Accounting Concepts and Practice
Income Statement and Balance Sheet
Smith Company
Income Statement
For the Year Ended 31st Dec 2012
Revenue
$406,000
Less cost of goods sold
$234,000
Gross profit
$172,000
Less: Expenses
Depreciation expense
$24,350
Insurance
$1,400
Marketing
$4,500
Property taxes
$8,900
Rent
$18,000
Utilities
$6,700
Salaries
Total expenses
($131,350)
Net Income (Balance C/D)
$40,650
Computations
Retained Earnings: Difference between debit and credit balances.
$760,850 -- $718,000 = $42,850
Retained earnings to be transferred to the balance sheet:
Income statement balance b/f
balance c/d $40,650
$40,650
Add: retained earnings
$42,850
Retained earnings balance c/d $83,500
Smith Company
Balance Sheet
For the Year Ended 31st Dec 2012
Non-Current Assets
Equipment
$316,000
Current Assets
Accounts receivable
$24,500
Cash
$30,000
Inventory
$25,000
Total current assets
$79,500
Total assets
$395,500
Current Liabilities
Accounts payable
$67,000
Non-Current Liabilities
Long-term debt
$145,000
Financed By
Common stock
$10,000
Paid in capital
$90,000
Retained earnings
$83,500
$183,500
Total liabilities
Table 1
Ratio
Formula
Computation
Value
Return on Assets
Net Income/Total Assets
$40,650/$395,500
0.10
Current Ratio
Current Assets/Current Liabilities
$79,500/$67,000
1.19
Debt ratio
Total Debt/Total Assets
$212,000/$395,500
0.54
Return on Equity
Net Income/Shareholder Equity
$40,650/$183,500
0.22
From the return on assets ratio, it is clear that for each dollar of assets, Smith Company earns $0.10. In my view, the profit per dollar of assets is in this case significantly high and for this reason, one could say that the company's management is effectively utilizing assets in the generation of profits. This is an indicator of managerial competence. In seeking to determine the ability of Smith Company to settle its short-term obligations, it would be prudent to take into consideration its current ratio. From the table above, the firm has a current ratio of 1.19. According to Albrecht, Stice, and Stice (2010), it has been suggested in the past that a current ratio of less than 2 could be a sign that a business has liquidity problems. However, in the words of the authors, "current ratios for successful companies these days are frequently less than 1…" (Albrecht, Stice, and Stice, 2010, p.667). This according to the authors is as a result of advances in technology - a move that has further enhanced the effectiveness of firms in the minimization of the need to hold current assets like inventories and cash. In that regard, a current ratio of less…
Financial Accounting Costa Company Income Statement Revenue COGS Gross Profit less Depreciation Expense Insurance Marketing Misc Exp Property Taxes Rent Salaries Utilities Operating Expenses Net Income Balance Sheet Assets Cash Accounts Receivable Inventory Equipment Total Assets Liabilities Accounts Payable Long-Term Debt Total Liabilities Shareholders' Equity Common Stock Paid-In Capital Retained Earnings Total Equity Total L&SE With these two statements, there are two adjustments that have been requested. The $12,000 check cannot be processed yet. The sale needs to be recorded. The problem is that the sale will include inventories that moved, but without knowing what inventories were moved and what the markup would be,
Instructional Plan Income Statement This instructional paper will consist of detailed instructions for preparing a simple income statement. The paper will be designed to meet the specific needs of my client (a female shoe store owner) who requires instruction in completing the income statement for her small business. As such, the instructions will be geared at the client's level of expertise in the area of accounting, and will focus largely on
Accounting Process and Financial Statements. A reliable internal system of accounting is an essential element of a solvent profit or nonprofit business entity. By recording virtually every business activity or endeavor, with regards to the creation of monetary inflows of sales revenue and monetary outflows of expenses resulting from operating activities; an accounting system should provide the financial information needed to evaluate the profitability or effectiveness of past and operations.
The balance sheet presents the three elements of financial position namely, assets, liabilities and equity. The balance sheet highlights the accounting equation which provides: Assets = Liabilities + Equity. In a balance sheet presentation, assets and liabilities are further classified into current and non-current to distinguish those used directly for operations as to those for long-term usage. An income statement is a formal statement prepared for a given period
Accounting Qualitative Characteristics of Financial Statements There are four principal qualitative characteristics that make the information provided in financial statements useful to users. These are understandability, relevance, reliability and comparability. The first section of this paper will be dedicated to explaining each of these concepts and how they relate to making financial statements more valuable for the audience. The first principal qualitative characteristic is understandability. This relates not only to the information but
Accounting Practices Depending on the type and size of a particular health care facility, the generally accepted accounting principles (GAAP) used to conduct medical accounting can vary greatly, and these differences may have significant impact on the eventual delivery of medical services. According to the Financial Accounting Standards Board's (FASB) Accounting Standards Codification, which is "the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now