Financial Analysis: Income Statement, Balance Sheet, and Explanations

This finance assignment presents a comprehensive analysis of financial statements, specifically focusing on an income statement and a statement of financial position (balance sheet) for the year ending December 31st, 2019. The solution includes the calculation of key financial metrics such as sales, cost of sales, various expenses, profit before and after tax, and the presentation of assets, liabilities, and equity. The assignment also explains the fundamental principle of why a balance sheet must always balance, emphasizing the equality between assets and the sum of liabilities and shareholders' equity, and highlighting the double-entry bookkeeping system and the impact of transactions on the balance sheet. Furthermore, the assignment discusses the use of software in accounting and potential reasons for discrepancies in balance sheets, reinforcing the importance of accuracy and reliability in financial reporting. References to academic journals and books are included to support the analysis.

FINANCIAL INFORMATION

TABLE OF CONTENTS
QUESTION 1...................................................................................................................................1
a) Income Statement and statement of Financial position for the year ending 31st December
2019. ............................................................................................................................................1
b) Why statement of financial position balances.........................................................................2
REFERENCES................................................................................................................................4

QUESTION 1
a) Income Statement and statement of Financial position for the year ending 31st December 2019.
Income Statement
Particulars Amount
Sales 827630
Cost of Sales 578650
Administrative Expenses 30000
Distribution Cost 28000
Salesmen Commission 3000
Interest Paid 2000
Director's Remuneration 5000
Preference Dividend 30000
Ordinary Dividend 20000
Profit before tax 130980
Corporate tax 68000
Profit after tax 62980
Statement of Financial Position
ASSETS
Non Current Assets
Plant & Equipment 632730
Current Assets
Stock 330600
Debtors 171105
Cash & Bank 12900
514605
TOTAL 1147335
EQUITY & LIABILITIES
1

Non Current Liabilities
4% Debentures 100000
100000
Current Liabilities
Trade Creditors 171355
Outstanding commission 3000
Corporate tax 68000
242355
Shareholder's Equity
Ordinary Shares 310000
10% Preference Shares 300000
Retained Earnings 194980
804980
TOTAL 1147335
b) Why statement of financial position balances
Balance sheet of a company should always be balanced. As named on the fact that
company assets will always be equal to liabilities & shareholders' equity. Assets over balance
sheet consists of what is owned by company or will be receiving in future and that are
measurable. On the liabilities are what is owed by company like debt, salaries, payables, taxes.
The equity section display retained earnings of the company and capital contributed by the
shareholders. Total assets should be equal to total of the liabilities and shareholder equity.
Balance between the assets, liabilities and the equity should always be there as per the
principle of double entry book keeping. It is the main principle due to which the balance sheet
should balance (Thirunavukkarasuand Periyasamy, 2020). The accounting system records all
the transactions to a minimum of two accounts and it ensures that the entries made for recording
are consistent.
For example of company is spending $15000 over a car, then assets would increase by
15000 for reflecting value of car. On the other there will be cash outflow which will decrease
same amount since money is paid for purchase of car.
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Businesses nowadays are using software programs to carry out the double entry book
keeping records. The programs enable the users to record all the transactions related to business.
These software also reflect the errors if any is made in recording the entries. If any entry is
missed this could also be reflected in these programs. However technical errors may occur in the
programs however users are required to be aware of them.
It is essential for the accountants and professionals to regularly review the transactions
and updating the balance sheet at regular intervals. The reasons due to which balance sheet might
not match are recording incomplete entering, posting the amount in wrong account, mistyping
error, negative and positive mistakes, data corruption, omission of entries (Song and et.al.,
2019.). These mistakes could lead the balance sheet not to tally. However, it is essential for the
organisation to ensure that balance sheet balances as it reflects the correct and reliable financial
position of the entity.
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REFERENCES
Books and Journals
Thirunavukkarasu, R. and Periyasamy, S., 2020. Enhancing Diesel Engine Performance and
Balancing Emissions with Effect and Contribution of MgO-ZrO 2 and AT13 Layered
Piston. Arabian Journal for Science and Engineering. pp.1-9.
Song, M., and et.al., 2019. China's natural resources balance sheet from the perspective of
government oversight: Based on the analysis of governance and accounting
attributes. Journal of environmental management. 248. p.109232.
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