Financial Performance Analysis: Accounting Concepts and Statements

This assignment delves into the analysis of financial performance, covering various aspects of accounting and financial statements. It begins by exploring considerations when purchasing an apartment, highlighting relevant accounting information. The assignment then differentiates between accounting and management systems, emphasizing their distinct purposes and users. It further examines the fundamental differences between a sole trader, a partnership, and a company, outlining factors to consider when choosing the right business design. The core of the assignment focuses on financial statements, including the balance sheet, income statement, and cash flow statement, explaining their key features and how they reflect a company's financial health. It includes example journal entries, and explores accrual and cash accounting methods, along with the owner's equity accounts. The assignment covers topics from initial purchase considerations to the accounting treatment of revenue and expenses, providing a comprehensive overview of financial performance analysis.

Financial Performance

INTRODUCTION
Topic 1
Question 1
Considerations when buying an apartment include factors such as location, type (studio, one
bedroom, two or three bedrooms), size (bigger rooms, additional bathroom, balcony), age of the
apartment, and available funds. Information to assist the purchase decision includes whether the
apartment is for residential or investment purpose, personal taste (e.g. interior design, view),
distance to workplace or train stations, funds to meet ongoing costs like repairs and maintenance
required after purchase, body corporate fees, council rates, and insurance. Initial purchase
considerations include whether the apartment is to be purchased outright or through a home loan
taken with a financial institution, stamp duty to be paid, and the eligibility of obtaining first-
home buyer grant from the federal/state government. Purchase considerations and ongoing costs
represent accounting information relevant to the decision-making process.
Question 2
Accounting and management systems have different purposes, different user centers, and
vary in the level of control that can be reported by outside business entities. Management Funds
for construction to produce external user reports, e.g. commercial lenders. These reports are
standard financial reports for reporting entities, and should therefore comply with accounting
standards. all levels of management. Reports are specific objective reports, designed to meet the
specific needs of users of those reports, and the format as well.
The content of the reports depends on who the report is for, and the purpose for which the
report is prepared. While financial accounting, reports can be annual and semi-annual,
management accounting reports are usually requested daily, weekly, monthly, or on demand.
Department The question of whether two separate systems are required depends largely on the
cost of both the financial and financial management systems are based on the accounting
framework, most of its common features. Therefore, a single account system can be used to meet
the requirements of both accounting methods.
Explain the fundamental differences between a single trader (or a single patent), a
partnership with a company. What factors need to be considered in choosing the right design for
Darren's lawn mower business? The three basic elements of a business are:  Craftsmen where
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people run their own business. They would be donating their cash or equity to the business and
they would be lending money in the name of the business in their own name. They will be able to
pay off the outstanding balance of the business and, if they are unable to pay, the bank will be
able to access their assets to pay off the outstanding debt. This business building is suitable for
small jobs with small staff and income. The The sole Trader is solely responsible for the overall
operation of the business and operations. The building works for small businesses that require a
small investment to be set up and have relatively low running costs. Management Partnerships
are two or more people in a business together, operating under a partnership agreement that is
likely to be a formal written agreement. they are more profitable than individual traders because
they have a larger base of marital divorce contributions and are able to share the risks and
obligations associated with starting a business. The partnership is treated as a separate
accounting entity but not a separate legal entity. This means that the underlying assets and
liabilities of the partnership belong to the individual partners in the agreed portion as part of the
partnership agreement. Therefore, if the business is unsuccessful, lenders are entitled to receive
individual assets from their partners in the event that the entity is unable to repay any outstanding
debt. For this reason, a partnership structure is often used where there is a low level of risk to the
business or where the law stipulates that the business should be managed by service providers.
For example, professional work includes accountants and lawyers. A company is a separate law
firm that owns a company called to shares. The owners of the company are known as
shareholders. The beauty of a business structure is that, as a separate legal entity, assets and
liabilities belong to a company. In the event that a business fails to repay its debt, lenders may
only have access to the company's assets to repay the debt. Investments in a company by its
shareholders are limited to shareholder contributions, which means that the shareholder pays the
shares. This business structure is more specific to businesses that need large sums of money has
a large number of executives and employees and has a high business risk. Disadvantages include
high set-up and ongoing costs and a decrease in uncontrolled control over the operation of the
business where shareholders are not directly involved in the activities of the business which
helps for better performance which helps for higher profitability for the businesses.
Question 3
Financial statements are written records that transfer business functions and financial
performance of a company. Financial statements are often audited by government agencies,
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accountants, firms, etc. to ensure accuracy and tax revenue, financing, or for investment
purposes. The financial statements include:
Balance Sheet: It includes the liabilities, assets for the company for knowing its funds which
helps company for better performance which helps for higher profitability for the businesses.
Income statement: It views the expenses, income for the company’s for knowing the profits
which helps company for better performance which helps for higher profitability for the
businesses.
Cash flow statement
1 Income statement
Usually, the first place an investor or analyst will look at is the income statement. The income
statement shows the performance of the business in each period, indicating a very high sales
revenue. The statement then deducts the cost of the goods sold (COGS) for the full benefit. From
there, total profit is affected by other operating costs and revenue, depending on the type of
business, access to lower income - the “basic” business.
Key features:
It shows the income and expenses of the business
Indicated at a specific time (e.g., 1 year, 1 quarter, year and day, etc.)
Uses accounting principles such as matching and accumulating representations (not provided in
cash)
Used for profit testing
# 2 Balance Sheet
The balance reflects the company's assets, liabilities, and equity of shareholders over a period of
time. As is well known, assets should be equal to debt and equity. The asset class starts with cash
and equity, which should be equal to the balance found at the end of the cash flow statement. The
balance then reflects the changes in each major account from time to time. Revenue from income
statement into balance as a change in earnings (for dividends)
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Key features:
Indicates the financial status of the business
Revealed as a "summary" or company financial image for a period of time (e.g., as of December
31, 2017)
It has three categories: assets, liabilities, and equity of shareholders
Assets = Liabilities + Shareholder Equity
# 3 Cash flow statement
Cash flow statement then take the income and adjust it to any non-cash expenses. After that, with
the changes in the balance sheet, the use and acquisition of funds are available. The cash flow
statement shows the currency change for each period, as well as the initial balance and end
balance of the cash.
Key features:
It shows an increase and decrease in cash
Indicated at a specific time, accounting period (e.g., 1 year, 1 quarter, year and day, etc.)
It reverses all accounting principles to reflect pure cash flow
It has three categories: operating income, capital investment, and cash flow
It shows the change in value in the balance of money from the beginning to the end of the period.
TOPIC 2
Question 1
Income statement
Particulars Debit Credit
Interest revenue 8000
Wages 75000
Advertising expenses 30000
prepaid insurance 9000
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electricity expenses 18000
insurance expenses 7500
Profits 131500
Balance sheet
Liabilities
Amoun
t Assets
Amoun
t
Accounts payable 42000 Account receivable 63000
Mortage payable 150000
Equipment hire
income 190000
loan payable 51000 Bilding 85000
131500 Land 75000
Equipment hire
income 180000
Prepaid insurance 9000
TOPIC 3
Journal entries
Cash a/c DR. 150000
To capital a/c 150000
Bus. Equipment a/c
dr. 65000
To bank a/c 30000
To bank loan a/c 35000
Rent a/ c dr. 2000
To Bank a/c 2000
Suppliers a/c dr. 9400
To cash / bank 9400
Adv. a/c dr. 990
To bank a/c 990
cash a/c dr. 3850
cus. a/c dr. 180
To sales a/c 3980
Cash a/c dr. 180
To customer A/c 180
Drawings a/c dr. 660
To cash a/c 660
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Cash a/c dr. 3690
customer a/c dr. 600
To sales a/c 4290
Electricity a/c dr 520
To cash a/c 520
TOPIC 4
Question 1
The revenue earns in March as the the fee was generated in March month & its receives
in April for 9000. The revenue was earns for march s in March as for company the transaction is
made in March when the service is provided to the company it receives earning no matter when
the payment is receives as it is confirm company receives earnings for its which helps company’s
for better performance which helps for company’s for higher profitability for the businesses.
B.
Accumulated accounting is a method of accounting where income or expenses are recorded
when transactions occur rather than when received or done The method follows the same
principle, which states that revenue and expenses should be recognized at the same time. It
means when the company are makes transactions for its concept which helps company for
earning when it receives the after no matter as transactions happen this accrual accounting.
March
Fees charges A / C dr. $ 9000
To Account payable A / C $ 9000
Cash Accounting is a method of accounting in which receipts for payment are recorded at the
time of receipt, and expenses are recorded at the time when they are actually paid. In other
words, income and expenses are recorded when cash is received and paid, respectively.
April
Cash account dr. $ 9000
To Account receivable A / C $ 9000
March
Cash A/c dr. $ 9000
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To Fees charges A / C dr. $ 9000
TOPIC 5
Question 1
The draw or withdrawal account for a patent is a temporary owner’s account that is closed at the
end of the accounting year. The drawing account is also an account that is in conflict with the
equity of the owner, because the debit balance of the drawing account conflicts with the normal
credit balance of the owner's account.
At the end of the accounting year, the drawing account is closed directly to the primary account
with an entry that removes the principal account and includes the draw account of the owner.
Please note that the drawing owner account is not a cost and is therefore not closed to the Income
Summary account and the money will not appear on the company's income statement.
Question 2
Equity accounts are financial representations of business ownership. Money can come from
payments to the business by its owners, or from residual income generated by the business. Due
to the different sources of equity funds, equity is maintained in different types of accounts.
All financial accounts, with the exception of the accountant's account, have natural rates of debt.
If the savings account has a debit balance, this means that it is possible that the entity has
experienced a loss, or that the entity has issued more shares than it would have earned on
savings. The following accounts are mostly used by companies.
Normal Stock
Ordinary stock A limited amount of stock sold directly to investors. Par value is usually very
small or non-existent, so the balance in this account may be small.
Preferred Stock
Preferred stock A limited amount of preferred stock. These shares have special rights and
privileges beyond those granted on ordinary stock. Some organizations have never issued a
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preferred stock, while others may have issued certain portions of it. A key feature of popular
stock is the payment of fixed dividends, which makes this a safe investment for investors.
Additional Paid Capital
The overpayment is the amount paid to the investors in excess of the estimated amount of stock
sold directly to them by the issuer. The balance in this account can be quite high, especially
considering the small number of stocks that have been awarded multiple stock certificates.
Question 3
ELLIE PAINTING SERVICES
Worksheet (Partial)
for the year ended 30 June 2019
Adjusted trial
balance Income statement Balance sheet
Account Debit Credit Debit Credit Debit Credit
Cash at Bank 1630 1630
Accounts Receivable 75 600 75 600
Prepaid Rent 2 400 2 400
Office Supplies 8 820 8 820
Plant 162 000 162 000
Acc. Dep. - Plant 25 500 25 500
Accounts Payable 54 600 54 600
Salaries Payable 8 960 8 960
Unearned Revenue 3 830 3 830
G. Ellie, Capital 101 500 101 500
G. Ellie, Drawings 20 000 20 000
Painting Revenue
225
950
225
950
Salaries Expense 107 500 107 500
Rent Expense 7 050 7 050
Depreciation Expense 9 040 9 040
Telephone Expense 5 020 5 020
Office Supplies
Expense 11 080 11 080
Miscellaneous
Expenses 10 200 10 200
Profit for the period
$420
340
$420
340
$420
340
225
950 270450 270450
194390
$420
340
$420
340
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TOPIC 6
Question 1
Internal control is a process or process put in place to protect assets, promote efficiency,
and ensure accurate accounting and record keeping. An operating system can prevent and detect
errors and malfunctions. Although the gold standard for disaster risk management and internal
control systems is represented by the Sarbanes-Oxley law and the chairmanship of the Charitable
Organizations Committee (COSO), not all regulatory functions are feasible. In practice the size
and type of internal control will depend on the size and size of the business.
The internal control process can be as simple as getting a training procedures manual (e.g.,
submitting cost reports), requiring a username and password to log in to the system, or
performing a monthly bank reconciliation.
Limitations: The absolute limit of internal control is the idea that in all well-designed
internal systems, there will be limitations. Controls may cease to operate or not function as
intended if the employee does not understand the internal control procedures, or if the employee
has good intentions but misjudges the value of the control and then passes it on. The employee
may also allow the employee to go beyond control or be transported to the cutting rooms to meet
deadlines. For example, in order to meet pay cuts, employee pay rates and hours may not be
subject to due diligence and pre-pay evaluation.
In addition, overuse of control systems can cause damage and lead to poor performance,
indicating that they are expensive over time. If the controls have too much control and make
daily tasks too difficult, employees may ignore them or try to escape control.
Question 2
1. Purchased inventories on credit. ( purchase journal )
2. Cash purchase of inventories (cheque no. 32162). ( cash journal )
3. Sale of marketable securities (shares) for cash. ( sales journal )
4. Sales of inventory on credit. ( Sales journal )
5. Received payment of a customer’s account. ( cash receipt journal )
6. Received adjustment note for defective goods, which were purchased on credit and
returned to the supplier. (purchase journal )
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7. Owner withdrew cash. ( cash journal )
8. Payment of monthly rent by cheque. ( general journal )
9. Cash refund to a customer who returned inventory. ( cash journal )
10. Year-end closing entries. ( general journal )
TOPIC 7
Bank
reconcelatio
n A / C
Par. Debit Credit
Bank 101160
Electronic james from
customers 3864
Int. 75
Unp. Cheque 37407
Cheques for ins. Exp. 540 143046
Deposits in transit 12540
service charges 150
Discover cheque 3300 16590
126456
TOPIC 8
Doubtful debts a / c
par. amt. par. amt.
par. amt. par. amt.
To bal.
b/d 14880
By p & l
( doubtful )
1044
0
by bal. c / d 4440
14880
1488
0
Cash at bank
par. amt. par. amt.
To bal.
b / d 150000 By sales 3850
To bus. 30000 By bal. 180
To Rent 30000 By sales 3690
To supp. 9400
To adv. 990
To
drawings 660
To 520
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electricity
Account receivables a / c
par. amt. par. amt.
To sales 450 By bal. c / d 1050
To sales 600
Topic 9
Question 1
The endless system is very popular in computer systems because computers have allowed
companies to gain better control over the books by reducing the cost and time required to keep
detailed records. The availability of appropriate computerized accounting packages used has
improved the ability of businesses to respond to all asset movements. The use of check-in cash
registers at the time of exit to read product product codes means that today's cash register has
become a computerized archive for the transaction of financial assets in the financial records at
which they are sales which helps company’s for better performance which helps for higher
profitability for the businesses.
Question 2
Question 3
Product FIFO Method Purchases Sales Balance
Date particulars
Unit
s costs amount units costs amount units costs amount
Balance 6100 2.2 13420
purchases 4600 $2.25 $10,350 6100 2.2
4600 2.25 23770
Sales 4100 2.2 9020 2000 2.2
4600 2.25 14750
purchases 4100 2.4 9840 2000 2.2
4600 2.25
4100 2.4 24590
Sales 2000 2.2 4400 3500 2.25
1100 2.25 2475 4100 2.4 17715
Sales 2900 2.25 6525 600 2.25
4100 2.4 11190
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purchases 3100 2.5 7750 600 2.25
4100 2.4
3100 2.5 18940
Sales Journal
Date
Account
Post Ref. Sales
GST
Payable
Receivabl
e Costs of sales
4100 units @ 5
$20,50
0 $2,050 $22,550 $9,020
3100 units @ 5 15500 1550 17050 6875
2900 units @ 5 14500 1450 15950 6525
2600 units@ 5 13000 6350 69850 28570
-400 -500
Purchase Journal
Date
Account
Post Ref.
Inv
entory
GST
Payable Receivable
4600 Units @ 2.25
$10,35
0 $11,385 $1,035
4100 Units @ 2.40 9840 10824 984
3100 Units @ 2.50 7750 8525 775
$27,94
0 $30,734 $2,794
-500
General journal:
GENERAL LEDGER
SalesNo.400
Date Explanation Post Ref. Debit Credit Balance
June 30 BalanceSJ $63 500 $63 500
InventoryNo.500
Date Explanation Post Ref. Debit Credit Balance
June 1 Balance $13 42030
Purchases $27 94041 36030
Cost of sales 28 570 12 790
Missing inventory 120 12670
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Income Statement
Income
Sales 63500
Sales return
Net sales 63500
Costs of
sales 28570
Inventory
loss 120
Gross profit 34810
Expenses
Profit 34810
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