Understanding Balance Sheet, Profit, Cash Flow Essay.

What is Balance sheet and its importance?

Answer the following questions. All answers should be between 80-150 words.
a. What is a balance sheet?
b. In general, what type of information would you include in a financial report?
c. What is the difference between profit and cash flow?
d. Why is it important for organisations to properly maintain daily financial records?
e. Suggest 10 areas of financial information and reports that can be used to monitor business
performance.
Task 2
Categorise the following accounts into assets, liabilities, owner’s equity, revenue or expenses
Rent Paid
Sales of Tours
Motor Vehicle
Motor Vehicle Expense
Interest Received
Loan from ABC Pty Ltd
Task 3
With the information listed below please complete the profit and loss statement for the year 2016. In
2017 all the amounts are set to increase by 15% please complete the profit and loss statement for 2017.
Then answer the questions below.
Bank charges $987 Rent $96,000
Office Supplies $2,489 Sales $379,500
Purchases $128,259 Service Income $25,987
Freight $1,258 Advertising $11,650
Electricity $9,896 Insurance $12,250
Wages $85,000 Telephone $5,982
a. How much was earned in sales this year?
b. Was more or less spent on advertising this year compared to last year?
c. What is the total administrative expense for this year?
d. Has the organisation performed better or worse than last year?
e. What is the cost per unit for last year and this year if they sold 50,000 units?
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Task 4
Calculate the averages and variances
SAM'S TRAVEL AGENCY
EXPENDITURE
EXPENSE Jan Feb Mar Apr May Jun
Stationary 165 168 157 173 160 172
Electricity 175 179 166 184 170 182
Telephone 148 151 141 155 144 154
Courier 121 123 115 127 117 126
Internet 135 138 128 142 131 140
Subscriptions 120 122 114 126 116 125
Brochures 119 121 113 125 115 124
Printing 152 155 144 160 147 158
Petty Cash 141 144 134 148 137 147
Rental of equipment 123 125 117 129 119 128
/3 marks
Month Average expenditure
January
February
March
April
May
June
If the budgeted expenditure per month is $900.00 what is the % variance from the budgeted expenditure for each
month’s actual spend? /3 marks
Month Average expenditure
January
February
March
April
May
June
If you were the Finance Manager for Sam’s Travel Agency which months would recommend need to further
investigated and why?
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Task 5
Jane’s Restaurant has 175 seats with daily seat turnover of 1.2 and an average check of $17.00 and is
open 6 days a week. The business operates 52 weeks in the year. Next year the average check is
forecast to increase by 25%.
What will next year’s sales budget be?
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Finance 1 Assessment Task 2, v1.0
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REQUIREMENTS AND DELIVERABLES
1.What To Submit:
• Hard copy of the complete Written Assessment with cover pages.
2.When To Submit:
• Assessment is due on the 13th March 2018.
3.Performance/Submission Standards:
• Assessment Cover Page
Part 1: Provide a quality service experience
1. Task 1 Answer all questions (20 marks)
2. Task 2 Categorise Accounts (2 marks)
3. Task 3 Questions and Profit & Loss (15 marks)
4. Task 4 Averages and Variances (10 marks)
5. Task 5 Sales Budget (3 marks)
Formatting:
• Number all pages at the bottom of the page
• Use 1.5 line spacing
• Use Arial font, size 12
• Have a line space between paragraphs
• Stapled 

1. Balance sheet

It is also known as statement of financial position that reflects the true and fair view of a company’s financial position in the market. It is a statement that shows the balances of the assets, liabilities and capital of a business reported at the end of a fiscal year. Balance sheet reflects the capital structure of the firm and provides an idea about the company’s equity and debt financing.[1] The fundamental equation of a balance sheet is:

Assets = Liabilities + Equity

The statement is prepared at the end of every fiscal year along with other financial statements. It is used by investors, shareholders, creditors and many other users to critically evaluate the financial position of a company.

1. Financial reporting

Generally, following information is included while preparing financial reports of an organization:

• The financial statements that include cash flow statement, Profit and loss account, statement of financial position and changes in equity. .
• Notes to above financial statements are been disclosed in the financial report along with the presentation of such accounts.
• Media releases and announcements related to quarterly earnings.
• Quarterly and annual reports provided to shareholders
• Prospectus related to the issuance of public offering.
• Analysis and discussion done by management[2]

All the above information are contained in a company’s financial report prepared by the auditors and related expertise individual.

1. Difference between profit and cash flow

Profit is the excess amount of income over the expenses. It is basically the amount calculated by subtracting all the expenditure from the total income earned during a fiscal year. In other words, it is a financial gain or benefit derived when the total revenue exceeds the expenses, costs and taxes paid during the year.

Cash flow is the inflow and outflow of the cash in the business. It is generated from the three activities named as operating, financing and investing activities. It reflects the solvency and liquidity of the firm and shows the manner in which the cash is been utilized in the business.[3]

However, both the terms are different from each other in many ways. A company can have shortage of cash even after having large profits. The situation can be vice versa.

Maintenance of daily financial records

It is very important for the companies to maintain their daily financial records in order to run a successful business and gain a strong position in the market. Following are the reasons for maintaining daily financial records:

• The records or reports help in knowing the financial situation of the business. By looking at them or analysing them, one can clearly identify that whether the business is making money or losing it. It tells about the position of cash in the business used for paying the short term financial obligations.
• They help in establishing control over the business activities. Adequate inventory level can be set and the credit offer provided by the supplier can be checked with help of the accounting or financial records.
• Keeping the books up-to-date is a symbol of good financial health of an organization. It helps in properly managing the business cash flow and obtaining best prices from the suppliers and lenders.[4]
• Another reason is that these records help in meeting the tax obligations. Good financial records are essential for reporting income tax returns with the designated authorities. Absence of the records may lead to over paying and under paying of the taxes.
• Apart from the above, financial records assist in taking important decisions regarding the business and its future growth.

1. Areas used for monitoring business performance

There are various areas of financial reporting or information used for measuring the performance of the business or entity. They are as follows:

1. Use of basic financial statements which includes balance sheet and income statement
2. Several calculated financial ratios.
3. Fund flow and cash flow statement.
4. Analysing inventory and debtor records
5. Overheads and expenses analysis.
6. Competitive analysis.
7. Dividend and share price history.
8. Annual or quarterly basis reports submitted to the stakeholders
9. Announcements made by the company which impacted its financial results to a great extent.
10. Compliance with corporate social responsibility. [5]

Task 2

Task 3

473. In 2017, the profit and Loss account reported a profit of $59,473.40
474. As compare to 2016, advertising expenses increased to $13,397.50 from $11,650. More is been spend on them this year.
475. The administrative expenses comprises of rent, insurance, office supplies, wages, and telephone, electricity and bank charges. The total of all these expenses amounted to $ 244,494.60 in year 2017.
476. The organization has performed better in 2017 as compared to 2016. Despite being having 15% increase in the cost, the firm manages to increase its profits by the same percentage. Revenue increases, profit increases; covering up all the costs.
477. If 50, 000 units are to be sold for the two years, then the cost per unit for 2016 will be $7.08 and for 2017, it will be $8.14.

Task 4

If the budgeted expenditure for each month is $900, then the variances are calculated as follows

It can be seen that in every month, the actual average expenditure is very much lower than the budgeted expense of $900 per month. According to the report, March and May has the lowest expenditure average. Among these two, the month having least expenditure is March with $132.90. As per this, March should be investigated more deeply in order to find out the reason of the 85% variance and reasons for low expenditure.

Task 5

Sales budget for the restaurant  

Number of customers = Daily seat turnover X Number of seats[6]

The average check for the restaurant was $17.00 in the year and for the coming year, it is forecasted to increase by 25%. The sales budget for the next year will be as follows:

Notes:

• It is assumed that the number of customers will remain the same in the next year.
• The yearly revenue is calculated by multiplying weekly revenue with 52 weeks.
• Daily revenue is multiplied by the number of days a restaurant operates in order to calculate the weekly sales.
• The restaurant operates 6 days in a week having 175 seats in total.

Gibson C.H, Financial reporting and analysis (13^thedn, South-Western Cengage Learning, 2011)

GuildingC, Accounting essentials for hospitality managers (3^rdedn, Routledge, 2014)

Ittelson TR, Financial statements: A step-by-step guide to understanding and creating financial reports (Red Wheel/Weiser 2009)

Lind P, Monitoring Business Performance: Models, Methods, and Tools (Routledge, 2014)

Moran J, Business management for tropical dairy farmers (Landlinks Press, 2009)

Tracy J.A, Accounting for dummies (John Wiley & Sons, 2016)

[1] Thomas R Ittelson, Financial statements: A step-by-step guide to understanding and creating financial reports (Red Wheel/Weiser 2009).

[2]Charles H Gibson, Financial reporting and analysis (13^thedn, South-Western Cengage Learning, 2011).

[3] John A Tracy, Accounting for dummies (John Wiley & Sons, 2016).

[4] John Moran, Business management for tropical dairy farmers. (Landlinks Press, 2009).

[5] Per Lind, Monitoring Business Performance: Models, Methods, and Tools (Routledge, 2014).

[6] Chris Guilding, Accounting essentials for hospitality managers (3^rdedn, Routledge, 2014).