Financial Accounting and Analysis

Answer 1.

Introduction.

A journal entry is a record of the business transactions in the accounting books of a business. A
properly documented journal entry consists of the correct date, amounts to be debited and
credited, description of the transaction and a unique reference number.

A journal entry is the first step in the accounting cycle. A journal details all financial
transactions of a business and makes a note of the accounts that are affected. Since most
businesses use a double-entry accounting system, every financial transaction impact at least two
accounts, while one account is debited, another account is credited. This means that a journal
entry has equal debit and credit amounts.

Following are the journal entries for the given question,

Date Particulars L.F Amount (Rs.) Amount (Rs.)

Dec 3 Cash a/c Dr 5,000
Bank a/c Dr 5,00,000
To Capital a/c 5,05,000
(Being cash and bank balance
contributed in capital to start a
business)
Dec 5 Furniture a/c Dr 60,000
To Cash a/c 30,000
To Bank a/c 30,000
(Being furniture purchased at
50% through bank and rest
cash)
Dec 7 Purchase a/c Dr 3,15,000
To Bank a/c 3,15,000
(Being goods purchased)
Dec 8 Bank a/c Dr 5,00,000
To Sales a/c 3,15,000
To Profit and Loss a/c 1,85,000
 (Being goods sold)
Dec 10 Rent a/c Dr 10,000
Electricity a/c Dr 10,000
Salary a/c Dr 10,000
To Bank a/c 30,000
(Being expenses paid through
bank)
Total 14,10,000 14,10,000

Conclusion

Journal entries are the muse of powerful report-keeping. They are taken care of into
numerous charts of money owed and, as soon as proven for accuracy, published to the trendy
ledger, which then feeds records to the economic reviews that commercial enterprise
decision-makers rely on. Accurate and entire journals also are crucial with inside the auditing
process, as magazine entries offer precise money owed of each transaction. Auditors, each
inner and external, will search for entries or modifications that lack the right documentation,
motives or approvals or which are out of doors the norm for the commercial enterprise.

Answer 2.

Introduction

A earnings and loss announcement info a commercial enterprise's profits and fees over a
described length. The P&L is likewise called an profits announcement, announcement of
earnings, announcement of operations, and a earnings and loss report. Regardless of the time
period used to explain this financial announcement, it's miles a image of a commercial
enterprise's sales and fees over a specific length. Typically, a P&L is made at the least
quarterly and annually, however they may be achieved extra frequently.

Concept and application related to question.

The P&L is constructed from predominant components: the profits earned at some stage in
the length of the announcement and the fees with inside the identical length. These
components are damaged down with inside the numerous entries applicable to your
commercial enterprise. Not each P&L can have the identical lines.
 1. Revenue

Revenue is said first on a earnings and loss announcement for small groups and includes all
profits items. This access at the P&L can be called income, gross receipts, costs, or some
other time period to explain the enterprise's working sales. Operating sales is usually
damaged out from non-working re-assets of profits, like hobby.

Again, the accounting approach impacts whilst sales is said at the P&L. When using the
accrual approach of accounting, sales is said whilst earned, on the time of sale, even
supposing bills have now no longer but been received. If the coins approach is used, sales can
be recorded whilst fee is received. To boom the accuracy of said profits, gross income can be
adjusted primarily based totally on beyond enjoy of patron returns or refund requests with the
aid of using putting in place an allowance and netting it in opposition to sales.

2. Cost of items sold (COGS)

A enterprise that sells items should determine the value of products sold (COGS). This is
essentially the value of stock or substances used to create products, that is then subtracted
from the income to decide the real sales (gross earnings) from the income. For example, a
enterprise that consists of a $20 object in stock and sells it for $a hundred could have $a
hundred in sales, however after taking the $20 of COGS under consideration could report
$eighty in gross earnings.

3. Expenses

The expense part of a earnings and loss announcement for small groups encompasses any
expenditure made to perform the commercial enterprise. These can include:

 Advertising expenses

 Employee salaries, benefits, and payroll taxes

 Interest fees

 Office supplies

 Payments to companies or contractors

  Professional costs for accountants, attorneys, etc.

Accounting for a few fees requires know-how asset depreciation. Some purchases, which
include workplace equipment, should be capitalized as an asset and written off over the
beneficial lifestyles of the object.

For example, if a $1,000 pc is purchased (and no increased write-off is used to account for
the acquisition for tax purposes), it might be said over 5 years. Each yr the earnings and loss
announcement displays 20 percentage of the value for the pc, or $2 hundred in expense. Non-
working fees, which include hobby and taxes, are frequently damaged out one after the other
from working fees for illustrative purposes.

4. Gross earnings

Gross earnings is the distinction among the sales or gross receipts and the value of products
sold. If the enterprise is a carrier commercial enterprise with out stock, then the gross
earnings and the gross receipts are the identical amount.

5. Net earnings or loss

After calculating any taxes due and subtracting them from pre-tax profits, the internet amount
will identical a enterprise's earnings or loss for the length. When looking to compare
organizations in special industries and tax situations, or if specific numbers are not but
available, internet earnings or loss is frequently equated to the earnings earlier than hobby,
taxes, depreciation, and amortization (EBITDA).

The advent of a earnings and loss announcement is an essential occasion for a small
commercial enterprise. At one glance, it affords a precis of the maximum essential sports of
the enterprise.

Conclusion.

A P & L announcement is the document of the best information of income and the much less
propitious information of fees. It affords precious statistics to managers and proprietors
inclusive of the expenses of products sold, gross margin, promoting and administrative fees,
and internet earnings. Compiled on a normal basis, the P & L announcement is one of the
maximum essential equipment for a small commercial enterprise proprietor to apply to assess
and make modifications to operations.

Answer 3.

a)

Introduction

The term balance sheet refers to a financial statement that reports a company's assets,
liabilities, and shareholder equity at a specific point in time. Balance sheets provide the basis
for computing rates of return for investors and evaluating a company's capital structure.

In short, the balance sheet is a financial statement that provides a snapshot of what a
company owns and owes, as well as the amount invested by shareholders. Balance sheets
can be used with other important financial statements to conduct fundamental analysis or
calculate financial ratios.

Concept

Balance Sheet of Z and X, LLP

Liabilities Amount (Rs Amount (Rs Assets Amount (Rs Amount (Rs
in '000) in '000) in '000) in '000)
Current Assets
Stock Holders 860 Cash 550
Equity
- Retained
Earnings

Accounts 250
Receivable
Current Prepaid Insurance 300
Liabilities
- Accounts 540 Supplies 150 1250
Payable
- Salary 150
Payable
- Common 1000 Fixed Assets
Stock
- Unearned 200 1890 - Equipments 1500
Revenue
Total 2750 Total Assets 2750
Liabilities

b)

Introduction

The current ratio is a liquidity ratio that measures a enterprise’s capacity to pay short-time
period responsibilities or the ones due inside one year. It tells traders and analysts how a
enterprise can maximize the modern property on its stability sheet to full fill its modern debt
and different payables.

A current ratio this is in line with the enterprise common or barely better is typically
considered acceptable. A current ratio this is decrease than the enterprise common may
suggest a better chance of distress or default. Similarly, if a enterprise has a completely
excessive modern ratio in comparison with its peer group, it shows that control might not be
the use of its property efficiently.

Current Ratio is computed to recognise the capacity of a organization to repay the short-time
period liabilities of a organization with the assist of modern property. It is assumed that each
one the modern property are possibly to be transformed into coins to pay off the short-time
period liabilities of the organization.

Concept

Current Ratio=Current liabilities/Current assets

Current Liabilities = Accounts Payable + Salary Payable + Common Stock + Unearned
Revenue

= 540 + 150 + 1000 + 200

= 1890
Current Assets = Cash + Account Receivables + Prepaid Insurance + Supplies

= 550 + 250 + 300 + 150

= 1250

Therefore, Current Ratio = 1890/1250

= 1.51

If a company has a high ratio (anywhere above 1) then they are capable of paying their short-
term obligations. The higher the ratio, the more capable the company.