Analysis of Financial Statements: A Case Study Approach

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Financial accounting
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Table of Contents
Introduction.................................................................................................................................................3
Part A..........................................................................................................................................................4
(1)............................................................................................................................................................4
(2)............................................................................................................................................................6
Conclusion...................................................................................................................................................8
Part B...........................................................................................................................................................9
Client 1....................................................................................................................................................9
Client 2..................................................................................................................................................18
Client 3..................................................................................................................................................21
Client 4..................................................................................................................................................23
Client 5..................................................................................................................................................24
Reference...................................................................................................................................................26
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Introduction
The financial accounting can be defined as a tool for tracking financial transactions of a
company, the financial transaction of a company is recorded in the financial accounting of a
company. The financial transactions of a company are recorded in the books of accounts such as
income statement, balance sheet and cash flow system of a company. The financial statements of
a company are a useful tool to make financial reports for the management of the company. The
financial accounting is providing all the relevant information to internal and external
shareholders of the company. This study will clearly demonstrate financial accounting and the
main purpose of financial accounting, this study will be also elaborate on internal stakeholders of
a company and external shareholders of a company. The second part of the study will be to
define basic transactions of a company and also elaborate on how to record those transactions in
the books of accounts.
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Part A
(1)
Financial accounting helps to the company accountant in order to classify each transaction
nature, analyze each business transaction for the purpose of the company, summarize documents
for the use of users and record every business transactions in an appropriate manner by following
the accounting and other standards which are needed to be fulfilled. Financial accounting is a
method or processor can tool that is used within the organization in order to measure the
different and various types of financial transactions that are born infirm while doing business of
selling or purchasing of anything whether any assets or liability created due to purchases of sale
on credit or in any other term like take loan. Through the use of this helps or aid to the outside
users of the company to know the financial position and performance of the company by make a
study on the financial documents of the entity and analyzing each document carefully in order to
take their sound decisions. Such documents are cash-flow, statement of income and most
important balance sheet which is prepared by an accountant of the company or an external (Li,
et. al., 2016).
Financial accounting helps to collect each and every data related and relevant to the company
and summarize each data in order to prepare or construct financial reports which are useful for
every individual or group of individual, any company and others who are interested in the
concerned company.
The purpose of financial accounting is to provide all the relevant information to the users of the
document from which they take their best decisions. It has also the aim of providing a clear and
transparent picture of the company in front of the users whether internal or external users it does
not matter so that both internal and external users can take their decisions (Christensen, 2017).
The purpose of financial accounting is not here finished, it has also other various purposes or
aims that it is prepared or constructed which is going to be discussed in the below part of this:
Provide each transaction of the business in an organized way:
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By applying accounting methods in a business aid in maintaining a record of each business
transactions in an efficient and systematic way that can obtain at any time and easily understand
what was the transaction wants to say. This will also provide information regarding the loss and
profit earned during the accounting year from the business from all the sources.
Obtaining information regarding business profits and loss:
This will lead and help in constructing the income statement of the company for a period by
taking both expenses and income part in the statement of income and compare each other in
order calculate whether company make profit or loss from its business activity and other, if loss
and less profit made then help to improve their business activity (Schweisfurth, and Herstatt,
2016).
Comparability:
From the systematic management of financial records of an organization helps to every user of
the documents to make compare the current performance of the company with the previous result
for the purpose of the check or measure the performance of the company whether the company is
able to achieve its objectives and increase the profitability and other goals.
Help in construct budget and other future plans:
The recording of each transaction in the books of accounts is just not only help external users, it
also help to the management of the company in order to create future budget or plans that will
help in achieving the future goals and improve the exits areas where the profit is not generated or
not generate in a good manner that management want.
Facilitate in rational decision making:
It will also aid o take a better decision regarding business investment, expansion and in the
interest of the firm.
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(2)
Stakeholders
The stakeholders are the main investor of a company so it's important for every company to
reveal proper information to stakeholders of the company, further stakeholders classified into
two ways internal stakeholders and external stakeholder. The stakeholders are classified on the
basis of identifying but both internal and external stakeholders are a part of the company.
Internal stakeholders
Internal stakeholders are part of internal activities of a company and internal stakeholders are
remain inside a company and make a significant effect on the overall growth of a company, so
these are two important internal stakeholders of a company (Nudurupati et. al., 2015).
 Employees: the employees are always remaining an important part of any company
because employees are the main component behind production and operations in a
company. The employees of a company can also invest in the shares of a company and
earn higher profits through a dividend. The employees are known better about the
company so they can easily make a profit through the process of investment (Nudurupati,
et. al., 2015).
 Management: the management of a company is an internal part of any company and
mostly the management of a company include the higher authority of the company. The
management of a company is responsible for the decision making in the operations of a
business so if a business earns higher revenue than the management of a company is get
most of the benefits from that.
So these are two important internal stakeholders of a company and both the stakeholders want
higher profits (Nudurupati et. al., 2015).
External stakeholders
External stakeholders are kept remain outside and they are also excited to know about the
performance of the company, so these are four important external stakeholders of a company.
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 Shareholders: the shareholders are an important part of any company because the
shareholders invest capital in a company through which operations of the business run. If
the company is getting higher profit than they definitely get benefits from that condition
because a company should pay dividends to shareholders if they earn higher profit.
 Government authorities: The government checks that whether a company is working
according to laws and provisions of accounting standards or not and if a company cannot
work according to laws of government than the government must take some actions
against them (Gerasymenko et. Al., 2015).
 Creditors: the creditors of a company is to make ensure whether a company is liable to
pay their dues or not.
 Customers: the customers are the main source of income for a company and a company
should revel proper information about the product in the market so that they can attract
higher customers through it.
So these are some important external stakeholders of a company.
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Conclusion
It has been concluded that accounting is a narrow term as compared with the financial
accounting because it includes every step or process starting from the transaction occurred in
business to till the end of providing financial reports to the users of it. It has also been concluded
that in every company both internal and external users exist and their decision influence the
business in both a positive and negative way. It also facilitates to the company's management to
analyze the business performance by make comparisons between the current and previous
financial reports and find any variance then help intake correct steps to eliminate such error from
the entity that will accelerate company performance and increase the company’s profitability and
its goodwill in the competitive market.
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Part B
Client 1
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