B205B – income statement and balance sheet

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Nov 24, 2024

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2 The income statement is used to show the performance of a company at the end of financial year. The information of the income statement is used by both external and internal users. The internal users are the people within the organization are interested with the company’s information’s to know which area needs strengthening. The external users of the information of the organization as the governments and the community, are interested with the information so that they can know whether the business is worthy investing unto. Income statement is vital and is used to show whether an organization is used to make profits. It is always important to analyse the income statement to understand the full picture of a business operations result so that they can help to determine its efficiency and value. An example of an income statement. Assuming that the Excel Football association made a sale of merchandise in 2019 amounting to $50,000 and cost of sales of $10,000. The company also incurred various expenses such as procurement costs, wages, rent, transportation, utilities, and the payment of the interests. The procurement costs were 8,000, wages 200, rent 1000, interest paid 100, transportation 150, and utilities of 50. There was the imposition of a 30% tax. Required; Prepare a net income statement for the year 2019 march. Excel Football Association Income Statement End of March 2019 Particulars Amount ($) Amount ($) Sales 50,000 Cost of sales 10,000 Gross profit 60,000 Other expenses Procurement costs 8,000 Payment of wage 200 The payment of rent 1000 Payment of the interest 100 Expense on transport 150

3 Other expenses 50 Expenses in total (9500) Profit before tax 50,500 Less (30%) tax (15150) Net income after tax 35,350 This income statement is based on a simple approach referred to as multi-step income statement. In summary, the profit or loss statement is used to give users a timely update about the heath and performance of a company. The profit or loss statement is used to summarize the revenues and expenses of a company over a period, either annually or quarterly. The profit or loss statement comprises of multi-step and single-step process. The multi-step income statement comprises of 4 profitability measures: gross, operating, pre-tax, and after-tax. The income statement is seen as a summary of the business performance over a period. It is unlikely for it to provide the answers required on its own. Every answer may provoke a demand for a further, more detailed analysis before specific business responses can be identified. BLOCK 4 WEEK 3: BALANCE SHEET The statement of financial position also known as balance sheet is used to answer various questions such as company’s worth, the business's strength to pay its bills, and how the owners will benefit from any profits earned. If people fail to understand a balance sheet, they may fail to keep control of the cash resources. This makes a business incur difficulties in paying bills when they arise or employees' wages. In the worst cases, a business becomes insolvent, and it becomes difficult for the organization to pay its current due bills, which leads to the winding up of the business. PARTS OF A BALANCE SHEET The balance comprises of three main parts; the non-current, current and equity. Non- current assets and liabilities are recorded under the non-current section. The current assets and current liabilities are then recorded under the current section of balance sheet. Accountants takes the total assets less total liabilities to determine the net worth of a business. BENEFITS

4 The balance sheet has several benefits rather than just simply calculating the net worth of a business. This importance includes providing information on the state of the business's health. Provision of the information helps a business to be able to pay their liabilities as they fall due and its resilience in the face of substantial economic challenges. The business owners also use the balance sheet to calculate the various risks attached to their investment and the likely reward that will arise given any specific level of profit earned. The essential role of balance sheet is to provide a check that all transactions have been properly entered into the accounting records. The balance sheet also can be described as a snapshot of a business's financial affairs. Like a snapshot, a balance sheet gives some information about what happened before the moment captured but nothing about what happened subsequently. Important note It is known that an accounting transaction of any type must specifically do two things which are re-allocating the assets and the liabilities. This is issuance of new assets and liabilities to complete the various transactions. As discussed earlier, the balance sheet comprises of liabilities, equity and the assets. Equity has got two components which are the share capital and the reserve, or in other words, the retained earnings. The share capital remains constant over time, and it is used as a representative of the original investment of the owners. On the other hand, the retained keeps on changing over time, for there is the addition of reserves every year. Noncurrent assets are the items that a business has to generate the sales, such as property, equipment, motor vehicles and the computers, and desks. The noncurrent assets keep on operation for more than one financial year. An example is the purchase of a computer for $1000 by a business; it would not be appropriate to show this as an immediate expense because all that has happened is that one form of asset. Current assets are items that can be easily converted into cash. They are used to form the part of the movement of the resources that cycle throughout the business operations from day today. They include inventory, receivables, cash, and payment of rent in advance.

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5 Current liabilities and noncurrent liabilities- the current liabilities are composed of payables, corporation tax, bank overdraft, and other tax liabilities; on the other hand, the noncurrent liabilities are composed of long-term liabilities. An example of the Balance sheet is as shown below, An example of a balance sheet. Corporation Balance sheet as at 31 st December 2019 and 2020 Particulars 2020 2019 Non- current assets $ $ land 5500 5500 Land improvements 6500 6500 Building 120,000 140,000 The equipment 50,000 60,000 Less, the depreciation which is accumulated (30,000) (40,000) Total noncurrent assets 152,000 172,000 Current Cash 2200 6000 Inventory 31000 29000 Prepaid expenses 1500 `1000 supplies 3800 4000 Total current assets 38500 40,000 TOTAL ASSETS 190,500 212,000 Noncurrent liabilities Notes payable 20,000 50,000 Current liabilities Short-term loans payable 5000 10,000 Accounts payable 20,900 28,000 Current liabilities in total 25,900 38,000 liabilities in total 45,900 88,000

6 Equity Stock 107,900 120,000 Earning (retained) 50 4,000 Equity total 107,950 124,000 Equity and liabilities 190,500 212,000 In conclusion, it is seen that a balance sheet is a snapshot of a business at a particular period, and it summarizes the resources it has (assets) and calls upon those resources (liabilities) and the difference between the two to get the equity of such a company The statement of financial position also provides very different information from the income statement, which shows how a business has generated income over a particular period. BLOCK 3 WEEK 4 – BUSINESS FAMILY VS GOING PUBLIC Block 3 Week 4: Advantages and Disadvantages of a family business Introduction (Definition of a family business + Essay overview + Thesis Statement) A family business is a commercial organization where many generations within a family have influenced decision-making . The family is related to each other by adoption, marriage, and even blood, and they can massively affect the company's vision and the willingness that the people have to pursue its goals. When a company goes public, it is the initial public offering (IPO) that a private company has making it a publicly owned and traded entity. When a firm goes public, its prestige increases, and it can employ people from distinct backgrounds to help achieve its goals. The company also invests in the future, it makes some acquisitions to benefit it and it also expands. Most of the companies globally are listed in the organizations, and they have many employees and are categorized as family businesses. The businesses have been private organizations with a unique management model and very complicated psychological processes. Thus, family businesses have been common today, and they have several advantages and disadvantages. Paragraph 1(Advantages of family businesses vs. going public) There are many advantages of a family business.

B205B – income statement and balance sheet

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