Accounting And Analysis

Accounting And Analysis

Introduction

Accounting is not just concerned with book keeping and record retention by people who are good with numbers. According to AAAHQ, accounting is defined as, “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.” (American Accounting Association, 1966). US GAAP requires all public listed companies to produce financial statements.. These statements are produced quarterly and annually, and are released to the public after being audited by external auditors. All the financial statements are prepared using the accounting data. The accounting equation is the foundation of the entire accounting system. It is written in the following manner:

Assets = Liabilities + Owner's Equity.

The right side of the equation refers to the assets of the company and the left side indicates who provided, or has a claim to, those assets (Norton et al, 2011).

We will prepare a balance sheet and an income statement of Nybrostrand Company with the help of its trial balance. After preparing the balance sheet and income statement we will comment on the success of the company using some ratio analysis.

Financial Statements

Trial Balance

The trial balance is a list of accounts with their balances. Assets are positioned at the top of the list, followed by liabilities and equities. At the bottom of the list, all revenues and expenses are included (Benedicto, 2007). Following is the trial balance of Nybrostrand Company for the year ended 31st, December 2011.

Nybrostrand CompanyTrial Balance

December 31st, 2011

Account Title

Debits

Credits

Accounts Receivable

$ 24,500

Cash

$ 16,700

Equipment (Net of depreciation)

$ 425,000

Inventory

$ 25,000

Accounts Payable

$ 67,000

Long Term Debt

$ 145,000

Common Stock

$ 10,000

Paid in Capital

$ 90,000

Retained Earnings

$ 98,550*

Revenue

$ 466,000

Cost of Goods Sold

$ 254,000

Depreciation Expenses

$ 24,350

Insurance Expenses

$ 1,400

Marketing Expenses

$ 4,500

Property Taxes

$ 8,900

Rent Expenses

$ 18,000

Salary Expenses

$ 67,500

Utility Expenses

$ 6,700

TOTAL

$ 876,550

$ 876,550

(We arrived at the retained earnings figure using the accounting equitation).

Assets = Liabilities + Owner's Equity.

(24,500 + 16,700 + 25,000 + 425,000) = (67,000 + 145,000) + (10,000 + 90,000 + 80,650 + Retained Earnings).

491,200 = 212,000 + (180,650 + Retained Earnings).

491,200 = 212,000 + (180,650 + 98,550).

Assets include accounts receivable, cash, equipments and inventory. Liabilities include accounts payable and long term debt, whereas, owner's equity includes common stock, paid in capital, profit for the period and retained earnings. Profit amount of $ 80,650 is taken from the following income statement.

Income Statement

The financial statement that reflects the company's profitability is income statement (Edwards, 2007). An income statement indicates how a company has performed, whether the company ended up generating a profit or a loss for the period. Following is an income statement of Nybrostrand Company for the year ended December 31st, 2011

Nybrostrand Company

INCOME STATEMENT Year Ended December 31st, 2011

Revenue

Sales Revenue

Cost of Goods Sold

Gross Income

Expenses

Depreciation

Insurance

Marketing

Property Taxes

Rent

Salaries

Utilities

Total Expenses

24,350

1,400

4,500

8,900

18,000

67,500

6,700

Amount in $

466,000

(254,000)

212,000

(131,350)

Net Income

80,650

Balance Sheet

This statement provides a picture of a company's financial position at a given time. It lists the company's assets, liabilities and equity (Edwards, 2007). Following is the balance sheet of Nybrostrand Company for the year ending December ...