10 Pages
2405 Words
1.0 Introduction : Introduction To Finance And Accounting
This report is related to the LCCA Company’s performance in business determination. In this report of this company the trial balance, income statement, and balance are going to be prepared. To determine the performance of this company, and to judge previous performance with the present performance of this company the analysis of ratios, and differences in the present, and previous ratios are going to be determined. Possible solutions are going to be discussed in this regard, with the conclusion, and recommendations.
Component 1: Preparation of trial balance and preparation of final accounts
Task 1: Trail balance preparation
a) The trial balance of LCCA
Figure 1: The trial balance of Social Enterprise Wing of LCCA
(Source: Self-created in MS Excel)
The image that is presented above is related to the trial balance of LCCA. In this image, the value of capital is £100 which is a credit balance. The closing stock value is £40, which is a debit balance. £50 is the value of sales, and it is a credit balance. £80 is the value of cash, which is a debit balance. The bank loan value is £100, and it is a credit balance. The value of the furniture and fittings is £100, and it is a debit balance. The value of the trade receivable is £50, and the value of the trade payable is £50. In this regard, the trade receivable is the debit balance, and the trade payable is the credit balance. £40 is the value of wages, which is a debit balance. £40 is the bank overdraft value, and it is a credit balance. The rent value is £30, and it is a debit balance. The total value of both the debit balance, and credit balance is matched, and the total value in this regard, is £340.
Figure 2: Income statement of Social Enterprise Wing of LCCA
(Source: Self-created in MS Excel)
In the image above income statement of LCCA is shown. In this image, the gross profit is determined at £50. In the form of expenses, rent is taken at £30, and wages are taken at £40 in this regard. The total value of the expenses is derived at £70 (Saud et al. 2020). After deducting the gross profit amount from the total expenses, the value of the net income is derived from LCCA, which is present in loss at -£20.
b) Source and structure of the trial balance
The source of the trial balance is provided in the assignment brief. In the trial balance a list of general ledger accounts has been inserted, and the debit, and credit balance is provided for every ledger account, to match the debit, and credit balances at the end. The accounting period's final date is stated through the trial balance of LCCA, depending on which the creation of the further report is going to be done by LCCA in the future.
Task 2: Final accounts preparation
a) First-year projected income statement ending 31st December 2023
1.1 Income statement
Figure 3: Income statement of Social Enterprise Wing of LCCA
(Source: Self-created in MS Excel)
The image that is shown above is related to the first year projected income statement ending 31st December 2023 of LCCA. In this income statement, the value of the sales is £20000. It is then deducted from the cost of goods sold to determine the gross profit. For the determination of the cost of goods sold opening stock of £4000 is added to the purchases of £2500. After that it is deducted with the closing stock of £1000. Through that, the value of the cost of goods sold is determined as £5500. Next after deducting sales value from the cost of goods sold value, the value of the gross profit is determined, which is £145000. After that, gross profit is deducted from the total expenses to determine the net operating income (Mosteanu and Faccia, 2020). In this regard, the value of depreciation is £1000. The value of advertising expenses is £1000. £3000 is the value of rent. £3000 is the value of salary, and the other expenses value is £4000. By adding these values the total expenses that are derived is £12000. Next, with the gross profit by deducting the total expenses net operating income is determined, which is £2500. After that, other income in the form of commission earned is added to the net operating income. The value of the commission earned in this regard is £2000. Now the value of net operating income, and commission earned is added. Through that, the value is derived for the net income before tax, which is £4500. In the last step with the value of tax rate of 20%, the value of net income before tax is subtracted. Because of this, the net income before tax, or final net income is derived in this regard.
1.2 Purpose of Profit and Loss Account
For the statement of business of LCCA, or any other business the account of profit and loss forms a part, and the money is lost, or made by the business or not is determined through the profit and loss account (Sangster et al. 2020). The results of trading are summarized through this of a business over a particular period, and it is present typically for one year. In this regard, expenses, and revenue both are demonstrated in the accounts of profit, and loss. This is the purpose of the profit and loss account.
b) Balance sheet
Figure 4: Balance sheet of Social Enterprise Wing of LCCA
(Source: Self-created in MS Excel)
The balance sheet that is shown above is related to the LCCA for the year ended 31.12.2023. In this balance sheet, the value of capital is £12500, and it is subtracted by £500 drawings value. The value that is derived after that is £12000. The value of the long-term loan is £9000. £1080 is the accounts payable value, and £580 is the bills payable value. The value of the equipment is £20000. The intangible asset value is £2000. In this balance sheet, the cash value is present at £400. Accounts receivable value is £860. The prepayment value is £1000, and the closing stock value is £2000. Through the suspense account balance of £3600, the liabilities, and asset side value has been equated with the value of £26260.
2.1 Main purpose of the balance sheet
The main purpose of the balance sheet is to provide important parties with an idea regarding the position of finance of the company, or in this regard, regarding the position of finance of LCCA. What is owned by the LCCA, and what is owed to others by this company is displayed through the balance sheet (Philippas and Avdoulas, 2021). In this regard, it is important to keep in mind that it is needed that all investors must know the way to read and analyze the balance sheet. Reason or insight might be provided through the balance sheet for making investments in stocks.
2.2 Figures on the balance sheet meant to the company
In the form of a document for reference, the presence of a balance sheet is noticed for other stakeholders, and investors to get an idea related to the health of finance of an organization, and in this regard, the company is LCCA (Moll and Yigitbasioglu, 2019). Current liabilities and assets are compared through the use of the balance sheet to determine the liquidity of the business and to calculate the rate at which the return is generated by the company. This is meant the balance sheet to the different stakeholders.
Component 2: Quiz ratio calculations
Task 1: Financial ratios
a) Ratio calculation for the social enterprise wing of LCCA
Figure 5: Ratio analysis of Social Enterprise Wing of LCCA
(Source: Self-created in MS Word)
The image that is shown above is related to the ratio analysis of the social enterprise wing of LCCA for 2023. In this image, the value of the gross profit margin is determined at 72.5. The net profit margin is determined at 18. 0.39962 is the current ratio value of this company (Palmié et al. 2020). The value of the asset test ratio of this company is 0.03752. 0.36 is the value of ROCE or Return on capital employed, and 0.40594 is the value of the gearing ratio. [Referred to appendix 2]
b) Comparison analysis and interpretation of the results of the ratio with the average ratio of the past year for the similar LCCA service that is existing
Figure 6: Comparison analysis and interpretation of the results of the ratio with the average ratio of the past year for the similar LCCA service that is existing
(Source: Self-created in MS Word)
From the image above it is understood that the LCCA’s past average of Gross profit margin was 15%, and the project ratio is 72.50%. The difference between these two values is 57.50%. The past average of net profit margin of this company was 10%, and in the projected ratio it has increased to 18% (Wójcik and Ioannou, 2020). From the previous value, it is the increased value by 8%, and it is the difference among them. The current ratio of this company in terms of past average was 3, and the projected ratio in this regard is 40 (Mhlanga 2020). From the previous value, it is an increase of 37%. The Acid Test Ratio’s past average was 1.5, and in the projected ratio it increased by 2.50. The past average of return on capital employed was 25%, and in the projected ratio it increased to 36%. From the previous value, it is an increase of 11%. The past average of gearing ratio of this company was at 30%, and in the projected ratio the value of this ratio has increased to 41%. From the previous value, it is an increase of 11%.
From the above discussion, it is understood that in the favor of this business or company, the above-mentioned ratios are present.
Among these ratios, the possible reasons for the differences are a decrease, and increase in the assets, a fall and rise in the liabilities of the business, and in the flow of cash changes that are happening frequently.
Through the analysis of the ratios, and determining their differences from the previous year provides major insights regarding the efficiency, liquidity, profitability, and many aspects of the company (Putra 2019). Over the years the way the performance is provided by the company is determined through the ratios. This is meant for the overall performance of the company.
For possible solutions can be made to improve the ratios of this company, and to improve performance of this company the steps that need to be followed are controlling overhead expenses, the cycle of payment changes, in the credit by putting the focus, and doing the visit again to the obligations of debt.
For the improvement of the ratios of this company and the performance of this company, it is recommended to do the submission of the invoices early. The assets that are not needed must be eliminated, overhead expenses need to be controlled, and negotiating for the longer cycle of payments. [Referred to appendix 1]
2.0 Conclusion
From the discussion above the conclusion is made that the performance of finance of LCCA has turned into a better position than the previous year, and because of this, every ratio of this company has increased. The present position of finance of this company is also determined through the income statement, balance sheet, and trial balance. From that, it is determined that this company is present in a favorable, and better position.
Reference list
Journals
- Mhlanga, D., 2020. Industry 4.0 in finance: the impact of artificial intelligence (ai) on digital financial inclusion. International Journal of Financial Studies, 8(3), p.45.
- Moll, J. and Yigitbasioglu, O., 2019. The role of internet-related technologies in shaping the work of accountants: New directions for accounting research. The British accounting review, 51(6), p.100833.
- Mosteanu, N.R. and Faccia, A., 2020. Digital systems and new challenges of financial management–FinTech, XBRL, blockchain and cryptocurrencies. Quality–Access to Success, 21(174), pp.159-166.
- Palmié, M., Wincent, J., Parida, V. and Caglar, U., 2020. The evolution of the financial technology ecosystem: An introduction and agenda for future research on disruptive innovations in ecosystems. Technological forecasting and social change, 151, p.119779.
- Philippas, N.D. and Avdoulas, C., 2021. Financial literacy and financial well-being among generation-Z university students: Evidence from Greece. In Financial Literacy and Responsible Finance in the FinTech Era (pp. 64-85). Routledge.
- Putra, Y.M., 2019. Analysis of factors affecting the interests of SMEs using accounting applications. Journal of Economics and Business, 2(3).
- Sangster, A., Stoner, G. and Flood, B., 2020. Insights into accounting education in a COVID-19 world. Accounting Education, 29(5), pp.431-562.
- Saud, S., Chen, S. and Haseeb, A., 2020. The role of financial development and globalization in the environment: accounting ecological footprint indicators for selected one-belt-one-road initiative countries. Journal of Cleaner Production, 250, p.119518.
- Wójcik, D. and Ioannou, S., 2020. COVID?19 and finance: market developments so far and potential impacts on the financial sector and centres. Tijdschrift voor economische en sociale geografie, 111(3), pp.387-400.
