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    Financial statements-contents,purpose & limitations

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    1750-2000 words, excluding title and references
    Details: As SACs corporate business financial analyst, you will be required to provide the SAC Board of Directors and executive management team with essential financial information on the management of the SAC enterprise. What are the basic financial statements you will submit to the Board and management? What information is contained in each of the statements? How will the information that you provide be used by the management team? How will it help them manage the enterprise? What are the limitations of the information that you provide to the management team? How can the management team ensure that they obtain a complete picture of the enterprise?

    Sparklin Automotive Company
    Journal Entries 2006
    "000" Omitted
    2 Sales on account 168,000
    3 Selling Expense 1,560
    4 Administrative Expense 3,000
    5 Supplies Factory 3,500
    6 Insurance Factory 800
    7 Indirect Labor 16,000
    8 Factory Salaries 12500
    9 Factory Property Tax 7500
    10 Maintenance Expense Factory 8700
    11 Depreciation Expense Factory 1,600
    12 Utilities Factory 3650
    13 Purchases of Raw Materials 33,710
    14 Direct Labor Factory 8,500
    15 Raw Material Inventory, January 1 19360
    16 Raw Material Inventory, December 31 10000
    17 Work in Process Inventory, January 1 1,800
    18 Work in Process Inventory, December 31 7,000
    19 Finished Goods Inventory, January 1 25,360
    20 Finished Goods Inventory, December 31 36,360
    21 Bad Debt Expense 120
    22 Accounts Receivable, net 9130
    24 Land 1,000
    25 Plant and Equipment 80,000
    26 Cash 1/1/06 38,440
    27 Accounts Payable 33,000
    28 Interest Expense 19146
    29 Notes Payable, 10% 15000
    30 Bonds Payable 8% 150
    31 Stockholders' Equity 109,200
    32 Retained Earnings 4,000
    33 Income tax rate 30%

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    Solution Preview

    Dear Student,

    As the financial analyst of the SAC corporate business, the following financial statements need to be provided.
    1. Trading account.
    2. Profit and loss account.
    3. Profit and Loss appropriation account.
    4. Balance sheet.
    5. Cash flow statement.
    6. Statement showing the comparative analysis of the company's performance in the particular financial year with the financial performance of the previous years and the comparative analysis of the financial performance of the company with respect to industry average.
    7. Suggestions and recommendations for the purpose of improving the efficiency of the functioning of the organization.
    Trading account: It is the part of the income statement. It shows the sales revenue made by the company during the year, cost of goods sold which comprises of opening stock of finished goods ,direct material, direct labor, manufacturing overhead and deducting the closing of finished goods. Cost of goods sold will be deducted from the sales to arrive at the Gross profit or Gross loss. Here, while considering the sales and purchases only net sales and net purchases are to be considered That is any return from customers should be deducted from sales and any return made by the company has to be deducted from the purchases.
    Profit and Loss account.
    Profit and loss account is the account showing the financial performance of the company for the particular financial period usually year.
    In the profit and loss account, all operating expenses need to be deducted from the Gross margin. Operating expenses like rent of the office building, salaries and wages, selling expenses, advertisement, interest, discount allowed to the customers, bad debts charged, insurance, and electricity for the office premises, salaries and bonus of the managerial personnel are to be charged against the Gross margin. Likewise , if there are other income like discount received while making payment to the suppliers, interest income on the investment, dividend received because of the shareholding in other companies are to be added to the Gross margin. The resultant figure is Net Profit or Net loss. Net profit is the operating income of the company. It shows the operating efficiency of the Company.
    Profit and Loss appropriation account. This account shows the how the profit has been appropriated towards the dividend and the retained earnings. This account will show how much is the retained earnings generated from the equity capital invested.
    Balance sheet. Balance sheet is the statement showing the financial position of the company as the particular date usually at the end of the financial year. Balance sheet depicts the assets viz.,
    1. fixed assets like plant and ...

    Solution Summary

    The answer contains the detailed explantion of trading account,profit and loss a/c,profit and loss appropriation a/c,balance sheet, cash flow statement and cash flow from investing,operating and financing activities,ratio analysis, comparative analysis with industry average and limitations of financial statements