Income Statement And Balance Sheet For The Internal Accounting Essay

1.0 Introduction

This assignment is discussed about Principles of Accounting. Account is the practiceA andA organic structure of knowledgeA concerned chiefly withA methodsA forA recordingA minutess, keepingA fiscal records, performingA internal audits, coverage and analyzingA fiscal informationA to theA direction, andA advisingA onA taxationA affairs. It is aA systematicA processA of identifying, entering, mensurating, sorting, verifying, sum uping, A interpretingA and pass oning financialA information. It revealsA profitA orA lossA for a givenA period, and theA valueA and nature of aA firm’sA assets, A liabilitiesA andA proprietors ‘ equity. AccountingA providesA information on theA resourcesA available to a house, theA meansA employedA to finance those resources, and theA resultsA achieved through their usage.

Undertaking 1 is described about the five different users and their demands for Continental Limited fiscal statements. Furthermore, the writer will explicate the five regulative feature of these fiscal statements that will supply utile information to the users.

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Undertaking 2 is approximately prepared the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by company managers and direction. And show the necessary workings.

Undertaking 3 is approximately prepared the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by company managers and direction. And show the necessary workings.

Undertaking 4 is approximately based on the income statement and balance sheet made in undertaking 2 and 3, calculate the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 and compare them with the industry norms provided to measure the profitableness and liquidness of Continental Limited.

Therefore, there are six subdivisions in this assignment which are debut to explicate about the whole assignment, the five different users of undertaking 1 and their demands for Continental Limited fiscal statements, and explain five regulative features of these fiscal statements that will supply utile information to the users. Task 2 is about prepare the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 for the internal usage by company managers and direction, and shows the necessary workings. Undertaking 3 is about prepare the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in the recognized format for external coverage or publication, and shows the necessary workings. Undertaking 4 is approximately based on the income statement and balance sheet made in undertaking 2 and 3 calculate the appropriate accounting ratios for twelvemonth stoping 31 Dec 2010 and compare them with the industry norms provided to measure the profitableness and liquidness of Continental Limited.

2.0 Five Different Accounting Users

The accounting users are separate to internal users and external users. The internal users are the people within the organisation. The external users are the people outside the organisation. The accounting users are utilizing the histories to deduce fiscal information for their demands. The accounting users are the employees of the company, providers or creditors, client or debitors, suppliers of finance to the company such as Bankss and other fiscal establishment, authorities bureaus and etc. As summarized below:

Employees of the company: These are the people employed by the company to transport out the concern activities. The employees need the accounting information about the company ‘s fiscal state of affairs because their hereafter callings and the size of their rewards and wages depend on it.

Suppliers or Creditors: Suppliers and trade creditors are provide trading goods or services to the company on recognition. These are people who require information that helps them understand and measure the concern ‘s short-run liquidness. They need accounting information about the company ‘s ability to pay its debts for guaranting their aggregation from the company.

Customer or Debtors: The clients and trade debitors are the people who purchase goods or services provided by the company. These are people who require information about the ability of the concern to last and thrive. They need accounting information about the company ‘s fiscal stableness to guarantee that the company is a unafraid beginning of supply and no danger of holding to shut down.

Suppliers of finance to the company such as Bankss and other fiscal establishment: They provide loan and overdrafts for the company to finance concern activities. They need accounting information about the company ‘s fiscal position to guarantee that the company is able to maintain up with involvement payments and finally to refund the chief sum of loan advanced.

Government Agencies: The authorities bureaus and sections are interested in accounting information. These are the people who need accounting information about the concern activities of endeavors for the allotment of resources and national statistical.

3.0 Income statement and balance sheet for the internal

The undertaking 2 is approximately prepared the income statement and the balance sheet ( Appendix A & A ; B ) of Continental Limited for twelvemonth stoping 31 December 2010 for the internal usage by company managers and direction. The information of working in the assignment, as summarized below:

3.1 The Information of Working ( a )

In the shutting stock at 31 December 2010 should be recorded at cost or net resale value which is the lower. Obviously, the cost RM65000 is less than the net resale value RM70000, the cost of RM65000 should be shuting stock value where put in the trading history of income statement and under the current plus in balance sheet.

3.2 The Information of Working ( B )

The followers is recorded the reception from hard currency sale, out of which payments were made for purchase of goods RM4000, letter paper RM700 and electricity measure RM300.

Cash history

2010 RM 2010 RM

31 Dec Gross saless 5000 31 Dec Purchase 4000 4000

31 Dec Stationery 700

31 Dec Electricity 300

5000 5000

Gross saless in trading history of income statement:

RM360000 from test balance + RM5000 = RM365000.

Purchase in merchandising history of income statement:

RM200000 from test balance + RM4000 = RM204000.

Stationery as disbursal put in the Net income and Loss history of income statement = RM700.

Electricity and H2O in Net income and Loss history of income statement:

RM7000 from test balance + RM300 = RM7300.

3.3 The Information of Working ( degree Celsius )

Accrual for a salesman ‘s committee RM1500 and prepayment for an office staff salary RM2000 at 31 December 2010.

Gross saless committee as disbursal put in Net income and Loss history of income statement:

RM 18000 paid from test balance + RM1500 = RM19500.

Therefore, accrued gross revenues committee RM1500 is recorded under the current liability in balance sheet.

Office wages as disbursal put in the Net income and Loss history of income statement:

RM28000 paid from test balance – RM2000 prepaid at the terminal of twelvemonth = RM26000.

Therefore, postpaid office wage RM2000 is recorded under the current plus in balance sheet.

3.4 The Information of Working ( vitamin D )

Debtor history

201 RM 2010 RM

1 Jan Balance b/d 75000 31 Dec Bad debts 5000 4000

31 Dec Balance c/d 70000

75000 75000

2011

1 Jan Balance b/d 7000

Bad debts account

2010 RM 2010 RM

31 Dec Debtor 5000 31 Dec Net income and Loss 5000 4000

Provision for bad debts shuting balance = 10 % ten Debtor shutting balance RM70000 = RM7000

Provision for bad debts account

2010 RM 2010 RM

31 Dec Closing balance c/d 7000 1 Jan Opening balance b/d 5000

31 Dec Increase difference 2000

7000 7000

3.5 The Information of Working ( vitamin E ) and ( degree Fahrenheit )

Vehicles account

2010 RM 2010 RM

31 Dec Opening balance b/d 300000 1 Jan Vehicle disposal a/c 50000

31 Dec Increase difference 250000

300000 300000

2011

Jan 1 Balance b/d 250000

Provision for depreciation on vehicle history

2010 RM 2010 RM

1 Jan Vehicle 12500 1 Jan Opening balance b/d 60000

( Cost sold RM50000 x 5 % ten 5 old ages 1 Jan Depreciation as disbursal put

from 1 Jan 2005 to 1 Jan 2010 ) in Net income and Loss history

31 Dec Balance c/d 60000 ( Vehicles shuting balance

RM250000 x 5 % ) 12500

72500 72500

2011

1 Jan Balance b/d 60000

Vehicles disposal history

2010 RM 2010 RM

31 Dec Balance c/d 54000 1 Jan Opening balance b/d 40000

31 Dec Depreciation as disbursal put in

Net income and Loss account 14000 54000 54000

2011

1 Jan Balance b/d 54000

3.6 The Information of Working ( g )

Taxation charge RM 15300 is deducted from net net income at the underside of income statement. It is besides recorded as accumulated revenue enhancement RM15300 under the current liability in balance sheet.

3.7 The Information of Working ( H )

Proposed dividend to be deducted from net net income at the underside of income statement: 2 % x RM500000 Share capital from test balance = RM10000.

Then, the proposed dividend RM10000 is recorded under current liability in balance sheet.

3.8 The Calculation for the Income Statement

Income statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for internal usage by company managers and direction

RM

RM

RM

Gross saless

365000

Less Return inwards

10000

Net Gross saless

355000

Less: Cost of Gross saless

Opening Stock

50000

+ Purchase

204000

Less Return outwards

-15000

+ Passenger car inwards

5000

194000

Less Closing stock

-65000

-179000

Gross Net income

176000

Attention deficit disorder: Income

Dividend received

5000

181000

Lupus erythematosus: Expenses

Stationery

700

Office electricity

7300

Office wages

26000

Gross saless committee

19500

Bad debts

5000

Addition in proviso for bad debts

2000

Loss on disposal of vehicle

2500

Depreciation on vehicles

12500

Depreciation on premises

14000

Vehicle disbursals

12000

Interest charges

3000

-104500

Net Net income

76500

Less Taxation charge

-15300

Less Proposed dividend

-10000

Net income for the twelvemonth

51200

Add Retained net incomes brought frontward

100000

Retained net incomes carried frontward

151200

3.9 The Calculation for the Balance Sheet

The Balance Sheet of Continental Limited as at 31 Dec 2010 for Internal Use

RM

RM

RM

Fixed assets/ Non-current assets

Office premises at cost

350000

( – ) Provision for depreciation on premises

-54000

296000

Vehicles at cost

250000

( – ) Provision for depreciation on vehicles

-60000

190000

Long-run investings

100000

586000

Current assets

Closing stock

65000

Debtors

70000

( – ) Provision for bad debts

-7000

63000

Bank

42000

Prepaid office wage

2000

172000

758000

Issued portion capital

Share capital

500000

Attention deficit disorder: Reserve

Retained net incomes carried frontward

151200

Stockholders ‘ equity

651200

Attention deficit disorders: Long term liabilities/ Non-current liabilities

Loan

55000

Attention deficit disorder: Current liabilities

Creditors

25000

Accrued gross revenues committee

1500

Accrued revenue enhancement

15300

Proposed dividend

10000

51800

758000

4.0 The Income Statement and Balance Sheet for External Report

This undertaking is about the income statement and balance sheet of Continental Limited for twelvemonth stoping 31 Dec 2010 in the recognized format for external coverage or publication. The writer needs to sort the disbursals from income statement of undertaking 2 into distribution costs and administrative disbursals as follows, after done the income statement and balance sheet.

4.1 From the Income Statement of Task 2

Distribution costs ( RM ) Administrative disbursals ( RM )

Stationery – 700

Office electricity and H2O – 7300

Office salaries – 26000

Gross saless committee 19500 –

Bad debts 5000 –

Addition in proviso for bad debts 2000 –

Loss on disposal of vehicles 2500 –

Depreciation on vehicles 12500 –

Depreciation on premises – 14000

Vehicle disbursals 12000 – .

Entire 53500 48000

4.2 The Calculation for Income Statement

The Income Statement of Continental Limited for twelvemonth stoping 31 Dec 2010 for External Reporting

RM

RM

Employee turnover

355000

Cost of gross revenues

-179000

Gross Net income

176000

Distribution costs

53500

Administrative disbursals

48000

-101500

Operating net income

74500

Dividend received

5000

79500

Interest charges

-3000

Net income on ordinary activities before revenue enhancement

76500

Taxation charge

-15300

Net income on ordinary activities after revenue enhancement for the twelvemonth

61200

Proposed dividend

-10000

Retained net income for the twelvemonth

51200

Retained net income brought frontward

100000

Retained net income carried frontward

151200

4.3 The Calculation for Balance Sheet

The Balance Sheet of Continental Limited for the twelvemonth stoping 31 Dec 2010 for External Reporting

RM

RM

RM

Fixed Assetss

Tangible Assetss:

Premisess

296000

Vehicles

190000

486000

Investing:

Long term investing

100000

586000

Current Assetss

Stock

65000

Debtors

63000

Prepaid office wage

2000

130000

Cash at bank

42000

172000

Less Creditors: Sums Falling Due Within One Year

Creditors

25000

Accrued gross revenues committee

1500

Accrued revenue enhancement

15300

Proposed dividend

10000

-51800

Net Current Assetss

120200

Entire Assets Less Current Liabilitiess

706200

Less Creditors: Sum Falling Due After More Than One Year

Loan

55000

651200

Capital and Militias

Called up portion capital

500000

Net income and Loss history

151200

651200

5.0 The Comparison for the Accounting Ratio

The undertaking 4 is about calculate the appropriate accounting ratios for twelvemonth stoping 31 December 2010 and compares them with the industry norms provided to measure the profitableness and liquidness of Continental limited.

5.1 The Table of Ratio Calculation

Ratio with expression Ratio computation for twelvemonth 2010 Industry Average

( a ) Gross Profit x 100 176000 ten 100 = 49.57 % & gt ; 30 %

Net Gross saless 355000

( B ) Operating Net income x 100 74500 ten 100 = 20.98 % & gt ; 18 %

Net Gross saless 355000

( degree Celsius ) Net Net income + Interest charges 76500 + 3000 = 11.26 % & gt ; 9 %

x 100 tens 100

Entire assets – current liabilities 758000- 51800

= Capital employed = 706200

( vitamin D ) Current plus 172000 = 3.32: 1 & gt ; 2: 1

Current liabilities 51800

( vitamin E ) 365 yearss 365 yearss = 117.36 yearss & gt ; 90 yearss

Cost of gross revenues 179000

Stock turnover 57500

=Stock Turnover times =3.11 times

( degree Fahrenheit ) Debtor ratio x 365 yearss 63000 ten 365 yearss = 64.77 yearss & gt ; 45 yearss

Net recognition gross revenues 355000

( g ) Creditor ratio x 365 yearss 25000 ten 365 yearss = 48.28 yearss & lt ; 60 yearss

Purchase- Return outwards 204000-15000

=Net recognition purchase =189000

5.2 The Profitableness of Continental Limited

( a ) The per centum of gross net income on gross revenues in the ratio computation for the twelvemonth 2010 which is 49.57 % higher per centum than the industry mean 30 % . So, based on this, we can cognize that the gross net income on gross revenues in ratio computation for the twelvemonth 2010 are more effectual and efficient than the industry norms, because it can command its purchase cost by doing the purchase at lower cost from provider and efficient in commanding its production cost by the effectual usage of stuffs and labour to cut down its production cost instead than industry norm.

( B ) The per centum of operating net income on gross revenues in the ratio computation for the twelvemonth 2010 is 20.98 % which is more than industry mean 18 % . From the ratio comparing, the higher an disbursal to gross revenues ratio indicates that the company is uneffective in its outgos control caused higher disbursals incurred to cut down its cyberspace net income earning. In resistance, the industry norm ratio is lower disbursal to gross revenues ratio indicates that the company is effectual in costs control caused lower disbursals to incurred to increase its net net income earning.

( degree Celsius ) The return on capital employed ( ROCE ) in the industry norm is 9 % , and the return on capital employed ( ROCE ) in the ratio computation for the twelvemonth 2010 is 11.26 % , which is higher than the industry norm per centums. In this ratio computation for the twelvemonth 2010 showed that the higher return on capital employed ( ROCE ) indicates higher net net income generated from the capital employed in production and concern activities to increase the production and gross revenues volume every bit good as to increase the net net income earning. Furthermore, the lower of the industry norm is the lower return on capital employed ( ROCE ) indicates lower net net income generated from the capital employed for uneffective usage of capital employed in production and concern activities to cut down production and gross revenues volume every bit good as to cut down net net income earning.

5.3 The Liquid of Continental Limited

( vitamin D ) The comparing between the ratio for twelvemonth stoping 31 December 2010 and the industry norms which the former is higher than the latter. Because, the current ratio of the twelvemonth stoping 31 December 2010 is 3: .32: 1 higher than industry norm which is 2:1.

( vitamin E ) The stock turnover period for the twelvemonth stoping 31 December 2010 is 117.36 yearss which more than the industry norm because it merely 90 yearss. Obviously, the longer stock turnover period indicate slow stock turnover in concern where goods purchased are kept in stock for long clip and so easy taken out for resale so that the stock is accumulated to bind up money, doing short term job.

( degree Fahrenheit ) The computation ratio for the twelvemonth terminal 31 December 2010 is 64.77 yearss which longer than the industry norm which is 45 yearss merely. From the ratio comparing, the longer debitor aggregation period for twelvemonth terminal 31 December 2010 indicate that company has given longer recognition clip to let debitor owning, doing longer clip taken by company to roll up money easy from debitors, so that larger debitor balance is accumulated to bind up money, conveying to shortage of money for paying back liabilities and confronting short term fiscal job.

( g ) The consequence ratio for twelvemonth terminal 31 December 2010 is 48.28 yearss which is shorter than the industry norm which is 60 yearss. Therefore, the shorter creditor payment period indicate that company has obtained shorter recognition clip for having and paying to creditors so that company needs to pay creditor in clip, doing smaller creditor accumulated and short term fiscal job for deficit of money to pay back creditor.

6.0 Conclusion & A ; Recommendation

In the decision, through making this assignment, the writer has learned and knew the accounting have many different users and different manner to utilize of accounting information. In the undertaking 2 and undertaking 3, the income statement and balance sheet can assist the different users to cognize the companies are gaining ( net income ) or losing ( loss ) . So, the company can based on this to make up one’s mind engage more employees or cut down the employees. Otherwise, the accounting got many advantages, such as, aid to direction ; the accounting can supply the information to the direction to ease it to make its work decently. The information can assist in the Planning, Decision devising and Controlling and etc ; the grounds in the tribunal, the systematic record of minutess can assist the users to be grounds in the tribunals. At last, the accounting is really of import, because it can assist users to supply the information to the direction and etc, so without accounting, will do us vey incommodiousness in the day-to-day life.

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