Retail Corporation reported the following Income Statement for the past two years: Retail Corporation Comparative Income Statement For the Years Ended December 31, 2021 and 2020 2021 2020 Amount Amount Sales $ 30,100,100 $ 26,210,200 Cost of goods sold 22,425,500 18,950,800 Gross profit 7,674,600 7,259,400 Selling expenses 1,525,500 1,480,600 Administrative expenses 1,425,300 1,325,000 Total operating expenses 2,950,800 2,805,600 Income from operations 4,723,800 4,453,800 Interest Expense 190,500 210,600 Other income 62,500 55,500 Income before income tax 4,595,800 4,298,700 Income tax expense 1,608,500 1,312,400 Net income $ 2,987,300 $ 2,986,300 a. What was Retail Corporation's Gross Profit Percentage for 2021 and 2020? b. Did Retail Corporation show improvement in Gross Profit from last year? Why or why not? c. What was Retail Corporation's Operating Profit Percentage for 2021 and 2020? b. Did Retail Corporation show improvement in Operating Profit from last year? Why or why not?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Retail Corporation reported the following Income Statement for the past two years:
| Retail Corporation | ||||||
| Comparative Income Statement | ||||||
| For the Years Ended December 31, 2021 and 2020 | ||||||
| 2021 | 2020 | |||||
| Amount | Amount | |||||
| Sales | $ 30,100,100 | $ 26,210,200 | ||||
| Cost of goods sold | 22,425,500 | 18,950,800 | ||||
| Gross profit | 7,674,600 | 7,259,400 | ||||
| Selling expenses | 1,525,500 | 1,480,600 | ||||
| Administrative expenses | 1,425,300 | 1,325,000 | ||||
| Total operating expenses | 2,950,800 | 2,805,600 | ||||
| Income from operations | 4,723,800 | 4,453,800 | ||||
| Interest Expense | 190,500 | 210,600 | ||||
| Other income | 62,500 | 55,500 | ||||
| Income before income tax | 4,595,800 | 4,298,700 | ||||
| Income tax expense | 1,608,500 | 1,312,400 | ||||
| Net income | $ 2,987,300 | $ 2,986,300 | ||||
a. What was Retail Corporation's Gross Profit Percentage for 2021 and 2020?
b. Did Retail Corporation show improvement in Gross Profit from last year? Why or why not?
c. What was Retail Corporation's Operating Profit Percentage for 2021 and 2020?
b. Did Retail Corporation show improvement in Operating Profit from last year? Why or why not?
Solution
Formulas-
1- Gross profit in percentage = Gross profit / Sales *100.
2- operating profit percentage = Operating profit / Net sales *100.
3- Operating profit = Gross profit - Operating expenses.
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