profit and Loss statement / or Income Statement is used to calculate Gross
Profit and Net Profit at end of month / quarter / year. On the other hand, balance sheet
is used segregate Assets and Liabilities at a particular Instant (Pavlatosand Paggios,
2009). Balance sheet actually the current financial position of business like how much
is the balance of receivables, payables, capital etc. So, these two statements differ
from each other.
There are some transactions which are not recorded in trial balance and
booked in the form of adjustments even when the trial balance is prepared (Wooller,
2014). These transactions can be inventory, abnormal inventory losses, any pending
utility bill etc.
TASK 7
Discuss in detail the process of preparing a budget. Then explain why these budgets
are needed to be prepared for your business.
A budget is a financial plan for the future concerning the revenues and costs
of a business. However, a budget is about much more than just financial numbers.

Budgetary control is the process by which financial control is exercised within an
organisation (Murphyand Yetmar, 2010).
If your business is growing, you may not always be able to be hands-on with
every part of it (Bandy, 2014). You may have to split your budget up between
different areas such as sales, production, marketing etc.
A budget is a plan to:
 control your finances
 ensure you can continue to fund your current commitments
 enable you to make confident financial decisions and meet your objectives
 ensure you have enough money for your future projects
There are a number of benefits of drawing up a business budget, including being
better able to:
 manage your money effectively
 allocate appropriate resources to projects
 monitor performance
 meet your objectives
 improve decision-making
 identify problems before they occur - such as the need to raise finance or cash
flow difficulties
 plan for the future
` At the end, actual figures are compared with budgetary figures to check the
difference (Pavlatos and Paggios, 2009). This would help the management to develop
a better understanding to prepare next budget plans.
TASK 8
Following is the food and beverage account of your business for the year ending
2015. Variance and its nature has been provided.
Give possible reasons for the variances incurred. Then provide suggestions to
reduce the variance in future.
Detail Budgete
d
Actual Variance/
Nature
Give Reasons Provide
Suggestions
Sales 750000 780000 30000(F) When custom
ersdo buy the
company's
It is seen
that
company’s

products in the
quantities or at
the price points
anticipated in
the budget
(Kierulffand
Petersen,
2009). The
result is actual
revenues that
may vary
substantially
from
expectations.
revenue has
been
increased
marginally.
This is a
positive sign
for the
business
unit. The
organization
should put
efforts to
retain the
customers
for long term
(
Weygandtan
d et.al,
2010). This
in turn helps
in increasing
earning on
continuous
basis.
Cost of sales 300000 320000 20000(A) It may be due
to increasing
charges of
transportation,
salaries, fare,
labor etc.
Further,
increasing
sales would
The business
unit may
implement
policies to
control the
cost of
operations. It
is through
continuous

have resulted
in
proportionately
rising cost of
sales.
monitoring
and control
that the cost
of operations
can be
minimized.
Gross profit 450000 460000 10000(F) It may be due
to increase in
sales
price&revenue
or decrease in
taxes etc.
The
increase in
gross profit
is a positive
sign.The
firm should
involve
efforts to
increase
business
profitability
on regular
basis.
Administrati
on cost
200000 180000 20000(F) It may be due
to downsizing
of company
staff, or by
hiring staff on
low salaries
etc.
The
organization
is able to
control
administratio
n cost even
at growing
sales. The
business unit
should
ensure that
strict control
mechanism
should

always be
implemented
within the
business
unit.
Wages 120000 140000 20000(A) It may be due
to increase in
wages by
government or
by laborers or
by the
company
(Zager and
Zager, 2006).
Increase in
wages would
have resulted
in rising
operating
expenses for
the
organization.
Net profit 130000 140000 10000(F) It may be due
to decrease in
cost price, or
increase in sale
price, or due to
decrease in
expenses or
increase in sale
etc.
The
increasing
profitability
should be
retained
within the
organisation.
The gap
between
revenue and
expenses
should be
maximized
so as to
increase
business
profitability.