The main purpose of the assignment is to analyze the financial statement which are prepared by the business for the month of May. The business for which the financial statements are to be prepared is Rohit Gauchan Company which is engaged in the business involving trading of socks. The financial statements are prepared for a period ending 31st May and for the same the business passes journal entries for all the transactions the business was involved in during the month. In addition to this, the business passes ledger accounts on the basis of which Trial Balance is prepared by the business. The financial statements which are prepared for the company for the month is shown in the appendix at the end of the assignment.
Analysis of the Financial Statements
The transactions which are recorded which are recorded in the ledger accounts are used for preparing the trial balance of the business. The main purpose of the trial balance which is prepared by the company is test the numerical accuracy of the entries and their figures which have been recorded in the books of accounts of the company (Karaninak, Bykova and Ilysheva 2014).
As per the trial balance of the company which is shown in the appendix sections shows that the trial balance is prepared according to the accounting rules and in addition to this, the trial balance matches which shows that there is no error in trial balance. The trial balance shows all expenses, income, assets and liabilities of the business at the end of the month. The sales of the business which is generated is shown in both Trial Balance and Profit and loss account and the same is shown as $ 9,829 for the month. The major expenses of the business which is directed related to the product is the cost of good sold which is shown in the trial balance as well as the income statement is $ 5,932. The expenses are directly related to the production of the products which is sold by the company. The trial balance of the business shows that debit and credit side of the trial balance matches itself and the total figure is shown to be $ 566,660 for the month.
The profit and loss account of any business shows the profit or loss which the business can generate during the period and the statement shows all the income and expenses which the business earns and incur during the month (Madu 2013). In the case of the company, the profit and loss account show numerous expenses which are incurred by the business during the month. The major source of income for the business is through the sales of socks and the company also earns side income which is related to interest income which is shown to be $ 706. The interest income which the business earns is related to the investments which the business has made and the investments is shown in the balance sheet of the company (Robinson et al. 2015). The expenses for more vivid presentation is shown in a pie chart below which reflects the operating expenses of the business during the month.
Figure 1: (Pie Chart Showing Expenses of the Company for the Month of May)
Source: (Created by Author)
As per the pie chart which is shown above, the major portion of the operating expenses is made up of rent which is considered to be fixed expenses for the company. The amount of rent which the business pays during the month is shown to be $ 4,545. The second major expense which the operating expenses for the month consist of is interest expenses which is shown to be $ 2,042 for the month. This expense arises due to the loan which the business has undertaken and the same is shown in the balance sheet of the company (Levy 2014). The interest expense is major expense for the business and the expenses is related to the debt servicing for the month. The other expenses which is shown in the profit and loss account are depreciation and Motor vehicle expenses which is shown to be $ 306 and $ 531 respectively. Due to the increased expenses of the business, the company has incurred a loss which is shown as $ 2,822 for the month. This is not a positive sign and the business can improve the same by reducing the operating expenses of the company. The operating expenses forms the major part of the expenses of the business.
The main purpose of preparing the Balance sheet of the company is show the financial position of the business for the month of May (Boeckx, Dossche and Peersman 2014). The balance sheet of the company is reflection of the financial position in terms of the assets and liabilities which the business possesses during the end of the month. In order to present the current assets of the company in a better manner, a bar diagram is developed portraying the same which is shown below:
Figure 2: (Chart Showing Current Assets of the Company for the Month of May)
Source: (Created by Author)
As per the graph which is shown above, the current assets of the company is shown which depicts that the expenses which are of prepaid nature are incurred more during the month and therefore both prepaid advertisement and prepaid rent is shown to be $ 22,727.27. The bank balance is also shown to be favorable during the month which is shown to be $ 446,140.78 (Bobryshev et al. 2014). The total equity of the business is shown to be $ 200,000 which represents the owner’s capital less the amount of loss which is incurred by the business during the month. The total of the assets side is shown to be $ 546,344.85. The fixed assets of the business comprise of Motor Vehicles and Office furniture (Damar, Meh and Terajima 2013). The liabilities side also matches the assets side which is as per the matching concept in accounts.
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