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Accounting Learning J 3

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30 views

Accounting Learning J 3

GOOD

Uploaded by

Joseph Njovu
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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THE UNIVERSITY OF PEOPLE

BUS 1102-01 Basic Accounting - AY2025-T1

STUDENT NAME: WESLEY HARAWA

STUDENT ID: C2037300

PROGRAM: BACHELORS OF BUSINESS ADMINISTRATION

TASK: LEARNING JOURNAL UNIT 3


1. Financial Statement Preparation

A. Income Statement

The Income Statement shows a company's profitability over a specific period by


subtracting expenses from revenues.

Example:

 Revenue: $500,000
 Cost of Goods Sold: $200,000
 Gross Profit: $300,000
 Operating Expenses: $100,000
 Operating Income: $200,000
 Interest Expense: $10,000
 Net Income Before Taxes: $190,000
 Income Taxes: $38,000
 Net Income: $152,000

B. Statement of Retained Earnings

This statement shows the retained earnings at the beginning of the period, adjusted for
net income and dividends, to give the retained earnings at the end of the period.

Example:

 Beginning Retained Earnings: $50,000


 Plus: Net Income: $152,000
 Less: Dividends Paid: $20,000
 Ending Retained Earnings: $182,000

C. Balance Sheet

The Balance Sheet represents the company's financial position at a specific point in
time, showing assets, liabilities, and equity.

Example:

Amount 1 Amount 2 Amount 3


Particular
($) ($) ($)

Assets

Current Assets

Cash 50,000 40,000 60,000

Accounts Receivable 80,000 70,000 85,000

Office Supplies 5,000 6,000 5,500


Amount 1 Amount 2 Amount 3
Particular
($) ($) ($)

Pre-paid Insurance 2,000 3,000 2,500

Total Current Assets 137,000 119,000 153,000

Long Term Assets

Van 30,000 35,000 32,000

Less: Accumulated
-5,000 -4,000 -6,000
Depreciation

Furniture 20,000 22,000 21,000

Total Long Term Assets 45,000 53,000 47,000

Total Assets 182,000 172,000 200,000

Liabilities

Current Liabilities

Accounts Payable 30,000 28,000 32,000

Salaries Payable 10,000 12,000 11,000

Total Current Liabilities 40,000 40,000 43,000

Long Term Liabilities

Bank Loan 50,000 55,000 53,000

Total Long Term


50,000 55,000 53,000
Liabilities

Owners' Equity

Common Stock 30,000 32,000 31,000

Retained Earnings 62,000 45,000 73,000

Total Owners' Equity 92,000 77,000 104,000


2. Financial Statement Analysis Income Statement Analysis: The Income Statement
of FunSun Co. shows that the company has an excellent gross profit amount of $
300,000, which shows that this company has maintained a healthy control of cost of
goods sold. This means that after deducting the operation cost, then the firm earns
$200,000 which makes it financially viable. Holding in mind the actual net income of
$ 152000 fun sun co, is actually revealed to be financially sound company. To the
stakeholders, this means that the business is making sufficient profit to plow some
back to the shareholders through dividends or capital gains while investing in other
sectors at the same time. The income statement is also useful in establishing the
degree of exploitation of the company, apart from its ability to contain cost. Statement
of Retained Earnings: In the Retained Earnings Statement the following balance are
shown: beginning balance $50,000 and the ending balance $182,000; thus it shows
that the company is using its earnings to reinvest and expand its operation.
Consideration of this is of much importance to the stakeholders more so because it
affirms that the firm has a clear strategy on how it will be reinvesting instead of
requiring external capital.

Balance Sheet Analysis:

From the Balance Sheet, total assets of FunSun Co. is $182,000. Referring to current
assets and current liabilities, the overall efficiency of the firm to meet short-term
liability is given by the current ratio. Good solvency is evidenced by current assets of
$ 137, 000 and the current liabilities of $ 40, 000. Concerning the analysis of
solvency, it is seen that FunSun has more equity ($92,000) than the total long-term
liabilities ($50, 000); hence the company is not over leveraged. This data enables
stakeholders to evaluate the firm’s financial position, solveny and risk profile.

3. Companies that deal with huge amounts of inventory throughout the year and
record the difference between their cost and selling price are likely to prefer perpetual
inventory system than the periodic.

POS or Perpetual Inventory System is one of the modes of inventory management that
involve the continuous update of records. the recording is made at the time of sale or
at the time of purchase hence it gives us the position of the stock at the current time.
For instance, after applying bar code for a Super market, the status of the inventory is
updated every time bar code of the items is scanned. This system is very accurate and
best suitable for firms with high stock turnover, although the system can be rather
expensive.

Periodic Inventory System gives a record of inventories at a certain time, for instance,
monthly, quarterly, and so on. Stocks are counted from time to time in order to take
an actual account of the inventories. Overall this is quite a low cost method but it does
have its draw back in that it does not amount to a precise stock position. For instance,
a small retail shop that takes physical inventory at the end of a month is practiced to
periodic system.

Differences:
Real-time Tracking: While Perpetual offers the latest data possible, periodic is just for
specific dates and time only.

Accuracy: Here, Perpetual provides more accurate and real time information than that
of the other three types of plants.

Cost: Periodic systems tend to take less time, less money in implementation as
compared to perpetual systems though less accurate in terms of technology needs.

This also helps to define which of the system might be suitable for some certain
company in terms of the amount of money available for spending and the
size/turnover rate of inventory that needs to be covered.

Supposing there is any other help that is required of me, kindly let me know and I
shall be glad to extend my help in whichever way it is needed.

REFERENCES

· Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2020). Financial Accounting:


Tols for Business Decision Making (9th ed.). Wiley.

·Libby, R., Libby, P. A., & Hodge, F. D. (2019). Financial Accounting (10th ed.).
McGraw-Hill Education.

·Porter, G. A., & Norton, C. L. (2018). Financial Accounting: The Impact on


Decision Makers (10th ed.). Cengage Learning.

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