University of the People

BUS 5110: Management Accounting

April 17, 2024

Analysis of Polly Pet Products Financial Statement

Financial statements serve as the cornerstone of transparent and comprehensive financial reporting

within organizations (Hrss. CPA, 2023). Through the analysis of balance sheets, income statements, and cash

flow statements, stakeholders gain invaluable insights into a company's financial health, performance, and

potential for growth. In this assignment I will be showcasing all three financial statements for the company

Polly Pet Products, painting a holistic picture of its financial health.

Balance Sheet

A balance sheet is a financial statement crafted to illustrate the precise value, often referred to as the "book

value," of a company or organization (Stobierski, 2020). It accomplishes this by detailing and summing up all

the company's assets, liabilities, and owners' equity as of a specific date, commonly known as the "reporting

date."

Polly's Pet Products

Balance Sheet as of December 31, 2018
ASSETS
CURRENT ASSETS
200,00
Cash 0
Accounts receivable 50,000
Other assets 25,000
275,00
Total current assets 0
LONG TERM ASSETS
Fixed Assets 75,000
350,00
TOTAL ASSETS 0
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable 75,000
Accrued expenses 30,000
Income tax payable 5,000
Current portion of notes payable 12,000
Deferred income taxes 1,500
123,50
Total current liabilities 0
LONG TERM LIABILITIES
Notes payable (long term) 38,000
161,50
TOTAL LIABILITIES 0
STOCKHOLDERS' EQUITY
Common stock 5,000
Additional paid-in capital 15,000
168,50
Retained Earnings 0
188,50
Total stockholders' equity 0
TOTAL LIABILITIES AND 350,00
STOCKHOLDERS EQUITY 0

 Cash and cash equivalents as indicated on the companies balance sheet refers to the line item that

reports the value of a company's assets that are cash or can be converted into cash immediately

(Tuovila, 2024). The cash equivalent on Polly Pets Products balance sheet was obtained from the

company’s statement of cash flow, which was calculated to be $200,000.00 from adding the sum of net

cash for current year with cash from prior year.

 Total current assets are the aggregate amount of all cash, receivables, prepaid expenses, and

inventory on an organization's balance sheet. These assets are classified as current assets if there is

an expectation that they will be converted into cash within one year (Bragg, 2023). Polly Pets

Products total current asset was calculated by summing all current assets i.e. Cash+ Accounts receivable

+ Other assets [$200,000 + $50,000+ $25,000= $275,000.00]

 Total assets refer to the total amount of assets owned by a person or entity, (Braggs, 2024).

[$200,000 + $50,000 + $25,000 + $275,000 + $75,000 = $350,000.00]

  An accrual, or accrued expense, is a means of recording an expense that was incurred in one accounting

period but not paid until a future accounting period. According to an article written by the Princeton

University, accruals differ from Accounts Payable transactions in that an invoice is usually not yet

received and entered into the system before the year-end. Recording an accrual ensures that the

transaction is recognized in the accounting period when it was incurred, rather than paid (Princeton

University n.d). Accrued expense is computed by subtracting total current liabilities from the sum of all

payables and tax payables. [$123,500 – ($75,000+5000+12000+1500)=$30,000.00].

 Notes Payable (Long Term)- A notes payable is a liability account in which a borrower records a written

promise to repay a lender. It's often a long-term liability because it's payable beyond 12 months, though

many pay it within five years (Kim, 2023). If total liabilities = current liability + long term liability, then

total liabilities less current liability = long term liabilities. [$161,500 - $123,500 = $38,000.00]

 Retained earnings are the cumulative net earnings or profits of a company after accounting for dividend

payments. Retain earning = stockholders' equity less (common stock + paid in capital). [$$188,500 –

($15,000+$5,000) = $168,500.00]

 Total Stockholders' equity refers to the assets remaining in a business once all liabilities have been

settled, (Hayes, 2023). It can be calculated by deducting total liabilities from the total assets. [$350,000 -

$161,500 = $188,500.00]

 Total Liability and Stockholders Equity is the sum of the total liabilities and total stockholder’s equity

represented on the balance sheet. [$161,500 + $188,000 = $350,000.00]

Polly’s Pet Products Income Statement

An income statement is one of the most common, and critical, of the financial statements you’re likely to

encounter. Also known as profit and loss (P&L) statements, income statements summarize all income and

expenses over a given period, including the cumulative impact of revenue, gain, expense, and loss transactions

(Stobierski, 2020).

Polly's Pet Products

Income Statement as of December 31, 2018

Revenues 650,000
Operating Costs 445,000
Gross Profit 205,000
General and Administrative Expenses 75,000
Operating Income 130,000
Other Expense 60,000
Income Before Provision for Income Taxes 70,000
Provision for Income Taxes 5,000
Net Income 65,000
Retained Earnings, Beginning Balance 103,500
Net Income 65,000
Retained Earnings, Ending Balance 168,500

 Operating costs are the ongoing expenses incurred from the normal day-to-day of running a business,

(Murphy, 2024). Figure derived from subtracting gross profit from total revenue. [$650,000 - $205,000

= $445,000.00]

 Operating income is a company's profit after deducting operating expenses such as wages, depreciation,

and cost of goods sold. Operating income is calculated by subtracting operating expenses from a

company's gross profit. [$205,000 - $75,000 = $130,000.00]

 Income Before Provision for Income, Taxes Earnings before interest and taxes (EBIT) indicate a

company's profitability (Murphy, 2024). EBIT is calculated as revenue minus expenses excluding tax

and interest. [$130,000 - $60,000 = $70,000.00]

  Net income is also known as net earnings. It's calculated as the overall sales revenue of a business minus the

general expenses, costs of goods sold, taxes, operational costs, and any other expenses. [$650,000 – ($445,000

+ $75,000 + $60,000 + $5,000) = $65,000.00

 Retained earnings are an important component of a company's financial health, representing the

cumulative profits or net earnings that a company has generated. Polly’s Pet Retain earning was

calculated by adding Retain earning beginning balance to Net Income. [$103,500 + $65,000 =

$168,500.00]

Polly’s Pet Products Statement of Cash Flow

A cash flow statement is a financial statement that shows how cash entered and exited a company during an

accounting period. Cash coming in and out of a business is referred to as cash flows, and accountants use these

statements to record, track, and report these transactions (Girardin, 2023).

Polly's Pet Products

Statement of Cash Flows as of December 31, 2018

Cash Flows from Operating Activities

Cash received from
customers 600,000
(400,000
Cash paid out to suppliers and employees )
Interest paid (5,000)
Taxes paid (10,000)
Net cash provided by operating 185,00
activities 0
Cash Flows from Investing Activities
Purchase of fixed assets (25,000)
Net cash used in investing (25,000
activities )
Cash Flows from Financing Activities
New loans 50,000
Repayments on loans (45,000)
Issuance of common shares
of stock 5,000
Net cash provided by financing 10,000
 activities
170,00
Net change in Cash 0
Cash balance, beginning of year 30,000
200,00
Cash balance, end of year 0

 Cash paid out to suppliers was calculated using inflows from customer receipts less outflows (Interest &
Taxes), less net cash from operating activities. [$600,000-($5,000 + $10,000 + $185,000) = $400,000.00

 Net Cash Provided by financing activities was calculated by summing all financing activities, new loans
less repayments plus common shares. [$50,000 - $45,000 + $5,000 = $10,000.00]

 Net Change in cash was calculated by summing Net cash provided by operating activities, Net cash used
in investing activities and Net cash provided by financing activities. [$185,000 - $25,000 + $10,000 =
$170,000.00]

 Cash Balance at end of year was obtained by adding Net change in cash for current year with cash
balance at the beginning of the year. [$170,000 + $30,000 = $200,000.00]

Conclusion: Based on the figures presented in Polly’s Pet Products financial Statements it is safe to conclude
that this is a viable and healthy company since it is currently operating profitably.

References:

Tuovila, A. (2024, March 2). Cash and Cash Equivalents (CCE) definition: Types and examples. Investopedia.

https://www.investopedia.com/terms/c/cashandcashequivalents.asp#:~:text=Key%20Takeaways-,Cash

%20and%20cash%20equivalents%20refers%20to%20the%20line%20item%20on,and%20short

%2Dterm%20government%20bonds.

Bragg, S. (2023, October 3). Total current assets definition — AccountingTools. AccountingTools.

https://www.accountingtools.com/articles/total-current-assets

Bragg, S. (2024, March 30). Total assets definition — AccountingTools. AccountingTools.

https://www.accountingtools.com/articles/total-assets

Princeton University. (n.d.). Finance and Treasury. https://finance.princeton.edu/budgeting-financial-

management/month-and-year-end-close/year-end-close/year-end-accruals
Kim, J. (2023, August 15). Notes payable. Wall Street Prep. https://www.wallstreetprep.com/knowledge/notes-

payable/

Fernando, J. (2024, March 6). Retained earnings in accounting and what they can tell you. Investopedia.

https://www.investopedia.com/terms/r/retainedearnings.asp

Hayes, A. (2023, October 8). Stockholders' equity: What it is, how to calculate it, examples. Investopedia.

https://www.investopedia.com/terms/s/stockholdersequity.asp#:~:text=Key%20Takeaways,retained

%20earnings%2C%20less%20treasury%20stock.

Hrss.Cpa. (2023, November 17). Year-End Financial Reporting 101: Tips for businesses. HRSS CPA.

https://hrss.cpa/year-end-financial-reporting-101-tips-for-businesses/

Tim Stobierski, | Harvard Business School Online. (2020, April 2). Business Insights Blog.

https://online.hbs.edu/blog/post/how-to-read-a-balance-sheet

Murphy, C. B. (2024, March 1). Operating Costs Definition: Formula, types, and Real-World examples.

Investopedia. https://www.investopedia.com/terms/o/operating-cost.asp

Girardin, M. (2023, July 31). What is a cash flow statement? Forage.

https://www.theforage.com/blog/skills/cash-flow-statement#:~:text=A%20cash%20flow%20statement

%20is,track%2C%20and%20report%20these%20transactions.