Introduction
Accounting is a very important aspect of any profit-oriented organization since it helps business to keep track of their financial performance. Accounting enables the business to determine whether it is making profits or losses and therefore it can make better strategic positions to enable them to succeed. Financial Statements that are a result of record keeping help make the accounting analysis of a business possible. Financial statements, therefore, give insights into how a business manages cash, how much revenue it earns, and the liabilities and assets that the business has which overall help determine the strengths and weaknesses of the company making accounting a success. This report gives a summary analysis of the financial statements of a business to determine the position of this organization and predict its future success and failure.
Process
The process of preparing various financial statements is quite sophisticated. For the financial statements I first kept the records of business from the assets the capital the expenses the income therefore first preparing the debit and credit journals will enable me to capture the transaction made each day. After the journal entry, I prepared the T accounts and then the adjusted trial balance which enabled me to prepare the financial statement. The Income Statement includes the net sales and expenses, therefore, indicates the organization’s performance since it enables the deduction of the cost of goods from sales revenue to find the gross profit then after we arrive at the net profit. The balance sheet shows the financial position of a company at a specific point in time. The balance sheet includes the equity, liabilities, and assets. The statement of equity
Financial Statement Analysis
The income statement shows that the company is operating profitably since the revenue earned is higher than the expenses of the company. The company is also maximum profitable position since the expenses and the net income is almost the same. From the statement of equity, there has been recorded a decrease in the owner’s equity since the owner withdraw some of the equity from the previous financial year. The total assets of the company are equal to the total liabilities and equity showing accurate accountability since the assets are covered by liability and equity therefore if they are equal then all the assets of the company and cost are well incorporated. The current ratios give the relationship between assets and liabilities therefore for the business the current ratio is 0.1 which means that more assets than liabilities. The liquidity ratio shows that the company is in a position to pay its debts, therefore, encouraging investors and creditors.
Internal Controls
The company assets and data are very important vital items involved in keeping company records. These properties, therefore, need to be controlled and secured to avoid mistakes that lead to inaccurate financial data hence wrong analysis company’s financial position that may hinder its growth. Restricting access to financial systems to personnel who may alter the nature of the data making it biased. Keeping timely records helps managers avoid losing some data hence accurate financial records. This will encourage better analysis and therefore making strategic decisions that enable the growth of the organizations. Making decisions that will help reduce costs and increase revenue and therefore more growth and more purchase of merchandise and assets.
Looking into the Future
Since long-term assets cannot be converted to cash within one year, they depreciate band the company records the adjustments downwards hence the only thing that can be done to the long-term assets is replacement and repair which is an expense. The business can use the declining balance and units of production to calculate the depreciation of the asset using the formula; cost of the asset less salvage value over the estimated units over the assets lifetimes actual units made therefore finding the years depreciation. The straight line depreciation also applies the formula; cost of the asset less the salvage value over the useful life of the asset.
The first in first out is mostly used in an inflation scenario where the recently purchased goods that are of high cost are removed first and the old ones are retained as inventory. The in-last-out approach also applies best when the prices of items rise the old items will be sold first hence earning more profit. The average method as well is best applicable where the prices are fluctuating and therefore using the average cost of a unit of an item smoothes out the fluctuation (Hasanaj 17).
Works Cited
Hasanaj, Petrit, and Beke Kuqi. “Analysis of financial statements.” Humanities and Social Science Research 2.2 (2019): p17-p17.
write