Role of accounting information and concept a practical approach 150217064326 conversion gate02

1. Assignment Role of Accounting Information and Concept: A Practical Approach : Assignment : 2000 Type of Documents No of Words Disclaimer: This is a sample document prepared by globalassignmenthelp.com and has been submitted on turnitin. To order the similar paper please contact at: Email :help@globalassignmenthelp.com Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

2. This is a sample document owned by www.globalassignmenthelp.com ROLE OF ACCOUNTING INFORMATION AND CONCEPT: A PRACTICAL APPROACH For complete project contact Call now : +44 203 3555 345 Email Address : help@globalassignmenthelp.com Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

3. This is a sample document owned by www.globalassignmenthelp.com Table of Contents INTRODUCTION ............................................................................................................................... 1 TASK 1 ............................................................................................................................................. 1 Solution: ...................................................................................................................................... 2 TASK 2 ............................................................................................................................................. 3 Solution. ...................................................................................................................................... 4 Content. ................................................................................................................................... 6 Purpose .................................................................................................................................... 7 Calculations. ............................................................................................................................. 7 Comparison and analysis of the ratios for the two companies calculated in task 2. ................... 7 Efficiency ratio. ........................................................................................................................ 8 Liquidity ratio .......................................................................................................................... 8 CONCLUSION ................................................................................................................................. 10 REFERENCE ................................................................................................................................... 11 Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

4. This is a sample document owned by www.globalassignmenthelp.com INTRODUCTION Accounting or better the financial accounting is the heart of any business as by this the supply of life blood to the rest of the organization is controlled. Accounting information and concepts provides the ground for any financial analysis. By knowing the importance of any entity, thought process can be improvised. Here, in the present report, attempt is made to explain the role and importance of accounting information and concepts. This is done by applying the concepts in a practical problem. In the course, different computer packages such as MS-excel etc are being applied for data processing. Different performance measures in terms of ratios are being calculated and interpreted. For these calculations and interpretations, a detailed report has been draft indicating the analysis findings. Entire work has been segregated in three tasks. In the first one, method of carving out financial statements from the trial balance is demonstrated with a real time question. Task 2 deals with calculation of different ratios. In the last task i.e. task 3, a detailed report for both the above task findings has been drafted. TASK 1 Trial balance extracted from the accounting books of Mr Sunshine as on 31 December 2011 Trial balance as on 31st Dec, 2011 DR £ CR £ 150,000 Purchases Capital 213,000 80,000 Long term Loan Printing and Stationery 5,000 16,000 Drawings 50,000 General expenses Sales 452,000 Trade Receivables 95,000 Trade Payables 40,000 Bank overdraft 13,000 Selling and distribution expenses 10,000 7,000 Light and Heat Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

5. This is a sample document owned by www.globalassignmenthelp.com 5,000 Interest Paid Furniture –Cost 300,000 –Accumulated Depreciation 90,000 Motor Vehicles 50,000 –Cost –Accumulated Depreciation 15,000 3,000 Allowances for Trade receivables 86,000 Wages and Salaries 52,000 Rent and Rates 80,000 Inventory at 1 January 2011 906,000 906,000 Given Additional Information: 1. 2. Inventory as at 31 December 2011 was valued at £60,000. Depreciation is to be charged as follows:- Furniture: 30% on reducing balance basis. Motor vehicles: 30% on straight-line basis. 3. receivables as at 31 December 2011. The allowances for trade receivables should be made equal to 5% of outstanding trade st 4. 5. Included in rent and rates is one month’s rent paid in advance amounting to £4,000. General expenses amounting to £5,000 are still outstanding for the year ending 31 December 2011. Solution: Income Statement for Mr Sunshine for the year ended 31 December 2011 Particular Sales revenue Amount (£) Amount (£) Note 452000 (311000) cost of goods sold 170000 raw material 1 Light and Heat 7,000 Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

6. This is a sample document owned by www.globalassignmenthelp.com Outstanding general expenses Provision for receivables (5,000) 3,000 5 6 Noncurrent liabilities Long term Loan 80,000 213,000 Capital 60,000 Net profit (earnings) Total Liabilities and capital 7 404,000 Notes: 1.Raw Material consumed: Inventory as on Jan 1st, 2011 = £80000 Inventory as on Dec 1st, 2011 = £60000 Total purchase during the year = £150000 Raw material consumed = £170000 (80000+150000-70000) 2.Rent paid during the year = £52000 Rent paid advance for the next year = £4000 3.Furniture worth = £300000 Depreciation = £90000 (30% with written down method) Current worth of furniture = £210000 4.Motor vehicle price = £50000 Depreciation = £15000 (30% with written down method) Current worth of vehicle = £35000 5.Outstanding general expenses = -£5000 (given) 6.Provision for trade receivables = £3000 As given that the allowance must be 5% of the total outstanding receivables but that will be charged in the coming year’s liability side. 7.Net profit = £55000 (Taken from the income statement after adjusting the drawings) TASK 2 Given accounts for the two businesses are shown in the below tables: Income Statement for the year ended 31 December 2011 Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

7. This is a sample document owned by www.globalassignmenthelp.com Oliver £000s 1,200 Stan £000s 1,700 Sales Revenue (900) (1,248) Cost of goods sold 300 452 Gross profit (128) (106) Administration expenses (56) (110) Distribution expenses (40) (40) Sundry expenses 76 196 Net Profit before Interest Statement of Financial Position as at 31 December 2011 Oliver £000s Stan £000s 263 124 Non Current Assets Current Assets Inventory 140 180 104 134 Accounts receivables Bank 16 1 460 502 Total Assets Capital & Liabilities Capital plus profits 200 180 320 10 Long term loan Accounts payables 80 172 Total liabilities and capital 460 502 Solution Ratios calculated for both Oliver and Stan are as given below:- Oliver 25.00% Stan 26.59% Gross Profit Margin Net profit margin 6.33% 11.53% 0.61 1.58 Return on Capital Employed Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

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9. This is a sample document owned by www.globalassignmenthelp.com income statements cover business proceedings for three months period. Time frame for which the statement has been prepared should clearly be mentioned on the income statement (Brigham and Hrharted, 2004). Here, in the task 1, an income statement for Mr. Sunshine has been prepared for the duration of one year i.e. for 1 Jan, 2011 to 31 Dec, 2011. Contrasting with the st income statement, the balance sheet reflects the financial condition of the business at a specified point of time. Balance sheet always contains a specific date not a time st period and the values expressed in this are applicable and accurate for that date only. Here, in the task 1, balance sheet i.e. statement of position has been prepared as on 31 Dec, 2011 on the basis of the provided st information and trial balance. Thus, both statements prepared above differ as far as the time frame is considered. Content Income statement covers all the income and expenses of any business accrued during a period of time. If the two sided of the book keeping system are considered, revenues are recorded at the credit side in income statement whereas expenses at the debit side. Here, in the task 1, sales revenue has been the income whereas the rent and rates, light and heat, wages and salaries, raw material consumption, interest payment, general expenses and other operating expenses such as stationary etc are the costing or the expenditure for Sunshine. Balance sheet gives a picture of finances in a company (Gazely and Lambert, 2006). Largely, it portrays 3 items i.e. assets, liabilities and owners' equity or capital. Assets further can be current or noncurrent. Assets are basically the properties belonging to the company. Liabilities are monetary obligations in account of the company. Capital or the owners' equity is the aggregate worth of a company. Profits become parts of the capital at the end of an accounting period. Here, the balance sheet prepared contains the current assets in the form of trades receivables, advance payments and inventories and the noncurrent assets are the fixed or long-lasting assets such as the motor vehicles, furniture etc. As far as the constituents of the liability side are considered, current liabilities include trade payables, bank over drafts, outstanding expenses, allowances for receivables etc. while the non current liability is the long term loan of the business. Capital is the total capital plus the current year’s retained profit. Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

10. This is a sample document owned by www.globalassignmenthelp.com Purpose Purpose behind preparation of the income statement is to determine the profits earned or losses made by a company over a period of time. In income statement, earnings and expenses are broken down into categories, which makes it much clear for the manager to comprehend bottleneck items of expenses and sources of profits and losses. As in the above prepared income statement, profit has been segregated in three parts, i.e. gross profit, operating profit and net profit. Gross profit is the raw profit after considering the functional expenses only whereas the operating profit is the profit adjusted for the operating expenses. Net profit comes after making adjustments for interest payments, depreciations, taxes etc. Purpose behind preparation of balance sheet is to have an overview of company’s current standing in terms of financing (Bagad, 2004). Calculations For preparing the income statement, just a simple set of calculations are required. For this, company's revenue are added up and at the same time the expenses also. By subtracting expenses from revenue will give company's profit or loss. Net retained profit in the business is added in the capital side of the balance sheet. Also some basic calculations are also required for the balance sheet as well (Bagad, 2004). Thus on the basis of above given points, both, statement of financial position and statement of income differ from each other. Comparison and analysis of the ratios for the two companies calculated in task 2 In finance, ratio expresses the relationship existing b/w different financial variable concerning the company's activities or financial position. Ratios are generally calculated on the basis of data supplied by the financial statements such as income statement, balance sheet or the cash flow statement (Rudas, 1997). The ratios, basically, aid in identifying the strength or soundness of firm in financial terms. Ratio analysis is considered as the strongest tool for Financial Management decisions and to comprehend the financial viability of a business. Different ratios are suits different purposes (Reimers, 2007). Ratios calculated are as described below: Oliver 25.00% Stan 26.59% Gross Profit Margin Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

11. This is a sample document owned by www.globalassignmenthelp.com Efficiency ratio Inventory turnover: This ratio measures the time (days) required to convert the inventory in cash i.e. the average time of keeping the inventory in a business. Low value is better for the business. Formula for this ratio is as given: 365 = Receivables turnover: This ratio measure the time required for converting the credit sales in cash. The lower the value better is for the business. Formula for calculating this ratio is: 365 = Payables turnover: This ratio measure the time required for keeping the trade credit (Mayes and Shank, 2011). The higher the value better is for the business. Formula for calculating this ratio is: 365 = Here, the inventory turnover for Oliver is 42.54 ≈4 3 days and for Stan it is 22.33 ≈ 22 days. Also, Accounts receivable turnover for Stan is 22.77 ≈ 23 days, whereas the same for Oliver has been calculated to be 54.75 ≈55 days. The accounts payable turnover for Oliver, as calculated is 28.08 ≈28 days and the same for Stan is 46.43 ≈46 days. After analyzing all the three efficiency ratios, it can be observed that, Stan holds a better position. Liquidity ratio Current ratio: This ratio indicates the ability of business to meet its current liabilities. It is calculated by dividing the current assets by the current liabilities. Current assets cover the inventory, accounts receivables, cash, bank balance etc. Current liabilities cover the accounts payable, overdrafts, other provisions etc. Standard value of this ratio lays b/w 1 to 1.5 (Reimers, 2007). Quick ratio: Quick ratio is the modified form of current ratio, representing the real time liquidity in the business. Here, the quick assets, i.e. the cash plus accounts receivables and bank balance are divided by the current liabilities. Standard value of the ratio lays b/w 0.5 to 1 (Reimers, 2007). Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

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13. This is a sample document owned by www.globalassignmenthelp.com Here, Current ratio for Oliver has been calculated to be 4.2 and for Stan it is 1.39. Also the Quick ratio for Oliver is 2.45 and the same for Stan is 0.78. Thus it is obvious that Stan is holding better liquid position than Oliver. Oliver is having significantly higher liquidity which is a dangerous thing for any business. On the ground of entire analysis, it is obvious that, Sunshine should preferably invest in Stan. CONCLUSION From the above entire, analysis and work it is clear that accounting concepts and accounting information plays a vital role in financial management. For preparing a financial statement, strong background of accounting and book keeping is a must. Here, in the present report, the role and importance of accounting information and concepts are demonstrated by a real time question of Mr. Sunshine’s business. Also, different computer packages such as MS- excel etc are quite important. Different performance measures in terms of ratios are being calculated and interpreted. Ratio analysis clears the picture of any business’s performance, which can be seen in the above report. Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com

14. This is a sample document owned by www.globalassignmenthelp.com REFERENCE Bagad, V. S., 2004. Management and Finance, Pune: Pragati Book House. Brigham, E. F. and Hrharted, M. C., 2004. southern-western Cengage learning. Financial management theory and practice. USA: Chadwick, L., 1998. Management Accounting. 2 ed. London: International Thomson Business nd Press. Gazely, M. A., and Lambert, M., 2006. Management Accounting. SAGE. Lucey, T., 2003. Management Accounting. 5th ed. Cengage Learning EMEA. Mayes, T. R., and Shank, T. M., 2011. Financial Analysis with Microsoft Excel. 6 ed. Cengage th Learning. Reimers, A., 2007. Financial Accounting. India: Pearson Education. Email: help@globalassignmenthelp.com, Phone: (UK) +44 203 3555 345 Website: www.globalassignmenthelp.com