Introduction To Accounting

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  Executive Summary

Financial Statements are analysed documents that summarise the economic and financial activity of a

business. Government agencies, economists, and businesses, among others, often audit banking

statements to confirm their legitimacy and for tax, financing, and investment reasons. All financial

statements, including the comprehensive income statement, the book value statement, and the

statement of cash flow, are necessary. These three components are important tools for investors to

evaluate a company's economic stability and give a snapshot of the company's economic health and

underlying worth. The article will present a high-level overview of the information that may be

gleaned from these crucial banking records without needing you to be a professional accountant. This

article will cover the process of creating the income statement for Grenco's Plc, as well as conduct a
performance analysis of the business by associating the balance sheets of Grenco's Plc for the years

2015 and 2016.

Table of Contents
 Executive Summary................................................................................................................2

 Information described in Financial Statements....................................................................4

 Balance Sheet..........................................................................................................................4

 Income Statement...................................................................................................................6

 Cashflow Statement................................................................................................................8

 Relation Between Financial Statements................................................................................9

 Income Statement of Grenco PLC.......................................................................................10

  Balance Sheet Analysis of Grenco PLC...............................................................................10

 References.............................................................................................................................12

Information described in Financial Statements

Financial sheets are the standard method for representing a business's trading activity and financial
outcomes. Financial statements are routinely reviewed by government agencies, auditors, and
businesses, among others, to guarantee their accuracy and for tax, capital raising, and investment
reasons. Accounting records include accounting information such as cash flow statements, financial
statements, and so on.

Balance Sheet

 A balance sheet, also called a "statement of financial position," shows a company's assets,
liabilities, and owners' equity. It's also called a "balance sheet" (net worth). In any company's
financial statements, the balance sheet is one of the most important parts. It is made up of the
income statement and cash flow statement, as well.
 A capital structure, often known as a "statement of financial status," depicts the assets,
creditors, and interests of a corporation.
 A "balance sheet" is another name for it (net worth).
 The asset value is amongst the most crucial sections of any statement of financial position.
 The financial statements and cash flow statement are also included.
 Parts of the balance sheet are broken down into two parts that, based on this equation, must
balance each other out. Assets is equal to Liabilities + Shareholders' Equity
 There are assets and liabilities, and there are also shares in the company owned by the
shareholders.
 This means that a company's assets, or the things it needs to run, are balanced against the
company's debts, as well as the equity investment it received and the money it has kept for
itself.
 Assets are what a company has that it can use to run its business, and liabilities and equity
seem to be two ways that these assets can come from. Owners' equity, or shareholders' equity,
in a publicly traded corporation is the money that people have put into the company and any
money that the company has kept for itself. It is a source of money for the business (Sakal,
2018).
 In order to understand a balance sheet, you need to know that it is a picture of the company's
finances at one point in time.
Take a look at the financial statements on the right to understand how they are structured. It

consists of two portions. The company's present activities are listed first, followed by its

debts and investor funds. Additionally, you can see that its financial sheet is in terrific

condition. The value of the assets is equal to the sum of the debts and investors' equity.

Another intriguing feature of financial statements is their construction. This is how the capital

account sections of the balance sheet are organised.

They are decided by the account's age or when it was created. On the asset side, it typically

begins with the most liquid bank and works its way down to the least accessible account.

Debt statements are segmented into short- and long-term borrowings, as well as various types

of debt (Sakal, 2018). Once we have a clearer understanding of how a financial statement is

prepared, we may review the information contained inside. The fundamental technique is

profitability ratio analysis.

Profitability ratios use formulas to help you learn more about a business and how it functions.

When analysing financial accounts, profitability statistics such as the deficit ratio may help

you get a better understanding of a company's financial status and how successfully it

conducts its operations. It is critical to keep in mind that many financial ratios need data from

several accounting records, including the balance sheet and income statement. Financial

stability ratios and current ratios are two kinds of ratios that are often computed using

financial statement data. Cashflow and deficit ratios are two examples of financial strength

indicators that indicate a company's ability to repay debt commitments and the manner in

which those obligations are serviced.

These facts may aid investors in analysing a corporation's economic viability and the manner

in which it finances its activities. Activity ratios assess a firm's current financial position in

order to determine how well it controls its economic cycle (which include receivables,

inventory, and payables). These ratios might assist you in determining how effectively a

company functions.These facts may aid investors in analysing a corporation's economic

viability and the manner in which it finances its activities. Activity ratios assess a firm's

current financial position in order to determine how well it controls its economic cycle

(which include receivables, inventory, and payables). These ratios might assist you in

determining how effectively a company functions.

Income Statement

The Income Statement is just one of a company's most important financial statements. It shows how
much money they made and lost over a certain amount of time. The profit or loss is found by taking
all the money that comes in and subtracting all the money that comes in through both operating and
non-operating activities.

Corporations use the income statement in both financial modelling and accounting. It is one of three
statements that are used in both fields. Using this statement, you can see how much money the
company made and spent, as well as how much it made and spent on things like selling and
administrative costs, numerous different expenses and income, taxes, and net profit.

The income statement may look a little different for different businesses because the form of
operations or business they do will affect how much money they make and how much they spend. If
you look at any income statement, you'll see a few things that are the same in every one (USSEC,
2015).

Income statement items that are most common:

 Revenue/Sales

Sales Revenue is the company's income from sales or service, and it's shown at the top of the report.
This real value would be the total of all the costs that go into making the goods or giving the service.
Some businesses have a lot of different ways to make money that add up to a total revenue line.

 Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) includes all of the costs that go into selling products to make money. It
could also be called Cost of Sales if the business is a service. Costs that are "direct" can include
labour, parts, materials, and an allocation of other costs like depreciation (Sakal, 2018).

 Gross Profit

Gross Profit is computed by deducting the Cost of Goods Sold (or Cost of Sales) from the Sales
Revenue.

 General and Administrative (G&A) Expenses

SG&A expenses comprise all additional indirect costs connected with operating a firm, like selling,
marketing, and administrative expenses. Salaries and wages, rent and office expenditures, insurance,
travel expenses, and occasionally depreciation and amortisation, as well as other operational expenses,
are all included. Entities, on the other hand, may choose to split depreciation and amortisation in their
own area.

 EBITDA

EBITDA simply stands for Earnings before Interest, Tax, Depreciation, and Amortization, and it is
not included in all income statements. It is computed by deducting SG&A expenditures from gross
profit (without amortisation and depreciation).

 Depreciation & Amortization Expense

Accountants use depreciation and amortisation to spread the cost of capital assets like PPE (Property,
Plant, and Equipment) across time (PP&E).

 Operating Income (or EBIT)

Operating income is the revenue generated by regular company activities. To put it another way, it's
profit prior to any non-operating income, non-operating costs, interest, or taxes are deducted from
revenues. Earnings Before Interest and Taxes (EBIT) is a financial word that stands for Earnings
Before Interest and Taxes.

 EBT (Pre-Tax Income)

Earnings Before Tax (EBT), often known as pre-tax income, is calculated by deducting interest
expenditure from Operating Income. Before arriving at net income, this is the final subtotal.

 Income Taxes

The appropriate taxes levied on pre-tax income are referred to as income taxes. Both present and
future taxes might be included in the overall tax expenditure.
  Net Income

After subtracting income taxes from pre-tax income, net income is computed. After subtracting any
dividends, this is the amount that comes into retained profits on the balance sheet (Gibson, & Boyer,
2013).

 Cash flow Statement

A working capital comment's purpose is to show what happened to a financial statement during a
certain timeframe, defined as the income statement. It depicts a company's capacity to perform in
the long and short term, depends on the quantity of money flowing in and out (Jesswein, 2010).
The cash flow statement is typically broken into three sections:

• Operational activities • Investment activities

• Finance-related activities

Consider any financial information from a commercial aspect when evaluating it. Economic
documents are documents that provide information about a company's financial performance and
situation. Operating cash figures, for instance, might reveal whether a company is just starting out
or is well-established and profitable.

It can also detect if a company is in transformation or on its way out. Accordingly. in addition, an
entrepreneur can assess if a business with unconventional cash flow is too dangerous to invest in,
or whether a business with free cash flow is primed for growth. A department manager, for
example, might look at a financial statement to see how their section benefits to the industry's
general health and well-being, and then use that data to alter their agency's operations.

Income stream may impact internal decisions like as budgeting and recruiting (or terminating)
staff. Financial Statements and Their Relationship. The economic statements are called up of
financial statement, balance sheets, and comprehensive income. These three assumptions are
interrelated in a range of methods, as seen in the accompanying main points:

 The revenue document's net revenue is introduced to the stability sheet's deferred revenue line
item, evolving the number of shares shown on the financial statements.
  The revenue statement's net earnings also has seemed in the cash flow part of this sentence of
retained earnings, as will any changes implemented to the balance sheet's various line items.
 When a principal amount rises, it appears on the balance sheet (as a continuing balance) and
in the financing and investing activities section of the cash flow (Jesswein, 2010). The ending
cash balance from the balance sheet is included in the financial statement.
 On both the balance sheet and the income statement, the acquisition, sale or other dispose of
assets is recorded as an asset decrease (as a gain or loss, if any).
 It is safe to say that the financial statements are intricately linked to one another. Because of
this, while analysing an organization's financial statements, it is important to evaluate each
and every one of its financial statements.

Income Statement of Grenco PLC

Balance Sheet Analysis of Grenco PLC
The firm's fixed assets climbed from 27600 million pounds to 29600 million pounds in a financial
year, according to the balance sheet. This indicates that the firm is growing and spending significant
quantities of money, which might be used to expand equipment, machinery, personnel, space, or
inventory capacity, among other things.

With the significant decline in bank assets, current assets decreased from 14500 to 13,300. This
reflects the organization's low performance. A reduction in an asset account might happen for a
variety of reasons. The majority of declines are related to a company's routine operations. Current
assets are liquid, and they are routinely traded or swapped for other assets. However, a drop in an
asset account might sometimes suggest a financial or operational issue in a corporation (Jesswein,
2010).

The cash balance of a corporation grows and decreases as a result of operational and financing cash
inflows and outflows. An rise in another asset, a drop in a debt or equity account, or an increase in a
cost offsets a decline in one asset. A purchase of inventory is an example of the first. While cash is
decreasing, inventory is increasing. A loan payment is an example of the second. Cash decreases by
the amount of the payment, and the total amount owing decreases as well. A sale of inventories is an
example of the third. The inventory balance falls, but the account for cost of goods sold rises.

Current liabilities grew by 200 million pounds while current assets declined. The quantity of short-
term money owned by the corporation has grown as a result of an increase in current obligations.
What has transpired with the company's present assets determines whether this is a positive or
negative thing (ie cash on hand, short-term money owing to the company plus the stock that the
company has in hand). In this situation, though, it is a symptom of the company's poor performance.
If the company's credit management was shoddy and it didn't follow up on its debtors, the growth in
current liabilities may be a negative thing.

The total income and investment sheet balances both grew from 25000 to 29400 million pounds and
16000 to 19100 million pounds, accordingly. The financial account shows international investors and
mortgages, finance, and other types of capital, and also currency flows and adjustments in the foreign
exchange deposit. The government deficit movement reflects commercial bank debt, banks, investing,
loans, and cash. Around the same time, a new capital of 5000 million pounds is formed. These
changes could explain why current assets have decreased while current assets have increased.
(Jesswein, 2010).
Conclusion

Shareholders use the financial statement, together with the statement of cash flows statements, to
acquire understanding into an operational business. It's a summary of the firm's accounting at a
particular point in time, including assets, debts, and investors' equity.

Balance sheets such as the financial statements, capital structure, and cash flow statement are
necessary. These three segments are useful tools for investors who want to evaluate the financial
soundness and get a rapid picture of its economic condition and underlying worth. An economic
statement's aim is to show what the firm owns and pays, as well as to provide concerned people an
understanding of the company's financial performance. All investors should understand how to use,
analyse, and read financial statements. The accounting information may provide information or justify
an investment in a stock. The share value of a corporation can rise or fall depending on a range of
reasons. Organizations that operate well economically by growing revenue, net worth, and working
capital, on the other hand, are highly efficient manner with a rising stock pricing. Wisdom and
knowledge are keys when it comes to doing business. Even traders who primarily base their
investment choices on mechanical variables may probably learn to analyse conventional financial
statements to identify firms with good or developing foundations.

References

[1] United States Securities and Exchange Commission. (2015). Starbucks: Fiscal 2016

Annual Report. Retrieved October 25, 2019, from

https://s22.q4cdn.com/869488222/files/doc_financials/annual/2017/01/FY17-

Starbucks Form-10-K.pdf

[2] Sakal, D. V. (2018). Company Analysis of Starbucks Corporation. Retrieved from:

http://finance.hr/wp-content/uploads/2018/11/Starbucks-Company-Analysis.pdf

United States Securities and Exchange Commission. (2015). Starbucks: Fiscal 2015
 Annual Report. Retrieved October 25, 2019, from

https://s22.q4cdn.com/869488222/files/doc_financials/annual/2015/Starbucks-

Fiscal2015-Form-10-K.pdf.

[3] Jesswein, K. (2010). The changing LIFO-FIFO dilemma and its importance to the

analysis of financial statements. Academy of Accounting and Financial Studies

Journal, 14(1), 53- 62.