ACC104 Accounting for Decisions 2: Financial Statement Analysis

This assignment solution addresses the core concepts of financial statement analysis within the context of ACC104, focusing on the relationship between the balance sheet and income statement, and the process of creating financial statements. The solution begins with a concise explanation of the balance sheet, detailing the structure of assets, liabilities, and equity, and the income statement, highlighting revenue, expenses, and profit. The second part presents a detailed worksheet, income statement, balance sheet, and statement of changes in equity for ABC Financial Consultant. It includes journal entries for adjusting entries, such as depreciation, prepaid insurance, unearned revenue, and accrued expenses. The solution demonstrates the preparation of the financial statements based on the provided trial balance and adjustments, showcasing the net profit, and the final financial position of the company. The assignment provides a complete walkthrough of financial statement preparation, from the unadjusted trial balance to the final statements, illustrating the impact of adjustments on the financial position and performance of a business.

Answer to Part 1
Balance Sheet
The Balance Sheet of the Company always given actual position of financial health as on specific date
of the balance sheet. The main two constituents of the Balance Sheet include Assets and Liabilities.
Assets includes all types of Fixed Assets, Current Assets including Sundry Debtors, Stock and Cash &
Bank Balances. Stock, Cash and Bank balances are also termed as liquid assets having very short life
of realization. Stronger the Current Assets of the company better it is, as it gives liquid strength to
the company.
Liabilities side gives us the picture as how the assets are funded, it mainly includes two shareholders
equity and all other liability. All other liability would include secured, unsecured loans, Creditors and
any other amount payable. Profit or Loss, as the case may be will be increase/ decrease the
shareholder’s equity.
Income Statement
Income Statement gives us the profitability of the company for a particular period of time. It mainly
contains two part Income and Expenses. The excess of Income over expenses will be termed as Profit
and vice versa as Loss
Income includes revenue that company generated for the particular period of time through ordinary
course of business and indirect income earned from any other source.
Expenses includes all the purchases, expenses incurred for generating above revenue such as salary,
rent, depreciation, printing and office expenses etc.
Net result of Income Statement i.e. Profit or Loss will be added with the shareholders fund. More the
profit better will the position of the company.
Answer to Part 2 (1)
ABC Financial Consultant - Worksheet for the year ended 30 June 2017
Figures in $
Unadjuste
d trial balance
Adjustmen
ts
Adjusted
trial balance
Account Title Debit Credit Debit Credit Debit Credit Narratives
Cash at Bank
5,200 5,200 -
Current Assets
Accounts
Receivable. 9,260 9,260 -
Current Assets
GST Receivable
920
78
998 -
Current Assets
Office Supplies
1,140
720
420 -
Current Assets
Land
60,000 60,000 -
Non Current Assets

Building
1,52,00
0
1,52,00
0
-
Non Current Assets
Accumulated
Depreciation –
Building 64,000
8,760
- 72,760
Non Current Assets
Office Equipment
23,400 - 23,400 -
Non Current Assets
Accumulated
Depreciation –
Office Equipment 6,420
2,140
- 8,560
Non Current Assets
Accounts Payable
7,960
858
- 8,818
Current Liabilities
Unearned
Consulting Fees 1,560
1,200
- 360
Current Liabilities
GST Payable
2,000 - 2,000
Current Liabilities
Mortgage Payable
88,600 - 88,600
Non Current
Liabilities
C. Delaney,
Capital 71,490 - 71,490
Non Current
Liabilities
C. Delaney,
Drawings 52,780 - 52,780 -
Non Current
Liabilities
Consulting Fees
Revenue 1,56,86
0
1,200
- 1,58,06
0
Revenue
Insurance Expense
1,660 -
195
1,855 -
Expense
Salaries Expense
87,940
980
88,920 -
Expense
Electricity Expense
760 760 -
Expense
Interest Expense
2,090
220
2,310 -
Expense
Telecommunicatio
ns Expense 1,740
320
2,060 -
Expense
Prepaid Insurance 585
585 -
Current Assets
Telecommunicatio
ns Expense
Payable
320
- 320
Current Liabilities
Office Supplies
Expense
720
720 -
Expense
Depreciation
Expense –
Buildings
8,760
8,760 -
Expense
Depreciation
Expense – Office
Equipment
2,140
2,140 -
Expense
Interest Payable 220
- 220
Current Liabilities
Salaries Payable 980
- 980
Current Liabilities
Total
3,98,89
0
3,98,89
0
15,198 15,198
4,12,16
8
4,12,16
8

Notes
 Since the physical stock of office supplies is only $420 are on hand at 30 June as against
1140, the difference has now been booked as expense and stock count is bought as 420.
 Unearned Consulting Fees amounting $1200 received form customer as an advance, against
which services have been rendered in the last week of June, therefore we booked revenue
and reduced current liabilities.
 Depreciation Expense on the office equipment is $2140 and on the building $8760 is debited
and also credited in accumulated depreciation of respective asset.
 Insurance policy worth $780 plus 10% GST of $78 was purchased on 1 April, therefore the
GST input is been debited under the head GST receivables by $78, premium amount of 195 is
amortised for the period of three month till June,30 and remaining amount of premium i.e.
$780-195=585 has been considered as prepaid expense.
 Though June monthly mortgage payment of $900 has not been paid the interest of $220 has
to be booked as expense under the head Interest Expense and shown in liabilities as Interest
Payable.
 Telecommunications costs for $320 needs to booked as expense provisionally though
Invoice is not received and shown in current liabilities as payable.
 Salaries of $980 owing to employees at 30 June 2017 needs to booked as expense as salary
expense and shown as liabilities as salary payable.
Answer to Part 2 (2)
ABC Financial Consultant - Income Statement for the year ended 30 June 2017
Income Amount ($)
Consulting Fees Revenue 1,58,060
1,58,060
Expenses
Insurance Expense 1,855
Salaries Expense 88,920
Electricity Expense 760
Interest Expense 2,310
Telecommunications Expense 2,060
Office Supplies Expense 720
Depreciation Expense – Buildings 8,760
Depreciation Expense – Office Equipment 2,140
1,07,525
Net Profit 50,535
Note: Each line item is work sheet/trial balance as been categorized and presented in the above
Income Statement after adjusting missing items. The Net Profit amounting $50535 is earned by the
ABC Financial Consultant.
ABC Financial Consultant - Bakance Sheet as at 30 June 2017

Particulars Amount ($) Amount ($)
Non Current Assets
Land 60,000
Building 1,52,000 79,240
Less:Accumulated Depreciation – Building -72,760
Office Equipment 23,400 14,840
Less: Accumulated Depreciation – Office Equipment -8,560
Current Assets
Cash at Bank 5,200
Accounts Receivable. 9,260
GST Receivable 998
Office Supplies 420
Prepaid Insurance 585
Total of Assets 1,70,543
Sharehoders Equity Fund
C. Delaney, Capital 71,490 69,245
C. Delaney, Drawings -52,780
Profit for the Period 50,535
Non Current Liabities
Mortgage Payable 88,600
Current Liabities
Accounts Payable 8,818
Unearned Consulting Fees 360
GST Payable 2,000
Telecommunications Expense Payable 320
Interest Payable 220
Salaries Payable 980
Total of Liabilities 1,70,543
Note: Each line item is work sheet/trial balance as been categorized and presented in the above
Balance Sheet as on 30th June, after adjusting missing items.
Statement of Changes in Equity for the year ended 30 June 2017
Particular Amount ($)
Balance at the beginning of the year 71,490
Drawings during the year -52,780
Profit for the Period 50,535
Balance at the closing of the year 69,245
Note : As explained in Part1, Profit/Loss achieved is always added to the capital account hence profit
of $50535 has been added in capital account. Drawings of $ 52780 will reduce the capital from the
company. There fore the closing balance of capital stood at $69245.