Business Finance: Income Statement, Balance Sheet, and Cost Evaluation

This report provides a comprehensive financial analysis of Tom's Tent, including the preparation of an income statement and balance sheet based on the provided trial balance and necessary adjustments. It evaluates the break-even point based on the provided costs and analyzes the implications of the company's management system. Key aspects covered include prepaid expenses, depreciation, bad debt expenses, and adjustments to cash equivalents and receivables. The report also calculates the average selling price of garden equipment, variable costs, contribution margin, and the break-even point in monetary terms, along with recommendations for achieving a target profit and assessing the margin of safety. Furthermore, it discusses short-term and long-term decision-making in business, management by exception, and the controllability principle, highlighting the importance of managerial performance in business development. Desklib offers a variety of resources, including past papers and solved assignments, to support students in their studies.

Running head: BUSINESS MANAGEMENT FINANCE
Business Management Finance
Name of the student:
Name of the university:
Author Note:

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Executive Summary
This paper aims at the preparation of the income statement and balance sheet of the Tom’s
tent and the evaluation of the breakeven point of the evaluated costs. The implication of the
management system of the company is further analyzed in proper manner in this conducted
study.

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Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................4
Answer to Question number 1................................................................................................4
Answer to Question number 2................................................................................................7
Answer to Question number 3................................................................................................8
Conclusion................................................................................................................................10

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Introduction:
The aim of the assignment deals with the preparation of income statement and balance
sheet of tom’s tent as per the given trial balance and the adjustments which are needed to be
considered while preparing such income statements and balance sheet (Burtonshaw-Gunn
2017). The cost have been also evaluated accordingly with the given figures in the questions.

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Discussion:
Answer to Question number 1

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Notes to accounts:
1) In case of the heating and lightning prepaid bill for heating and lightning has been
deducted for the amount of 500 in the income statement.
2) In case of the insurance, prepaid insurance have been charged and for that amount of 700
have been deducted from the books of accounts.
3) The total depreciation of motor vehicle have been charged in the income statement
amounted to 21400.
4) The loss from the sale of motor vehicle have been charged an amount of 1600 in the
income statement.
5) Depreciation of furniture and fixtures have been charged in the 11200 in the income
statement.

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6) Prepaid rent of 26000 have been charged in the income statement.
7) The allowance receivable from the net receivable an amount of 4075 have been charged in
the bad debt expenses.
8) Bad debt have written off 6000 in the income statement.
9) In the cash and cash equivalents the sale of motor vehicles have been adjusted amount of
12000.
10) The receivable of the company have been adjusted with the bad debt expenses.
11) Depreciation of the furniture and fixtures have been adjusted after deducting the
accumulated depreciation charged in straight line basis from the Furniture and fixtures cost.
12) Motor vehicles have been adjusted with the accumulated depreciation at further
depreciation have charged in reducing balance method.
The allowance receivables will decrease the overall balances of the receivables account as the
receivable are adjusted with the allowances or provision created for bad debt from the net
amount. Hence there will be a decrease in the irrecoverable due to such provision made in the
bad debt of the company. Hence it can be said that bad debt expenses is recorded in the
income statement of Tom (Cañibano 2018).
In the exam hall, the easier method to solve the above problem is that it is important to do the
workings of the adjustment in the books of accounts. After doing all the workings it will be
better to then prepare the income statement and the balance sheet of the company. the
adjustment made is recorded in the process of the double entry method of books keepings
which further means that each of the adjustments must be made and the effect of such

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adjustment is reflected twice while [preparing the income statement and balance sheet of the
company.
Answer to Question number 2
The average selling price of the garden equipment’s is 39.71 as per the above
evaluation from the given data in the question. Accordingly the variable cost and the
contribution of the garden equipment is also evaluate which is 583800 and 289820
respectively.
The beak even point in monetary terms is amounted to 373780 in the year 2017 when
the business broke as the set of garden equipment’s.
The nearest whole number means that if the result is suppose 147.23 then the nearest
number will be the 147 which is considered as the nearest whole number and if the result is

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suppose the 147.89, then in that case the round off will be the 148. Hence, it makes more
sense to round up the number to the nearest whole number (Christ and Burritt 2015).
In order to earn a profit of 200000, 24595 set of the garden equipment must be sold in
that case to earn such profit margin. The margin of safety of the garden equipment is
amounted to 499840.
If the set are sold together it may be useful for the business to work out because it will
show better cost management if the allocation is properly made. Hence evaluating the
individual contribution will further provide a better picture of the cost allocated and helps to
identify the contribution provided in such a case.
If a business choose to sell at a negative contribution, then it can be said that the
business is selling its product at a competitive price which further means at loss. This further
implies that in the future the company is going is take huge market at such competitive
pricing policy (Geisler and Wickramasinghe 2015). Here the main advantage is that the
company will be thriving in a no profit and no loss situation and after that the company is
going to earn profit in the long run due to such competitive pricing policy.
Answer to Question number 3
The short term decision of a business refers to the intention of the company to earn
profit on short term basis and accordingly the company take measures or approach to
accomplish certain short run profit. In the day to day decision of the company means that that
the business which is conducted as per the day to day sales which has no long term or short
term objectives of the business (Radnor, Osborne and Glennon 2016). The long term
objectives or the year to year basic objectives or goals are set by the business which deals

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with large capitals and thus this kind of company sets long run objectives in order to
accomplish profits in the long run.
The business personnel is the core objectives which are undertaken by the business in
order to accomplish it at the end of the year hence in order to achieve the business objectives
the management takes certain strategies to achieve the organizational objectives and major
decision in that case is taken by the top level management of an organizations. After the
operations conducted in the whole year of the business, at the end of the year the company
finds out the outcome of such operations (Smith 2017). In the next year the company takes
serious action of to adjust the deficits or loopholes in the business of the current year and
rectify it accordingly.
Management by exception is that business management, when a particular business
deviates from the current objectives, basic norms and in order to bring the management
system in the right track through the process of the business intelligence application as it
deviates from the normal behavior of the business (Winfree et al. 2018). Exception
management duty is to fulfill to exceptions made due to such outsets in the business (Penno
2017).
Controllability principle refers to the principles on which the managers of the
company has full control over the elements of such principles. This set of principles helps to
analyze the managerial performance and the application to such controllability principle. The
principle are fully under the control of the top managers of the business (Wang et al. 2016).
Managerial performance plays significant role in the development of the business
management of the company.

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Conclusion
Based on the above discussion it can be concluded that, from the income statement
and the balance sheet of tom’s tent it can be interpreted that it is possible to show profit in
after considering the operating expenses and balance sheet of the company is strong after
analyzing the balance sheets of tom’s tent (Williams and Dobelman 2017). In order to
generate revenue in the business, the sales of the company is needed to be increased by
adjusting the variable and the fixed cost of the company. In that case the company needs to
lower the cost by not procuring or purchasing raw material from other company.