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Summary Report: Financial Statements
1
Summary Report: Financial Statements
Nicole Keramedjian
Southern New Hampshire University
Summary Report: Financial Statements
2
Introduction
This report contains the summary of financial information about the company regarding its financial health and performance during the period of June 1
st
- June 30th. The related accounting workbook is made up of multiple different sections/steps that include, the general journal, ledger accounts, trial balance, income statement, statement of stockholders equity, balance sheet, and closing entries, which make up the accounting process. The following report will analyze the profitability of the company and allow management to make meaningful financial decisions in regards to the protection of company assets and accurate company financial data. Process
The accounting process can be broken down into multiple steps beginning with
transactions being analyzed and recorded in the journal. This is done through recording the
debits and credits to the asset, liability, equity, revenue, and expense accounts. It is important to
note that debits must always equal credits, which holds true here the debit and credit column
both equal $110,230. Next these transactions are posted to the ledger accounts to aid in creating
the trial balance and future financial statements. A trial balance can be described as a summary
of the titles and balances of accounts in the ledger to further verify that again debits equal credits.
Altogether this presents the basis in creating the income statement, balance sheet, and statement
of stockholders equity. The income statement provides information regarding the revenues and
expenses and help determine a company’s net income or loss. In this companies case they end up
on June 30
th
with a net income of $2,565 after expenses. This financial statement will help
determine both the health and performance of the company. Next, is the statement of
stockholders equity which determines the change in stockholder’s equity for the period of time.
Summary Report: Financial Statements
3
This is reported before creating the balance sheet because the common stock and retained
earnings found on the statement of owners equity appears at the end of the balance sheet. In other
words the statement of owners’ equity acts as a connecting link between the two financial
statements. The balance sheet is then created which is also commonly called the report form. The
balance sheet reports the assets followed by the liabilities and owners equity, with assets always
equaling liabilities plus owners’ equity. The following accounting process and its information
can be used to determine the company’s liquidity. Thus information can be beneficial when
assessing risks for new long term investments. Financial Statement Analysis
Overall the cash position of the company is in great standing with total current assets equaling $62,295 and cash making up $50,650 of that total. To determine the cash position of the
company we can take cash and divide it by the total current assets and then multiply the result by
100 to receive the result of 91.3% of assets in cash. Next, we can determine the net income as a percentage of sales by taking the net income $2,565 and dividing it by the service revenue $5,525 and then multiplying the result by 100 to receive the result of 46.4%. Lastly, we need to review the liquidity of the company through assessing the current ratio which is calculated by dividing current assets by the current liabilities. It is important to note that a company with a ratio that exceeds 1.0 has the financial assets to meet its current needs. Referring back to the company accounting workbook the current assets are $62,295 and the current total liabilities are $25,480 which gives the current ratio 2.4. This is a good indicator that the company is in good health and is highly capable of paying short-term liabilities. Overall, this provides the information to the company that they are financially stable and capable of handling short term debts and as they continue to grow they may be able to take on a new long term/fixed asset.
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Summary Report: Financial Statements
4
Internal Controls
A simple system of controls that can be implemented to ensure protection of the company’s assets as well as accurate and honest financial data as they continue to grow would include numerous different factors. As discussed throughout the course it is crucial to separate duties within a company to ensure accurate and honest information is reported. To continue there also needs to be monitoring of employees and as well as security measures for certain financial information. The company should partake in through bookkeeping of records that may be subject to surprise checks by higher management. Furthermore, this is a team effort and someone will always be checking another company members work. The company will ensure that one person is not in charge of multiple steps of computing financial information for the company. With that said, this type of information should only be trusted in hands of authorized employees who have access to the location of this information. For example, the company can implement procedures such as security measures for file rooms and strong passwords for digital security. Additionally, there are controls that may support in the adding of merchandise and additional assets as the company continues to grow and expand. If the company is to acquire a new long term asset management will need to review restrictions and put security measures in place to protect themselves from any new risks they may face. So, the company needs to conduct
risk assessments to asses any new risks that may arise. Altogether, simple systems of internal control such as internal audits may benefit the company or organization as well as add value. Looking to the Future
When looking at the balance sheet there are both current and long term assets. As we learned in the course current assets are assets that can easily be turned into cash such as accounts
Summary Report: Financial Statements
5
receivable and inventory and long term assets usually include property, plant, and equipment, which include things like buildings and land. When it comes to long term assets things like the building and the land will often need to undergo maintenance and repairs. These actions will need to then be recorded somehow as depreciation. When recording depreciation on an asset we determine the value lost on the asset. The first method of depreciation to discuss is through the straight line method which is computed by taking the cost minus the residual value divided by the useful life. The next method of depreciation that can be used is the units of activity method which is a two-step process. First the company needs to determine the depreciation per unit which is the cost minus the residual value divided by the total estimated units of activity. Second the depreciation expense is determined by taking the depreciation per unit and multiplying it by the units of activity for period. The LIFO and FIFO and average methods will differ, as the FIFO method works off of the assumption that the first unit purchased is the first unit sold, and the LIFO method that the last items purchased are sold and the inventory is the first purchased items. There is also the average inventory cost method that reflects an average cost of all items bought during the period.
FIFO methods are often used in situations where there are perishables, LIFO methods are more often seen with raw materials that are not perishable, and average cost methods apply to inventories that are large and similar such as gas stations. Overall, the average cost method proves to be most beneficial in effectively determining a company’s financial situations and allow for informed decisions. Moreover, this method allows for a company to maximize their profits, minimize the costs, remain competitive, while growing and expanding.
Summary Report: Financial Statements
6
References:
Warren, Carl S., Jones, Jefferson P. (2019). Corporate financial accounting
(15th ed.). United States: Cengage Learning. https://ng.cengage.com/static/nb/ui/evo/index.html?
eISBN=9781337398220&snapshotId=693963&id=260125087&
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Complete this question by entering your answers in the tabs below.
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Stmt
Req B Ştmt of Reg B Bal
Chabges
Req A
Sheet
Prepare a statement of changes in stockholders' equity dated December 31, Year 1, for Mijka Company.
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Total Assets
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