Financial Accounting & Analysis Assignment

Q1)
Introduction:
A journal is a subsidiary book of account that records economic transactions consistent with
accounting standards. Those transactions get recorded in chronological order, and it offers
information about the debts which are affected by each transaction. It's far referred day
everyday step one of the accounting manners. additionally, a journal is described as a
document you hold of ordinary happenings or of your thoughts, or as a periodical, that deals
with a positive challenge or enterprise.
As a business owner, you juggle some of obligations, such as accounting. You’re liable for
growing journal entries after each transaction. But that’s now not all you furthermore may
want to realize a way to submit journal entries to the general ledger. learn how right here.
Journal entries evaluate
Whenever your commercial enterprise makes a transaction, you ought to document it to your
books. There are some steps you have to comply with while accounting for a transaction.
Step one is to report transactions in a journal.
Use your journal to discover transactions. Your journal gives you a jogging listing of
commercial enterprise transactions. Each line in a journal is known as a journal entry. And,
each journal entry provides precise data about the transaction, which includes:
 Date of the transaction
 Description / Notes
 Account name
 Amount
Journal entries additionally use the 5 essential accounts owed and sub-money owed to live
prepared and journal entries use/require debits and credit. while recording magazine entries,
ensure your debits and credits balance.
Debits and credit affect the five main accounts owed in a different way. A few debts are
multiplied by means of debits whilst others are expanded by means of credit.
The capabilities of a journal are as follows:
• Chronology: The journal entries get recorded in a date-clever order, and it enables in
checking the transactions a whole lot greater quickly.
• Double entry system: Journal entries observe a system wherein each transaction is entered
both at the debit and credit aspects. it's far an instance of a dual access device. One account
gets debited and the alternative gets credited with the same value.
• Daybook: A journal data transactions on a day-to-day basis for consistency and simplicity.
• Compound entry: A single access can have two or extra debts at the identical day, and a
journal also can have a couple of related transaction.
• Rationalization: Every transaction includes a quick description day-to-day the narration
(inside brackets). It enables everyday explain the character and cause of the transaction.
ENTERING TRANSACTIONS INTO THE JOURNAL
The journal is prepared in the following manner
FORMAT OF JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

1. The first column is in which the date of the transaction is written, followed by means of the
year, then the month, and ultimately the date for the transaction.
2. In the 2nd column, you can discover the names of the debts involved. The account to be
debited is written first. Debit debts are identified via the phrase ‘Dr.’ (which stands for debit).
inside the column, it's far written towards the stop. a touch area is left on the following line,
then the phrase ‘To’ is written, observed by way of the name of the account to be credited.
within the subsequent line, ‘narration’ is written which refers to the reason behind the access
being made and the important information concerning thereto. It starts off evolved with the
words ‘Being’.
3.Within the third column, L.F. refers to ‘Ledger Folio’, that is the page of the ledger
containing the account in which the access is written up or published.
4. The fourth column refers back to the debit amount. on this column, the amounts to be
debited are entered.
5. Inside the fifth column, the amounts to be credited are entered.
The manner of coming into the transactions in the journal is known as journalizing.
JOURNAL OF MRS. VEENA

Date Particulars L.F. Dr. Amount Cr. Amount

(Rs.) (Rs.)

Dec 3 Cash account Dr. 5000

Bank account Dr. 500000
To Capital account 505000
(Being the amount invested by
Mrs. Veena in her business)

Dec 5 Furniture account Dr. 60000

To Cash account 30000
To Bank account 30000
 (Being furniture purchased
50% on credit and the rest for
cash)

Dec 7 Purchase account Dr. 315000

To Bank account 315000
(Being goods purchased on
credit)

Dec 8 Bank account Dr. 500000

To Sales account 500000
(Being goods sold)

Dec 10 Rent Dr. 10000

Electricity Dr. 10000
Salaries account Dr. 10000
To Bank account 30000
(Being the amount paid for
rent, electricity and salary)

POSTING ENTRIES INTO THE LEDGER

After you file transactions for your journal, it’s time to switch them to your general ledger.
To preserve your books, correct, post each transaction from your journal on your popular
ledger.
Use your ledger to categorise and arrange transactions. when posting entries to the ledger,
pass every magazine entry into an individual account.

Switch the debit and credit score quantities out of your journal for your ledger account. Your
journal entries act like a hard and fast of instructions. Whilst posting journal entries for your
general ledger, do not change any records. For instance, if you debit an account in a magazine
entry, debit the equal account on your ledger.

Remember the fact that your general ledger lists all the transactions in a single account. This
allows you to realize the balance of each account. But to locate the balance, you need to do
some math. After posting entries to the ledger, calculate the following balances:
Asset and rate money owed: Subtract total credit from total debits

Liabilities, equity, and revenue money owed: Subtract general debits from total credits
If you don’t need to debris with the calculations yourself, do not forget making an investment
in accounting software. With accounting software program, you could file transactions for
your ledger and the software handles the calculations for you.
Q 2)

Introduction:
A profit and Loss (P&L) statement, also known as everyday profits announcement, indicates
the earning and costs of a organisation for a monetary yr. It categorises earning and prices
underneath numerous heads daily facilitate easier know-how and evaluation. The charges are
subtracted from the earning to arrive at the company’s internet profit.

The Profit and Loss declaration begins with the sales earned by means of the enterprise
during a year. All other incomes are brought daily it and all of the fees are subtracted from it.
Earning and prices fall in every day categories – working and non-working.

The operating phase consists of incomes and fees from the business enterprise’s middle
enterprise. for instance, salaries, rent, and charges incurred for selling goods and services.
The non-working segment carries all the incomes and fees from non-middle enterprise sports,
including proceeds from the sale of asset or earnings from investments.

Cost of goods sold (COGS) is the first item every day be subtracted from revenue. The
ensuing parent is gross profit. positioned in reality, it's far the difference between what the
organisation earned from promoting its merchandise at some point of the year and the fee it
immediately incurred in manufacturing them.
Next everyday be subtracted are selling, General and Administrative expenses (SG&A) to
reach at Earnings Before Interest Tax Depreciation and Amortization (EBITDA).

Subtracting depreciation and amortisation from EBITDA gives income earlier than hobby
Tax, Depreciation and Amortization (EBIT) or working profit. operating earnings is adjusted
for non-operating incomes and expenses to reach at internet earnings or the organization’s
profit for the 12 months.

What Does the P/L record display?

The profit and loss statement indicates data about the net profit based on sales earned and
expenses incurred. The P&L statement additionally highlights a enterprise's capability day-to-
day manipulate profits by cutting charges and driving sales.
The P&L statement additionally permits you daily gauge revenues and fee trends, net profits
and standard profitability, among others. The declaration is also vital for the Indian sales
provider every day decide taxes on various enterprise profits.

Components of P/L Account:

The assertion of profit and loss has the following additives:

 Revenue
It represents the internet turnover of the agency throughout the accounting duration. together
with sales earned from chief enterprise pastime, it is usually non-operating revenues and
gains crafted from the promoting of lengthy-term business belongings.
Sales also include income from hobby, royalties, and diverse other charges and is a vital
metric daily determine a agency's economic fitness.

 Cost of goods sold

This component in a P&L assertion represents the fee of services and products. This quantity
consists of the price of materials and labours used to provide the goods.
However, it excludes oblique fees together with income pressure cost and distribution price,
amongst others. As it's far the cost of doing enterprise, it’s recorded below business expense
inside the earnings and loss account declaration.

 Gross profit
It is also day-to-day gross earnings or gross margin. to put it without a doubt, it’s the net sales
that a company earns.
Gross earnings in a corporation’s P&L declaration is arrived by deducting the value of goods
bought from revenue. It verifies the organisation’s performance in using its labour and
resources for manufacturing of products.

 Operating expenses
These encompass expenses incurred inside the day-to-day strolling of enterprise for a certain
length. condominium value, payroll, software, and different fees come underneath this head
in a income and loss document. but, notice that capital expenditure and charges of goods
offered don’t form a part of running costs.

 Operating Income
This head highlights the profits before taxes, hobby and authorisation, amongst others. to
arrive at running profits, deduct fees from gross profits.

Word that running income is the internet profit earned via the employer after deduction of
running costs. much like everyday sales, it’s a essential barometer daily gauge the economic
fitness of a enterprise.

 Net profit
In a P&L declaration, net profit represents the overall quantity earned after deducting prices.
To calculate it, subtract the entire expenses from your total sales. internet profit consists of
both variable and glued costs.
Variable fees include costs of substances, packing, shipping, and so forth. however, constant
charges include office lease, wages of employees and advertising fees.

Format of Profit and Loss statement

For traders and partnership firms:
The layout of statement of profit and loss for sole traders and partnership corporations isn’t
constant. generally, sole traders and partnership firms prepare their earnings and loss
announcement in a “T-formed” form that has two sides – debit and credit.
For corporations:

organizations want to put together P&L statement as per schedule III of corporations Act,
2013. to place it otherwise, the layout for agencies is given in schedule III of the businesses
Act, 2013 and they need to achieve this as a result.

Conclusion:
The P&L assertion offers a complete account of the agency’s activities for the duration of a
12 months. Analysing it correctly can come up with essential insights into the enterprise’s
working fitness, hidden abilities, strengths, and weaknesses. These are important for
evaluating the agency’s growth prospects, which immediately effect its inventory rate.
Q3)

a) Introduction:
The time period stability sheet refers to a financial statement that reports a business
enterprise's assets, liabilities, and shareholder equity at a selected point in time.
Stability sheets provide the premise for computing charges of return for traders and
evaluating an agency's capital shape.
In short, the stability sheet is a monetary statement that provides a photograph of what
a corporation owns and owes, in addition to the amount invested by using
shareholders. Balance sheets can be used with other crucial monetary statements to
conduct fundamental analysis or calculate financial ratios.

KEY TAKEAWAYS

 A balance sheet is a financial statement that reviews a business enterprise's

belongings, liabilities, and shareholder fairness.
 The stability sheet is one of the 3 middle monetary statements which are used to
evaluate a business.
 It provides a picture of a corporation's price range (what it owns and owes) as of the
date of booklet.
 The balance sheet adheres to an equation that equates property with the sum of
liabilities and shareholder equity.
 Fundamental analysts use stability sheets to calculate economic ratios.

The T shape balance sheet for the identical is given.

Given The particulars available for Z and X

To Find T shape Balance Sheet.

Solution:

BALANCE SHEET OF Z AND X LLP

LIABILITIES AMOUNT (Rs in ASSETS AMOUNT (Rs in
‘000) ‘000)
Retained Earnings 860 Accounts Receivable 250
Salaries Payable 150 Supplies 150
Accounts Payable 540 Equipment 1500
Unearned Revenue 200 Cash 550
Prepaid Insurance 300
Common Stock 1000

How balance Sheets work

The balance sheet gives a top-level view of the state of a corporation's price range at a second
in time. It cannot give a experience of the tendencies playing out over an extended length on
its personal. for that reason, the stability sheet needs to be compared with those of previous
durations.

Traders can get a feel of a agency's monetary health with the aid of using some of ratios that
may be derived from a balance sheet, including the debt-to-equity ratio and the acid-check
ratio, together with many others. The income declaration and announcement of coins flows
also offer precious context for assessing an agency's budget, as do any notes or addenda in an
income file that would refer again to the stability sheet.

Components of a Balance Sheet

Assets
Accounts within this segment are indexed from top to bottom so as in their liquidity. that is
the convenience with which they can be transformed into cash. they're divided into current
belongings, which may be converted to coins in one year or less; and non-current or long-
term belongings, which cannot.

Liabilities
A legal responsibility is any cash that a corporation owes to outside parties, from bills it has
to pay to suppliers to hobby on bonds issued to creditors to rent, utilities and salaries. cutting-
edge liabilities are due inside twelve months and are indexed so as of their due date. long-
term liabilities, alternatively, are due at any factor after three hundred and sixty-five days.

b)

Introduction:
The current ratio is a liquidity ratio that measures an organization’s potential to pay short-
time period duties or the ones due within twelve months. It tells buyers and analysts how a
organisation can maximize the current assets on its balance sheet to meet its contemporary
debt and other payables.

A current ratio this is in line with the industry common or slightly higher is typically taken
into consideration acceptable. A current ratio that is decrease than the enterprise common
may also suggest a better chance of misery or default. Further, if an organization has a totally
high present-day ratio as compared with its peer group, it indicates that management may not
be using its assets successfully.

The current ratio is referred to as present day due to the fact, not like a few other liquidity
ratios, it contains all current assets and current liabilities. The cutting-edge ratio is now and
again known as the working capital ratio.

KEY TAKEAWAYS

 The current ratio compares all of an organisation’s current assets to its current
liabilities.
  Those are commonly defined as assets which can be cash or will be was coins in a
year or much less and liabilities with the intention to be paid in a year or less.
 The current ratio allows investors understand more approximately a enterprise’s
capacity to cowl its quick-term debt with its modern-day belongings and make apples-
to-apples comparisons with its competitors and friends.
 One weak spot of the current ratio is its problem of comparing the measure
throughout industry corporations.
 Others encompass the over generalization of the precise asset and liability balances,
and the lack of trending statistics.
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Current ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Current Assets = Accounts Receivable + Supplies + Cash + Prepaid Insurance + Common

stock
= 250 + 150 + 550 + 300 + 100 = 2250

Current Liabilities = Accounts Payable + Salaries Payable

= 150 + 540 = 690
2250
= 690

= 3.260 = 16:5

DEFINITION OF CURRENT RATIO:

A liquidity ratio called the present-day ratio assesses an employer's potential to settle quick-
time period money owed or those which can be due within a year.
It explains to buyers and analysts how a business can use its present belongings to the fullest
extent possible to pay down its current liabilities and other payables.

SIGNIFINANCE OF CURRENT RATIO:

Current Ratio is computed to recognize the ability of a company to repay the short-term
liabilities of a company with the assist of contemporary assets. it is assumed that each one the
current assets are probably to be converted into coins to repay the short-term liabilities of the
firm. In different phrases, this ratio is calculated to determine the quick-time period solvency
of a firm. 2:1 is taken into consideration a perfect present day ratio. that means the cutting-
edge belongings should be double the modern-day liabilities of the company. but if the
contemporary ratio may be very high, it's far believed that the price range are lying idle and
the company has poor manipulate over its inventory or borrower’s turnover is gradual.