Accounting Analysis and Interpretation - Assignment Example

Accounting Analysis and interpretation Name: Lecturer: Course name: Course code: Date: Question one Jason Income statement For the period ending 30th July 2013 Sales 8,655 Cost of sales Supplies 435 Less Closing stock (90) (345) Gross Profit 8310 Rent 270 Telephone expenses 160 Wages 3,300 Depreciation 270 Total expenses (4000) Net profit 4,310 Jason Statement of financial position For the period ending 30th 2013 Fixed assets Van 3,600 Depreciation (270) Total fixed 3,330 Current asset Accounts receivable 990 Inventory 90 Total asset 4,410 Current liabilities Bank overdraft (3,795) Non-current liability Loan 3,240 Capital 1,720 Net profit 4,310 Drawings (1,065) Equity and Liabilities 4,410 Jonson Statement of changes in equity For the period ending 30th June 2013 Capital at contributed 1,720 Add profits for the year 4,310 Less drawings (1065) Equity balance 4,965 Workings Rent      I.C 270  Bank 450      Bal c/d 180 Supplies      Drawings 35  Payables 470      I.S 435 Drawings    Bank 870    Supplies 35  Balance C/d 1,065  Telephone 160   Account receivable   sales 120    Sales 8,400  Bank 120        Bal c/d 990     Sales      Bank 135  I.S 8,655  Acc receivable 120    Acc receivable 8,400 Wages    Bank 3,300      I.S 3,300     Question two Periodic method Receipts Issues Units Cost/unit Amnt Units cost/unit Amnt Units Amnt Opening Stock 2,600 1,820 10-Jul Sales 1,200 0.7 840 1,400 980 13-Aug Sales 720 0.7 504 680 476 22-Sep Purchases 2,200 0.7 1540 2,880 2,016 30-Sep Sales 0 1,400 0.7 980 1,480 1,036 12-Dec Purchases 1,650 0.7 1155 3,130 2,191 15-Dec Sales 450 0.7 315 2,680 1,876 3-Feb Sales 810 0.7 567 1,870 1,309 20-Mar Purchases 1600 0.7 1120 3,470 2,429 19-Apr Sales 1600 0.7 1120 390 0.7 273 460 0.7 322 2450 1715 1,020 714 24-May 340 0.7 238 450 0.7 315 790 553 230 161 Vixen’s CD’s income statement Sales 7820 x 1.95 15,249 Less Cost of sales Op stock 2600 x 0.7 1,820 Add purchases 5450 x 0.7 3815 less stock loss (230-190) x 0.7 -28 5,607 9,642 Less closing stock 190 x 0.7 -133 Gross profit 9,509 Less stock loss 40 x 0.7 -28 Net profit 9,481 Periodic Valuation method Purchases Units Cost/Unit Amount Op stock 2,600 0.7 1820 Purchases 2200 0.7 1540 Purchases 1650 0.7 1155 Purchases 1600 0.7 1120 Cost of Good available 8050 5635 Cost of goods sold 10-Jul 1200 13-Aug 720 20-Sep 1400 15-Dec 450 3-Feb 810 17-Apr 2450 24-May 790 7820 Ending inventory 230 Reported ending inventory 190 Stock loss 40 Units sold 7,820 sold units (fifo) 20-Mar 1600 12-Dec 1650 22-Sep 2200 5450 Opening Inventory 7820- 5450 2,370 Total opening inventory 2600 Closing inventory 2600- 2370 230 Vixen’s CD’s income statement sales 7820 x 1.95 15,249 Less cost of goods sold Opening Stock 2600 x 0.7 1820 Purchases 5450 x 0.7 3815 Lost stock ending - reported ending (230 - 190) x 0.7 -28 Less closing stock 190 x 0.7 -133 The periodic cost of goods sold 5474 Gross profit 15249-5474 9,775 a) Both Perpetual and periodic inventory systems resulted to the same gross profit of $9775. Since all the prices for the goods bought is the same over the accounting period then there is no any change in their valuation using both inventory valuation systems. Moreover the valuation of sales value is as a result of constant sale value with lead to same sale value in the each valuation method. b) Control of inventory typically represents reasonable expenses for business thus effective control is required to ensure that the business operations are run effectively with the correct inventory to avoid stock shortage, stock shrinkage and to provide appropriate accounting. This information will provide a stock-outs control profile and maintains continuous evaluation of the product sales of dissimilar product lines to consider where the emphasis should be placed for both buying and selling. c) Jeff business is considerably small scale business whose operations can be trace efficiently at the end of accounting period. The essence of adopting the effective stock valuation method is commensurate the business capability in implementing and controlling inventory valuation systems. Perpetual inventory valuation method is considerably expensive for Jeff business since it requires high capital computer system and software that can run and control the stock effectively. Periodic inventory system significantly suits the Jeff’s business since the system is not expensive to run as compared to perpetual system. Moreover, Jeff’s transaction can be tracked efficiently. The constant selling and buying price also gives periodic system effectiveness in controlling business stock. Question three Within the accounting process and transactions many economic activities might exist which might not instantly call for the recording in the books of account. These transactions are accounted for through adjusting entries which act to stand for the revenues and expenses within the accounting period that they resulted. There are two instances of adjusting entries first deferrals in this case it keeps expenses and revenues which might have been recorded but then need to be deferred to some other period. For instance deference of some insurance cover which was paid for towards the term of an accounting period for subsequent coverage’s within the next period. Some deferred entries are noted down to reveal the insurance expenses within the period that the insurance cover is applicable. The other instance is accruals which apply to expenses and revenues which have been accrued but not recorded yet. For instance the revenue interest which has been earned within one period despite the real cash payments have not been received till early in the period that follows. Entry adjustments are effected to take note of the revenues within the period that were earned. These journal adjustments are normally made towards the end of an accounting period so as to update the balances of accounting in reflecting accurate balances according to the balance sheet, the accounting period end date. The differences of timing in cognizance of expenses and revenues between accrual foundation as well as cash accounting basis are often corrected through journal entries adjustments. Question Four Bank account    Bal c/d 1450  Supplies 3,620    Electricity 180  Bal c/d 2350   Supplies      Bal c/d 3960  I.S 340      Bank 3620 Electricity expense    Bal c/d 1250        Bank 180  I.S 1430 Jeff Smith INCOME STATEMENT For the year ended 30th June 2013 Using Accrual accounting method Income 40,600 Less supplies (340) EXPENSES Electricity expense 1430 Repair & Maintenance $2,390 Other expenses $630 Total Expenses 10,280 (4450) PROFIT 35,810 Jeff Smith INCOME STATEMENT For the year ended 30th June 2013 Using Cash Accounting Method Income 40,600 Less Receivable (90) Cash Sales received 40,510 CASH PAYMENTS Supplies 340 Electricity expense $1430 Repair & Maintenance $2300 Other expenses $630 All cash paid out 10,240 (4970) Profits 35,540 Accrual and Cash accounting evaluation analysis Accrual accounting method accounts for transaction revenue when transactions are made. This method records revenue earned and expenses at the time they are incurred. Cash accounting method records cash earned transaction at the revenue is realized and expenses incurred by the business at the time they payments are made. Jeff smith should consider using accrual accounting method in recording his business transactions since this method matches business revenue at the time they are earned while expenses at the time they are incurred. Accrual accounting method gives in-depth accounting information that allows tracking of business receivables from debtors and payables to the suppliers. However accrual method gives a meaningful accounting reports as it matches the revenue earned to business expenses incurred in earning them. Question Five Workings Profit to total Assets = 20% Total asset = 675,000 Profits = 0.2 x 675,000 Profit = 135,000 Profit margin = 15% Profit margin = profit / sales 135,000/ sales = 0.15 Sales = 135,000/ 0.15 Sales = 900,000 Gross profit to sales ratio = 35% G.P / sales = 35% G.P / 900,000= 0.35 G.P = 900,000 x 0.35 Gross profit = 315,000 Credit sales to sales = 70% Credit sales / sales = 70% Credit sales = 900,000 x 70% Credit sales = 630,000 Cash sales = sales – credit sales 900,000- 630,000 Cash sales = 270,000 Credit sales to accounts receivable 7:1 630,000: Acc receivable 7 : 1 Acc receivable = 630,000/ 7 Accounts receivable = 90,000 Noncurrent asset to Current assets = 10% Total assets = 675,000 Non-current asset = 1/10 x 675,000 = 67,500 Current asset = 9/10 x 675,000 = 607,500 Current Ratio= Current asset / Current Liabilities Current asset: current Liabilities 2.5 : 1 607,500 : current Liabilities Current Liabilities = 607,500/ 2.5 =243,000 Acid Test ratio= (Current Assets – Inventory)/ Current assets CA = (607,500 – I): 243,000 2 : 1 Inventory = 607,500 – (2 x 243,000) Inventory = 607,500 – 486,000 = 121,500 Profit to Equity = 40% Profit = 135,000 Equity = 135,000/ 0.4 Equity = 337,500 Accounts payable to purchases = 35% Account payable = 243,000 Purchases = 243,000/ 0.35 Purchases = 694,500 James Peak, INCOME STATEMENT For the year ended 30th June 2013 Income Cash 270,000 Credit 630,000 900,000 Less cost of sales (585,000) Gross profit 315,000 EXPENSES Operating expenses (180,000) PROFIT 135,000 James Peak, Balance sheet For the year ended 30th June 2013 Fixed Assets Non- current Assets 67,500 Current Asset 607,500 Total assets 675,000 Less current Liabilities 243,000 Net assets 432,000 Equity 337,500 Earnings 94,500 432,000 Read More