FINANCIAL ANALYSIS

Financial & statistical data

Financial & statistical data

Financial Analysis

1) The income statement of the entity can be calculated by looking at the overall trial balance of the organization and then recognizing the items that are the part of the revenue and the expenses. Same method and rationale can be applied to Cardboard Boxes Limited. Here we will prepare the income statement for the year that ended on 31 December 2012. One thing that can be immediately noticed from the trial balance is that the ending balance of the trial balance as it is one of the basic constituent of trial balance (Black, 2005, p.868).

We will start to prepare the income statement of Cardboard boxes now. First thing that is needed to be looked at in the income statement is that what the corresponding revenues are for the time period that is taken into the consideration. Here it can be seen that the total revenues, or the total sales of Card Board Boxes. As we have seen what the revenues are, the other stuff that is needed to be looked at are what the corresponding expenses are for that time period. As we can see, the expenses that are occurred are Purchases, Wages and Salaries. Then there are some other administration expenses that business has to bear. So this expense is also needed to be looked at.

. One thing that is needed to be careful about that every item that is on the liability side of the balance sheet cannot be taken as an expense(Black, 2005, p.868). These are the long term costs of the business, and do not necessarily effect the income of the business in current time period. So these things should not be added into the balance sheet for that corresponding time period. So there must be clear distinction between the costs and the expenses. Costs are expanded over long time period. Keeping all this information in mind, income statement or profit and lost statement can be easily made. Although there are taxes as well, but the trial balance of Cardboard Boxes does not show any tax payment, so that can be ignored for a certain time period.

Below is the income statement of Cardboard boxes for the 31st December 2012.

Revenues

Sales£ 26,861

Purchases £ 7216

Expenses

Wages and Salaries£ 7700

Administration Expenses£ 4822

Interest Expense£ 120.00

Net Income£ 7003

This is the Income statement of Cardboard boxes which shows the net profit or net income of 7003. This is the general rule that greater debit balance of trial balance signifies profit or net income.

2) The statement of financial position shows the overall position of business at any point of time. Unlike the profit and loss statement or any other statement, which shows the financial position of the business at a certain time period, statement of financial position shows the overall position of the business at a snapshot (Curwin & Slater, 2007, p.459). The basic rationale or idea of statement of financial position is that it shows the assets, liabilities and the total ...