Financial Analysis Report: Vacuum Cleaning Specialists - ACC106

This report provides a comprehensive financial analysis of Vacuum Cleaning Specialists, examining its financial performance based on the provided trial balance and financial statements. The analysis includes an assessment of the company's profitability, highlighting a net loss and discussing strategies for improvement, such as cost reduction and pricing adjustments. The report delves into the accounting methods used, contrasting accrual and cash accounting, and explaining the treatment of prepaid expenses and bad debts. Furthermore, it presents and interprets the income statement and balance sheet, offering insights into the company's assets, liabilities, and equity. The conclusion summarizes key findings and recommends adherence to accounting principles for improved financial management. The report also includes a balance sheet and income statement for the period.

Running head: ACCOUNTING FUNDAMENTALS 1
ACCOUNTING FUNDAMENTALS

Running head: ACCOUNTING FUNDAMENTALS
Table of Contents
Introduction...........................................................................................................................................3
Analysis..................................................................................................................................................3
Accrual v/s Cash Accounting..................................................................................................................3
Prepaid Advertisement..........................................................................................................................4
Provision for bad and doubtful debts....................................................................................................4
Different income statement..................................................................................................................5
Conclusion.............................................................................................................................................6
References.............................................................................................................................................7
Appendix 1.............................................................................................................................................8

Running head: ACCOUNTING FUNDAMENTALS
Introduction
Under this report, the detailed analysis of the report is undertaken on the Vacuum Cleaning
Specialists to understand the overall financial performance of the business. The trial balance,
the journal entries, and the financial statements such as balance sheet and the income
statement are also prepared in order to analyze the overall situation of the business. the
adjustments of the prepaid expenses and the difference between the cash system and the
accounting system is also followed in detail (Asongu, 2015).
Analysis
From the overall analysis of Vacuum Specialists the company incurred losses of 60609 which
are to be improved on the immediate basis. The sales of the company is $11085.44 whereas
the cost of sales of the company is somewhat near to sales at almost 70%, this is a crucial
stage as the other expenses that are incurred by the company are almost major such as
depreciation and the interest expense. This again indicates that the company has so much
financial leverage and the same shall be reduced by investing more in equity (Syam, Hess,
and Yang, 2016).
Key strategies to improve the overall position of the business are to remove the products and
the services that are not at all contributing towards the profits. Further the reduction in the
inventory and the overhead will result in the overall improvement of the overall performance
of the business. The pricing structure can also be changed in order to have more number of
the customer (Xuereb, 2015).
Accrual v/s Cash Accounting
Concepts the company has followed are the accrual concepts of accounting are which defines
that the accounting transactions are recorded as and when they are recognized to which they

Running head: ACCOUNTING FUNDAMENTALS
relate. Particularly in case of the prepaid advertising expenses which are recorded in the
subsequent months and the recorded in the previous month. The second concept the company
has followed is the system of going concern of the company which again states that the
business will run continuously. In this scenario as well the going concern is followed by the
Vacuum Cleaning Specialists. The major difference between the accrual system of
accounting and the cash basis of the accounting the cash method provides the advantages to
the firms in terms of supervising the cash at any particular point of time and the cash outflow
can also be recognized. The profit in the cash basis is less than the profit in the accrual basis
of accounting as those expenses which are not paid but recognized are also recorded and the
same is the case with revenues as well (Sprigg, et al 2015).
Prepaid Advertisement
The prepayments accounts such as prepaid advertising are accounted for in the balance sheet
as they have been recognized as they are paid in advance and half of the advertisement.
Prepaid advertisement account is an account where one month advance is paid. While
recording the prepaid advertisement shall make sure the company records it in the prepaid
account and if any payment is made the same shall be credited successfully (Sigidov, et al
2016).
Provision for bad and doubtful debts
The provision for the bad debts are recorded for the purpose of creating a provision to ensure
that there are certain debtors which may or may not pay the money back to the businesses. In
this case study such as the Two Towers have yet not made any payment and may extend the
time of the credit line. Therefore, the step taken by the company is purely working in the
ethical perspective (Abernathy, Beyer, Gross and Rapley, 2017).

Running head: ACCOUNTING FUNDAMENTALS
Different income statement
A profit and loss account statement is the statement that depicts the incomes as well as
expenses that have been incurred in the business in order to run the operations of the
business. Regularly termed as reports or the financial statements by the bankers, these
announcements on report acts as the historical backdrop of the retail business and can
likewise help foresee the future potentiality of the business. Most autonomous retailers have a
P&L from their clerk or accountant; but they don't examine the information when the
information is received in the detailed manner; rather they essentially document it in a cabinet
(Syam, Hess and Yang, 2016).
A few retailers just don't have the relevant idea of how to peruse or translate the information
presented in the profit and loss account or income statement and hence a visual statement
does the needful. The business in a retail industry business has different income statement as
service providers majorly have the lower overhead. The number of the employees of the
company is low and the inventory is also kept at the lower volume. Though it results in the
larger percent of revenue however in case of Vacuum Cleaning Specialists, the revenue is not
up to the mark.
Post-Trial Balance
Vacuum Cleaning Specialists
Final Trial Balance
as at 31 July 2019
Acc No Account Debit Credit
100 Cash 89491.5
102 Accounts Receivable 52614.27
103 Provision for Bad Debts 2234.27
104 Supplies 1850
107 Inventory 13170
120 Furniture 46000
121 Accumulated dep (furn) 35200
130 Warehouse 260000
131 Accumulated dep (warehouse) 139300.5
110 GST Paid 2237.55

Running head: ACCOUNTING FUNDAMENTALS
111 Prepaid advertising 3636
210 GST collected 874.56
200 Accounts Payable 15485.5
206 Interest Payable 4550
207 Salary Payable 350
208 Unearned Service Revenue 1614
220 Loans Payable 112000
300 Capital, Stains 238000
304 Drawings 20000
400 Sales Revenue 11085.44
402 Sales Returns & Allow 500
403 Sales Discount 1096
410 Rent Revenue 600
412 Service Revenue 538
500 Cost of Sales 9470
504 Interest Expense 4550
506 Supplies Expense 4050
508 Depreciation Expense 47791.46
510 Advertising Expense 4040
512 Salary Expense 350
514 Electricity Expense 895.45
518 Delivery Expense 90
Total 561832.2 561832.2
Conclusion
From the overall analysis it can be concluded that the accrual system of accounting is used by
Vacuum Cleaning Specialists and further there are several steps that have been taken by the
company in order to bring the performance of the company back on track. There are several
initiatives which are taken by the company to improve he net profit of the company. Overall
the accounting principles are followed by the company and it is advised to company to record
the transaction according to the accounting principles.

Running head: ACCOUNTING FUNDAMENTALS
References
Abernathy, J.L., Beyer, B., Gross, A.D. and Rapley, E.T., 2017. Income statement reporting
discretion allowed by FIN 48: Interest and penalty expense classification. The Journal of the
American Taxation Association, 39(1), pp.45-66.
Asongu, S.A., 2015. Finance and growth: new evidence from meta-analysis. Managerial
Finance, 41(6), pp.615-639.
Sigidov, Y.I., Korovina, M.A., Trubilin, A.I., Govdya, V.V. and Vasilieva, N.K., 2016.
Creation of provision for doubtful debts. International Journal of Economics and Financial
Issues, 6(4), pp.1542-1549.
Sprigg, S.A., Minear, B., Oliver, M.B. and Gardner III, R.W., Qualcomm Inc, 2015. Prepay
accounts for applications, services and content for communication devices. U.S. Patent
9,143,622.
Syam, N., Hess, J.D. and Yang, Y., 2016. Can sales uncertainty increase firm
profits?. Journal of Marketing Research, 53(2), pp.199-206.
Xuereb, J., 2015. Reconciling cash and accrual budgeting in the public sector (Master's
thesis, University of Malta).

Running head: ACCOUNTING FUNDAMENTALS
Appendix 1
Balance Sheet
as at 31st July 2019
Acc No Account Debit Credit
Assets
Current Assets
100 Cash 89491.50
102 Accounts Receivable 52614.27
103 Provision for Bad Debts 2234.27
104 Supplies 1850.00
107 Inventory 13170.00
Non-Current Assets
120 Furniture 46000.00
121 Accum dep (furn) 35200.00
130 Warehouse 260000.00
131 Accum dep (warehouse) 139300.46
Other Assets
110 GST Paid 2237.55
111 Prepaid advertising 3636.00
Total Assets 468999.32 176734.73
292264.59
Liabilities
Capital
300 Capital, Stains 238000.00
304 Drawings 20000.00
Less: Net loss 60609.47
Long term Borrowings
220 Loans Payable 112000.00
Short term borrowings
210 GST collected 874.56
200 Accounts Payable 15485.50
206 Interest Payable 4550.00
207 Salary Payable 350.00
208 Unearned Service Revenue 1614.00
80609.47 372874.06
Total liabilities and Shareholders Equity 292264.59

Running head: ACCOUNTING FUNDAMENTALS
Vaccum Cleaning Specialists
Income Statement
for the month ending 31st july 2019
Acc No Account Debit Credit
Revenue
400 Sales Revenue 11085.44
402 Sales Returns & Allow 500.00
403 Sales Discount 1096.00
410 Rent Revenue 600.00
412 Service Revenue 538.00
Total 1596 12223.44
Total revenue 10627.44
Expenses
500 Cost of Sales 9470.00
504 Interest Expense 4550.00
506 Supplies Expense 4050.00
508 Depreciation Expense 47791.46
510 Advertising Expense 4040.00
512 Salary Expense 350.00
514 Electricity Expense 895.45
518 Delivery Expense 90.00
Total expenses 71236.91
Net profit / Loss -60609.47