ACCOUNTING ANALYSIS

Business Plan

Business Plan

1.1 Prepare and analyze financial statements

Ledger Accounts

Debit Cash

Credit

Date

Particulars

Amount

Date

Particulars

Amount

2

Bank

4000

4

Sales

9000

3

Purchases

1200

14

A/P

2000

10

Wages and Salaries expense

600

16

A/R (Hanana)

3500

10

Rent expense

900

16

A/R (Shami)

4000

10

Advertising expense

500

21

Sales

10000

12

A/P

4500

13

Bank

2000

15

A/P (Yaw)

1200

15

A/P (Ben)

1500

17

Bank

4000

22

Purchases

2000

22400

28500

Bal c/d

6100

28500

Bal b/d

6100

Debit Capital

Credit

Date

Particulars

Amount

Date

Particulars

Amount

1

Bank

10000

Bal c/d

10000

Bal b/d

10000

Debit Purchases

Credit

Date

Particulars

Amount

Date

Particulars

Amount

3

Cash

1200

5

A/P (Yaw)

2000

5

A/P (Ahmed)

8000

5

A/P (Ben)

3000

6

Bank

4900

7

Bank

4500

8

Bank

5500

9

Bank

4500

18

A/P

8000

22

Cash

2000

Bal c/d

43600

43600

Bal b/d

43600

Debit A/P

Credit

Date

Particulars

Amount

Date

Particulars

Amount

5

A/P (Yaw)

2000

20

Purchase return (Yaw)

200

5

A/P (Ahmed)

5000

20

Purchase return (Ben)

300

5

A/P (Ben)

3000

9

Purchases

4500

14

Cash

2000

18

Purchases

4000

Bal c/d

20000

20500

20500

Bal b/d

20000

Debit Bank

Credit

Date

Particulars

Amount

Date

Particulars

Amount

6

Purchases

2200

1

Capital

10000

7

Purchases (Motor cycle)

4500

2

Cash

4000

8

Purchases

2500

17

Cash

4000

Bal c/d

8800

18000

18000

Bal b/d

8800

Debit Sales

Credit

Date

Particulars

Amount

Date

Particulars

Amount

4

Cash

9000

11

A/R (Prince)

5500

11

A/R (Mohammed)

6500

11

A/R (Hanana)

8800

11

A/R (Shami)

8000

21

Cash

10000

Bal c/d

47800

47800

Bal b/d

47800

Debit Expenses

Credit

Date

Particulars

Amount

Date

Particulars

Amount

10

Cash

2000

Bal c/d

2000

2000

Bal b/d

2000

Debit Sales Return

Credit

Date

Particulars

Amount

Date

Particulars

Amount

19

A/R (Mohammad)

500

Bal c/d

500

500

Bal b/d

500

Debit Purchase Return

Credit

Date

Particulars

Amount

Date

Particulars

Amount

20

A/P

500

Bal c/d

500

500

Bal b/d

500

Debit A/R

Credit

Date

Particulars

Amount

Date

Particulars

Amount

16

Cash

7500

11

Sales

28800

Bal c/d

21300

28800

28800

Bal b/d

21300

Trial Balance

Ledger Account

Debit Balance

Credit Balance

Cash

6100

Capital

10000

Purchases

43600

A/P

20000

Bank

8800

Sales

47800

Expenses

2000

Sales Return

500

Purchase Return

500

A/R

21300

80300

80300

Profit and Loss Account

Sales

47800

Sales Return

500

Net Sales

47300

Cost of Goods Sold:

Purchases

43600

Purchase Return

500

COGS

43100

Gross Profit

4200

Operating Expenses:

Wages and Salaries expense

600

Rent expense

900

Advertising expense

500

2000

Net Profit

2200

Balance Sheet as at 30th September 2011

Assets

Equity

Currents Assets:

Liabilities:

Accounts Payable

20000

Cash in Hand

6100

Cash at Bank

8800

Accounts Receivable

21300

Currents Assets

36200

Liabilities

20000

Share Holder Equity:

Capital

10000

Drawing

6200

Assets

36200

Share Holder Equity

36200

1.2 Analyze accounts

As it is known that the most important factors in the well being of a business, is to see that it operates at a profit and to organize it in order to be able to meet its liabilities at appropriate times. If either of these points is not covered efficiently it could mean that the business might have to be closed down. This is the reason why we choose to calculate profitability and liquidity ratios which are the most important and reliable guides. In addition, various past studies states that we decide to calculate activity ratios in order to see how efficiently the company has managed its debt management ratios, asset management ratios and per share values to commend upon the company 's sources of finance.

Evaluation

Calculation Of Ratio

Profitability Ratios

ROA % (Net)

=

Net Income X 100

=

2200

=

0.060773

Total Assets

36,200

Assets Turn

=

Net Income X 100

=

2200

=

0.135802

Stockholders' Equity

16,200

Operating Profit

=

Operating Income X 100

=

2000

=

0.042283

Revenue

47,300

Gross Profit

=

Gross Profit X 100

=

4,200

=

0.088795

Revenue

47,300

ROCE

=

Net Income X 100

=

2200

=

0.22

Invested Capital

10,000

Liquidity Ratios

Current Ratio

=

Current Assets

=

36,200

=

1.81

Current Liabilities

20,000

Efficiency Ratios

Total Asset Turnover

=

Revenue

=

47,300

=

1.30663

Total Assets

36,200

Receivables days

=

Revenue

=

47,300

=

2.220657

Receivables

21,300

Payables days

=

Revenue

=

47,300

=

2.365

Payable

20,000

Profitability Ratios

The profitability of the company is unsatisfactory as the trends of the company shows that the company has been loosing its profits. This statement can be endorsed by the evaluation of the profitability ratios. The return on asset of the company is reflecting that profitability structure of the company is not good. In addition to this, return on capital employed also shows negative structure. In addition to this, return on investment and operating profit margin is also not encouraging for the company. Furthermore, the operating profit margin shows discouraging trends. This could be as a result of increase in the gross profit margin as well as a significant increase in administrative expenses.



Liquidity Ratios

The liquidity ratios that include current ratio and quick ratio is good. This shows that the liquidity position of the company is satisfactory. The current ratio is good for the current period; this shows that the goods sold are extensively financed by suppliers (creditors). This is mainly because there is little asset compared to liabilities of the firm. Inventory and receivable days are also very short, and extra cash is quickly re-invested in acquiring stock or carrying out expansion plans. Sales are mainly on a cash and carry basis.

Efficiency Ratios

The assets management ratios that are the efficiency ratios of the company are supportive. The reason of this statement is that the turnover of the company ...