Financial Statement Analysis: Accounting for Managers

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Accounting for Managers
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Table of Contents
Question 1..................................................................................................................................................3
A..............................................................................................................................................................3
B..............................................................................................................................................................5
Question 2..................................................................................................................................................6
A..............................................................................................................................................................6
B..............................................................................................................................................................8
References..................................................................................................................................................9
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Question 1
A.
Ken Kennett Building Services
Statement of financial position
EQUITY AND LIABILITIES
EQUITY
Share capital (Bal. figure) 115200
Profit earned during the year 76900
CURRENT LIABILITIES
Wages owed to
employees
3500
Amount owed to
suppliers
30000
TOTAL 148700
NON-CURRENT ASSETS
Equipment 68000
Motor Vehicle 32000
Building supplies 18000
CURRENT ASSETS
Bank balance 3800
Cash 23800
Debtors 80000
TOTAL 225600
Ken Kennett Building Services
Statement of financial performance
Revenue 550000
Less: Expenses
Motor vehicle 5600
Electricity and
telephone expenses
4000
Building supplies
used
310000
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Wages 150000
Outstanding wages 3500
Total expenses 473100
Net income or loss 76900
For preparing the statement of financial performance and statement of financial performance,
some working notes have been duly prepared. Accordingly, ledger accounts have been prepared
so as to determine the balancing figure.
Cash A/c
Dat
e Particulars Amount
Dat
e Particulars Amount
To Bal B/d (Bal.
figure)
23800
By wages A/c 150000
By motor vehicles
expenses 5600
By electricity and
telephone expenses 4000
By drawings 5700
To Debtors A/c 470000 By balance c/d 500
By building supplies 328000
Total 493800 Total 493800
Debtors A/c
Dat
e Particulars Amount
Dat
e Particulars Amount
By Cash (Bal.fig) 470000
To sales A/c 550000 By balance c/d 80000
Wages A/c
Date Particulars Amount Date Particulars Amount
To cash A/c 150000 By P & L A/C 185000
To O/s wages 3500
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Building supplies A/c
Date Particulars Amount Date Particulars Amount
To cash A/c 328000 By P & L A/c 310000
By balance c/d 18000
TOTAL 328000 TOTAL 328000
B.
Financial statements help lot suppliers in deciding as to whether trade needs to be done with a
business entity or not. There are some financial variables considering which final decision can be
made thereof. By taking into consideration these variables, a full and complete information can
be gained thereof (Brief and Peasnell, 2013).
These items can be profitability along with items such as revenue and stock related turnover.
These items may cause concern and at the same time may create positive impact in the minds of
supplier. In other words, if the stock turnover and related revenue is higher it will be considered
as a positive sign for the supplier and on the contrary, lower amount of related values would
cause concern for the suppliers.
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Question 2
A.
1.
Net income or loss for the concerned period will be 5040.
Cash A/c
Date Particulars Amount Date Particulars Amount
To Bank loan 9000 By office supplies
expense
840
To capital 3300 By motor vehicles
expenses
330
To sales 8250 By telephone expenses 255
To debtors (Bal. fig) 1935 By advertising expense 510
By balance c/d 8445
By Bank loan A/c 1500
By computer equipment 8250
By supplier 2355
TOTAL 22485 TOTAL 22485
Bank loan A/c
Date Particulars Amount Date Particulars Amount
To cash A/c 9000 By cash A/c (Bal.
figure)
1500
By balance c/d 7500
TOTAL 9000 TOTAL 9000
Suppliers A/c
Date Particulars Amount Date Particulars Amount
To cash A/c 2355 By Purchase A/c (Bal.
fig)
1275
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By balance c/d 1080
TOTAL 2355 TOTAL 2355
2.
Total assets
Office supplies 1500
Accounts receivable 1500
Cash at bank 8445
Computer equipment 8250
Total 19695
3.
Total liabilities
Acounts payable 1080
Bank Loan 7500
Suppliers 1080
Computer
equipment
8250
Total 17910
4.
Determination of closing capital balance
Opening capital 3300
Add: Net profit 6315
Closing capital 9615
5.
Cash flow statement
Operating activities
Revenue 8250
Less: Payment to suppliers 2355
Net cash from operating
activities
5895
Investing activities
Purchase of computer
equipment
-8250
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Net cash from investing
activities
-8250
Financing activities
Bank loan received 9000
Repayment of loan -1500
Capital introduced 3300
Net cash flow from
financing activities
10800
Net cash from all the
activities
24945
Add: Opening cash and cash
equivalent
16500
Closing cash and cash
equivalent
8445
B.
Withdrawing cash for personal purpose will be treated as drawings. This will lower the closing
capital but lower down the related assets. Since this is a monetary transaction this will impact all
the related statements and accounts (Robinson, et. al, 2015).
In the preparation of cash flow statement, drawings will treated under the financing activities and
it will be reduced so as to determine the net cash flow from financing activities. In the same
manner, it will be deducted while determining the closing cash balance(Stocken, 2013).
In the determination of total assets, cash is an important component and accordingly it will
reduce the
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References
 Brief, R.P., and Peasnell, K.V., 2013. Clean Surplus: A link between accounting and finance.
Routledge.
 Collier, P.M., 2015. Accounting for managers: Interpreting accounting information for decision
making. John Wiley & Sons.
 Kajananthan, R. and Velnampy, T., 2018. Liquidity, Solvency and Profitability Analysis Using
Cash Flow Ratios and Traditional Ratios: The Telecommunication Sector in Sri Lanka. Research
Journal of Finance and Accounting, 5(23).
 Kanapickienė, R. and Grundienė, Ž., 2015. The model of fraud detection in financial statements
by means of financial ratios. Procedia-Social and Behavioral Sciences, 213, pp.321-327.
 Robinson, T.R., Henry, E., Pirie, W.L. and Broihahn, M.A., 2015. International financial
statement analysis. John Wiley & Sons.
 Stocken, P.C., 2013. Strategic accounting disclosure. Foundations and Trends® in
Accounting, 7(4), pp.197-291.
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